<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996
REGISTRATION NO. 333
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
KAPSON SENIOR QUARTERS CORP.
(Exact name of Registrant as specified in its charter)
--------------------------
<TABLE>
<S> <C> <C>
DELAWARE 8361 11-3323503
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
--------------------------
242 CROSSWAYS PARK WEST
WOODBURY, NEW YORK 11797
(516) 921-8900
(Address, including zip code, and telephone number, including area code,
of Registrant's principal executive offices)
GLENN KAPLAN
242 CROSSWAYS PARK WEST
WOODBURY, NEW YORK 11797
(516) 921-8900
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
--------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
ARNOLD J. LEVINE, Esq. WILLIAM F. GORIN, Esq.
Proskauer Rose Goetz & Mendelsohn LLP Cleary, Gottlieb, Steen & Hamilton
1585 Broadway One Liberty Plaza
New York, New York 10036 New York, New York 10006
(212) 969-3000 (212) 225-2000
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVENESS OF THIS REGISTRATION STATEMENT.
--------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same
offering. / / _____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / / _____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
Common Stock, par value $.01........... 4,082,500 $14.00 $57,155,000 $19,709
</TABLE>
(1) Includes 532,500 shares subject to over-allotment options granted to the
Underwriters.
(2) Estimated solely for the purposes of calculating the registration fee.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
SUCH DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET
(PURSUANT TO ITEM 501(B) OF REGULATION S-K)
<TABLE>
<CAPTION>
ITEM NUMBER OF FORM S-1 AND TITLE OF ITEM PROSPECTUS CAPTION
- -------------------------------------------------------------- --------------------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside Outside Front Cover Page
Front Cover Page of Prospectus....................
2. Inside Front and Outside Back Cover Pages of Inside Front Cover Page; Outside Back Cover Page
Prospectus........................................
3. Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors
Earnings to Fixed Charges.........................
4. Use of Proceeds.................................... Prospectus Summary; Risk Factors; Use Of Proceeds
5. Determination of Offering Price.................... Underwriting
6. Dilution........................................... Risk Factors; Dilution
7. Selling Security Holders........................... Principal and Selling Stockholders
8. Plan of Distribution............................... Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered......... Description of Capital Stock
10. Interests of Named Experts and Counsel............. *
11. Information with Respect to the Registrant......... Prospectus Summary; Risk Factors; Use of Proceeds;
Capitalization; Dividend Policy; Selected Financial,
Operating and Pro Forma Data; Management's Discussions
and Analysis of Financial Condition and Results of
Operations; Business; Management; Certain Transactions;
Principal and Selling Stockholders; Description of
Capital Stock; Shares Eligible for Future Sale;
Additional Information; Financial Statements
12. Disclosure of Commission Position on *
Indemnification for Securities Act Liabilities....
</TABLE>
- ------------------------
* Item is inapplicable or the answer thereto is in the negative and is omitted
from the Prospectus.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY STATE.
<PAGE>
PROSPECTUS
[LOGO]
3,550,000 SHARES
KAPSON SENIOR QUARTERS CORP.
COMMON STOCK PAR VALUE $.01
All of the 3,550,000 shares of Common Stock, par value $.01 (the "Common
Stock"), offered hereby are being sold by Kapson Senior Quarters Corp. (the
"Company").
Prior to this offering (the "Offering"), there has been no public market for the
Common Stock. It is currently anticipated that the initial public offering price
will be between $12.00 and $14.00 per share. See "Underwriting" for a discussion
of the factors considered in determining the initial public offering price.
The Company has applied for quotation of the Common Stock on the Nasdaq National
Market under the symbol "KPSQ".
SEE "RISK FACTORS" ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS OF THE COMMON STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THE OFFERING, ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY(1)
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total(2)................................... $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting expenses payable by the Company, estimated at $ .
(2) The Company and certain selling stockholders (the "Selling Stockholders")
have granted the Underwriters a 30-day option to purchase up to an aggregate
of 532,500 additional shares of Common Stock at the Price to Public, less
the Underwriting Discount, solely to cover over-allotments, if any. If the
Underwriters exercise such option, in full, the Price to Public,
Underwriting Discount, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ , and $ ,
respectively. See "Underwriting" and "Principal and Selling Stockholders."
The Shares of Common Stock are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the shares of Common Stock will be made at the
office of Salomon Brothers Inc, Seven World Trade Center, New York, New York, or
through the facilities of The Depository Trust Company, on or about
, 1996.
SALOMON BROTHERS INC
RAYMOND JAMES & ASSOCIATES, INC.
WHEAT FIRST BUTCHER SINGER
The date of this Prospectus is , 1996.
<PAGE>
KAPSON SENIOR QUARTERS CORP.
Assisted Living Facilities Location Map
A LEADING PROVIDER OF ASSISTED LIVING SERVICES
IN THE NORTHEASTERN UNITED STATES.
[B]
Map of Northeastern United States identifying facility locations
[Photo] [Photo]
Photographs (2) of residents at Company facilities involved in yearly Kapson
Senior Games (yearly activity for residents) tagline "Celebrating the Kapson
Senior Games"
------------------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE- COUNTER MARKET
(INCLUDING THE NASDAQ NATIONAL MARKET) OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, APPEARING
ELSEWHERE IN THIS PROSPECTUS. INVESTORS SHOULD CAREFULLY CONSIDER THE
INFORMATION SET FORTH UNDER "RISK FACTORS." UNLESS THE CONTEXT OTHERWISE
REQUIRES, REFERENCES IN THIS PROSPECTUS TO THE "COMPANY" REFER TO KAPSON SENIOR
QUARTERS CORP., ITS CONSOLIDATED SUBSIDIARIES AND ITS PREDECESSOR. EXCEPT AS
OTHERWISE NOTED, THE INFORMATION IN THIS PROSPECTUS ASSUMES NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION. THE INFORMATION CONTAINED IN THIS
PROSPECTUS GIVES EFFECT TO CERTAIN TRANSACTIONS TO BE CONSUMMATED PRIOR TO OR
SIMULTANEOUSLY WITH THE CLOSING OF THE OFFERING.
THE COMPANY
Kapson Senior Quarters Corp. (the "Company") is one of the largest providers
of assisted living services in the United States and has owned, managed and/or
operated assisted living facilities since 1972. Assisted living facilities
provide a residential alternative for elderly senior citizens who need or desire
assistance with their activities of daily living and certain home health care
services in a non-institutional environment. A majority of the Company's
assisted living facilities are operated under the "Senior Quarters" tradename,
through which the Company believes it is widely recognized in the northeastern
United States as a leading provider of assisted living services.
The Company's operating philosophy is to provide services and care which
meet the individual needs of its residents, and to enhance their physical and
mental well-being, thereby allowing them to live longer and to "age in place."
The Company's facilities are designed to provide premium accommodations and a
comprehensive, bundled package of standard services for a single monthly fee.
These facilities offer, on a 24-hour basis, personal, supportive and home health
care services appropriate for their residents in a home-like setting, which
allow residents to maintain their independence and quality of life. Furthermore,
many of the Company's facilities, through its Extended Care Program, also offer
additional specialized care and services to residents in the beginning stages of
Alzheimer's disease, dementia and other cognitive impairments. At May 31, 1996,
the average monthly fee for standard services at the Company's facilities was
approximately $2,980 per unit.
The Company owns, manages and/or operates 15 assisted living facilities with
an aggregate of 1,623 units and a capacity for 2,392 residents, located in New
York, New Jersey, Connecticut and Pennsylvania. Of these facilities, the Company
owns all or a portion of eleven facilities with an aggregate of 1,145 units and
a capacity for 1,749 residents. In addition, the Company currently has under
development seven assisted living facilities in these states with an expected
aggregate of 817 units and a capacity for 1,015 residents. At May 31, 1996, the
Company's facilities that were stabilized (in operation for at least twelve
months) had a weighted average occupancy rate of 98.3%, with many of them
maintaining waiting lists. Furthermore, such facilities have operated at a 98.0%
occupancy rate for the past three calendar years. Management attributes its
success in maintaining high monthly fees and occupancy levels to a number of
factors, such as the premium nature of its facilities; the comprehensive
bundling of standard services as part of a single package and the quality of
those services; referrals from former residents, their families and health care
professionals; and the long tenure and low turnover of its staff, which produces
strong relationships with the residents and their families.
The Company believes that it is distinguished from typical providers of
assisted living services by the following:
- A pioneer in assisted living in the northeastern United States since 1972,
and the preeminent provider of assisted living services in the State of
New York, the state with the second highest elderly population in the
United States
3
<PAGE>
- Well-positioned to capitalize on the considerable growth opportunities in
the assisted living industry presented by strong demographic trends,
cost-containment initiatives, long-term care facility supply and demand
imbalances, and quality of life advantages over skilled nursing facilities
- Assisted living facilities that are designed to provide premium
accommodations and a comprehensive bundled package of standard services
for a single monthly fee
- Focus on "private-pay" residents, for whom services are paid from private
funds or through private insurance
- Larger facilities, with a prototype facility consisting of 125 units and a
capacity for 200 residents, that result in cost-efficiencies and
higher-than-average operating margins
- Three senior executives with combined experience of over 50 years in the
assisted living business and a management team (the members of which have
on average been with the Company for approximately 10 years) with the
demonstrated ability necessary to (i) support growth on a regional and a
national level, (ii) operate assisted living facilities in the State of
New York (traditionally one of the states in which assisted living is most
heavily regulated), and (iii) obtain licensure for and operate licensed
home health care services agencies so as to enable the Company to provide
home health care services at many of its facilities
The Company's growth strategy focuses on the expansion of its existing
portfolio through the development, acquisition and conversion of additional
assisted living facilities, the expansion of its ancillary services, including
home health care, in-house pharmacy services and its Extended Care Program, as
well as maintaining its focus on cost-efficient facilities management. The
Company's primary focus is the northeastern United States, where it intends to
maintain its position as a leading full-service assisted living provider. In the
future, the Company will continue to seek out additional opportunities in other
regions of the United States on a selective basis. Since 1985, the Company has
developed ten assisted living facilities and acquired all, or an interest in,
three others. The Company anticipates that, by utilizing its infrastructure and
assisted living experience, it will develop or acquire an additional 30
facilities containing 3,500 units with a capacity for 4,100 residents by the end
of 1999.
The Company believes its assisted living business benefits from the
following significant demographic trends, cost-containment initiatives, and
long-term care facility supply and demand imbalances: (i) the continued aging of
the United States population, which is resulting in increasing demand for care
of the elderly; (ii) the changing family dynamics which increase the likelihood
of families utilizing the assisted living alternative; (iii) the increased net
worth of the elderly and their increased ability to pay for such care; and (iv)
a general effort to contain health care costs by governmental authorities,
private insurers and managed care organizations by limiting lengths of stay,
services and reimbursement amounts.
The Company was formed in order to consolidate and expand the assisted
living facility business of The Kapson Group, a New York general partnership of
which the sole equal partners are Glenn Kaplan, Wayne Kaplan and Evan Kaplan,
who are brothers (collectively, the "Kaplans"). The Kaplans are the three senior
executive officers of the Company and, after giving effect to the Offering, will
own approximately 53.9% of the outstanding shares of the Company's Common Stock
(48.8% if the Underwriters' over-allotment option is exercised in full). While
the Company has an ownership interest in substantially all of its facilities, in
order to comply with applicable New York law and regulations prohibiting the
operation of certain types of adult care facilities by a for-profit corporation,
substantially all of the Company's New York facilities are operated by the
Kaplans individually. As licensed operators, the Kaplans have site control over
substantially all of the Company's New York facilities, and have personal
liability for all obligations arising out of the operation of these facilities.
With respect to such facilities, the Kaplans have engaged a wholly owned
subsidiary of the Company to perform the day-to-day operations of the facilities
in a manner that the Company believes is consistent with New York law and
regulations.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered.............. 3,550,000 shares (1)
Common Stock outstanding after the
Offering......................... 7,700,000 shares (1)(2)
Use of Proceeds................... The Company will use the net proceeds of the Offering
for the development and acquisition of assisted living
facilities (including seven facilities currently in
various stages of development), to pay to the Kaplans
$6.0 million (the approximate tax liability expected to
be incurred by them from transactions pertaining to the
transfer of certain facilities to the Company), to pay
all real estate transfer and gains taxes arising from
these transactions (estimated at $400,000), working
capital and general corporate purposes.
Proposed Nasdaq National Market
Symbol........................... "KPSQ"
</TABLE>
- ------------------------
(1) Excludes 532,500 shares of Common Stock subject to the Underwriters'
over-allotment option granted by the Company and the Selling Stockholders.
The Company will not receive any proceeds from the sale of any shares by the
Selling Stockholders, which will occur only if the over-allotment option is
exercised. See "Principal and Selling Stockholders."
(2) Excludes 600,000 shares of Common Stock reserved for issuance and available
for grant under the Kapson Senior Quarters Corp. 1996 Stock Incentive Plan,
under which options to purchase 88,462 shares of Common Stock have already
been issued. See "Management -- 1996 Stock Incentive Plan."
5
<PAGE>
SUMMARY FINANCIAL, OPERATING AND PRO FORMA DATA
The following table sets forth certain historical financial and operating
data as of and for each of the three years ended December 31, 1995 and the three
months ended March 31, 1995 and 1996 for The Kapson Group (the "Predecessor")
and certain pro forma financial data and operating data as of and for the three
months ended March 31, 1996 and for the year ended December 31, 1995 for the
Company as described in footnote (1) below. The Predecessor represents a
combination of the businesses of partnerships, Subchapter S and limited
liability companies which as of March 31, 1996 consisted of five wholly owned
and one majority owned assisted living facilities, two facilities under
development in which the Predecessor owned a minority interest, and two entities
that provide managerial services to five related and five unrelated entities.
The businesses of the Predecessor are being acquired by the Company in
connection with the Offering. The financial data below should be read in
conjunction with and is qualified in its entirety by reference to the combined
financial statements of the Predecessor, including the notes thereto, and the
information in "Pro Forma Financial Information" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
-------------------------------------------- -----------------------------------
PREDECESSOR PRO FORMA PREDECESSOR PRO FORMA
------------------------------- ----------- -------------------- -------------
1993 1994 1995 1995 (1) 1995 1996 1996 (1)
--------- --------- --------- ----------- --------- --------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Assisted living revenues.............. $ 12,628 $ 13,349 $ 14,275 $ 17,828 $ 3,491 $ 3,873 $ 4,784
Management fees....................... 248 348 443 443 102 225 225
Other -- affiliates................... 112 57 45 -- 12 11 --
--------- --------- --------- ----------- --------- --------- -------------
Total revenues.......................... 12,988 13,754 14,763 18,271 3,605 4,109 5,009
--------- --------- --------- ----------- --------- --------- -------------
Operating Expenses:
Assisted living operating expenses.... 7,591 7,877 8,389 10,988 1,969 2,533 3,239
General and administrative............ 727 1,102 1,583 2,945 335 531 890
Depreciation.......................... 1,188 1,180 1,234 1,440 303 375 427
--------- --------- --------- ----------- --------- --------- -------------
Total operating expenses................ 9,506 10,159 11,206 15,373 2,607 3,439 4,556
--------- --------- --------- ----------- --------- --------- -------------
Operating income........................ 3,482 3,595 3,557 2,898 998 670 453
Interest expense, net................. (3,541) (3,487) (3,892) (4,806) (881) (1,108) (1,307)
Other income (expense), net........... (10) (1) (34) (30) 1 (4) (4)
--------- --------- --------- ----------- --------- --------- -------------
Income (loss) before minority interest
and extraordinary item................. (69) 107 (369) (1,938) 118 (442) (858)
Minority interest in net loss of
combined partnerships.................. -- -- 16 16 -- 51 51
--------- --------- --------- ----------- --------- --------- -------------
Income (loss) before extraordinary
item................................... (69) 107 (353) (1,922) 118 (391) (807)
Extraordinary Item...................... -- 4,399 -- -- -- -- --
--------- --------- --------- ----------- --------- --------- -------------
Net Income (loss)....................... (69) 4,506 (353) (1,922) 118 (391) (807)
Unaudited pro forma data:
Pro forma benefit (provision) for income
taxes (2).............................. 28 (1,803) 141 769 (47) 156 323
--------- --------- --------- ----------- --------- --------- -------------
Pro forma net income (loss)............. $ (41) $ 2,703 $ (212) $ (1,153) $ 71 $ (235) $ (484)
--------- --------- --------- ----------- --------- --------- -------------
--------- --------- --------- ----------- --------- --------- -------------
Pro forma net loss per share (3)(4)..... $ (.15) $ (.06)
----------- -------------
----------- -------------
Pro forma weighted average number of
common shares outstanding (3)(4)....... 7,700 7,700
----------- -------------
----------- -------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31,
MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Assisted living units owned, managed and/or operated (end of period)..... 661 661 862 661 1,085
Assisted living resident capacity (end of period)........................ 1,143 1,143 1,403 1,143 1,687
Weighted average occupancy of fully-stabilized assisted living
facilities.............................................................. 98% 98% 98% 98% 98%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
------------------------
PRO FORMA AS
ADJUSTED
1996 1996(1)(3)(4)
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............................................................. $ (4,790) $ 33,299
Total assets.......................................................................... 57,505 102,306
Long-term debt, excluding current portion............................................. 57,929 68,303
Partners'/stockholders' equity (deficit).............................................. (11,407) 26,149
</TABLE>
- ------------------------
(1) The pro forma statement of operations data for the year ended December 31,
1995 and the three months ended March 31, 1996 gives effect to (a) the
acquisition on April 1, 1996 by the Predecessor of the operations of Town
Gate Manor (Rochester, New York) and Town Gate East (Penfield, New York);
(b) operating fees payable to the Kaplans as operators for various New York
facilities, net of management fees payable to a subsidiary of the Company;
(c) compensation of the Kaplans and additional general and administrative
costs of operating as a public company; (d) the initial capitalization of
the Company; (e) the issuance of 4,150 shares of the Company's common stock
as consideration for the conveyance of facilities and interests therein and
(f) the elimination of net indebtedness and interest payable to an
uncombined affiliate of the Predecessor all as if the transactions had
occurred as of January 1, 1995. The pro forma balance sheet as of March 31,
1996 gives effect to these transactions as if they occurred on that date.
See "Pro Forma Financial Information."
(2) Includes a pro forma income tax adjustment for federal and state income
taxes to reflect the Predecessor as a C Corporation. See Note 2 to the
Combined Financial Statements of the Predecessor.
(3) Reflects the aggregate $6,400 distribution payable to the Kaplans to be
paid from the proceeds of the Offering which will be used primarily to
satisfy (i) the tax liabilities of the Kaplans expected to be incurred
pertaining to the transfer of the Predecessor interests in the facilities
to the Company ($6,000) and (ii) real estate transfer and gains taxes
arising out of the transaction estimated to be approximately ($400).
(4) Reflects the proposed issuance of 3,550 shares in connection with the
Offering.
7
<PAGE>
RISK FACTORS
Prospective investors should consider carefully the factors set forth below
together with the other information contained in this Prospectus before making a
decision to purchase the Common Stock.
CAPITAL REQUIREMENTS; PARTNERS'/STOCKHOLDERS' DEFICIT
At March 31, 1996, the Predecessor had Partners'/Stockholders' deficit of
$11.4 million and negative working capital of $4.8 million. After giving effect
to the receipt and application of the net proceeds of the Offering (assuming no
exercise of the Underwriters' over-allotment option and an initial public
offering price of $13.00) the Company's pro forma stockholders' equity would
have been $26.1 million. The Company believes that the proceeds of the Offering,
in conjunction with other financial resources, will be sufficient to fund its
growth strategy for 18 months. There can be no assurance that the Company will
not need to obtain additional financing prior to that time or that such
financing will be available, or available on terms acceptable to the Company,
particularly in light of the Company's anticipated net losses. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operation -- Results of Operations."
RECENT NET LOSSES AND ANTICIPATED NET LOSSES; NEGATIVE CASH FLOW
Newly developed assisted living facilities typically operate at a loss,
inclusive of financing costs, for five to seven months after completion. As a
result of the Company's development and construction of two facilities that
opened on September 1, 1995 and March 15, 1996, as well as the Company's
strategic decision to invest in management and facility development capabilities
to support future growth, the Company incurred a net income (loss) before
extraordinary items of ($391,000) for the three months ended March 31, 1996,
compared to $118,000 for the three months ended March 31, 1995, and ($353,000),
$107,000 and ($68,900) for the years ended December 31, 1995, 1994 and 1993,
respectively. The Company was not required and did not pay income taxes in these
years. On a pro forma basis, the Company would have incurred net income (loss)
of ($484,000) for the three months ended March 31, 1996 and ($1,153,000) for the
year ended December 31, 1995. In addition, for the three months ended March 31,
1996, net cash provided (used) by operations was ($2,457,000). See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Results of Operations." As a result of its development activities and plans, the
Company anticipates that it will incur a net loss for the balance of 1996.
Furthermore, if the Company continues to experience negative cash flow from
operations, or if it does not achieve its development objectives, or if newly
developed assisted living facilities do not achieve break-even operating results
within the time expected, or if development, or construction or operating
expenses exceed expectations, the Company's financial condition will be further
impacted. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Results of Operations."
INDEBTEDNESS AND OTHER OBLIGATIONS OF THE COMPANY
Upon completion of the Offering, the Company will have outstanding long-term
debt of $68.6 million. As a result, the Company's cash flow will continue to be
adversely impacted by debt service, and there is a risk that the Company may be
unable to generate sufficient cash flow from operations to cover required
interest and principal payments. If the Company were unable to meet interest or
principal payments in the future, there can be no assurance that sufficient
financing would be available to cover the insufficiency or, if available, the
financing would be on terms acceptable to the Company. In the absence of
financing, the Company's ability to make scheduled principal and interest
payments on its indebtedness or to respond to changing business and economic
conditions to fund scheduled investments, cash contributions and capital
expenditures to make future acquisitions or developments and to absorb adverse
operating results would be adversely affected. In addition, the terms of certain
of the Company's indebtedness have imposed, and may in the future impose,
constraints on the Company's operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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UNCERTAIN ABILITY TO ACHIEVE AND/OR MANAGE RAPID GROWTH
The Company intends to pursue a rapid growth strategy, the success of which
will depend upon a large number of factors, many of which are beyond the
Company's control. See "Business -- Growth Strategy -- Development and
Acquisition." At the present time the Company is a party to a limited number of
agreements related to specific facilities to be developed, and there can be no
assurance that these facilities will be successfully completed or that
additional facilities will be developed. Factors that will affect the success of
the Company's growth strategy include the Company's ability to locate suitable
sites, its ability to obtain appropriate zoning, land use, building, occupancy
or other governmental permits, authorizations, licenses and approvals, the risk
that construction may not proceed according to plan or that its cost may exceed
estimates, the risk that occupancy rates may not reach anticipated levels, and
risks relating to the competitive environment for development and/or
acquisitions. Furthermore, even if the Company were to develop or acquire new
facilities, its ability to achieve managed growth will be dependent upon a
number of factors, including its ability to hire, train and assimilate
management and other employees and its ability to adapt its purchasing,
management information and other systems to accommodate its expanded operations.
See "Business -- Growth Strategy -- Development and Acquisition." If the Company
is unable to implement its growth strategy successfully, of which there can be
no assurance, its business, financial condition, results of operations and
prospects could be adversely affected.
DISCRETIONARY USE OF PROCEEDS
A substantial portion of the net proceeds of the Offering is expected to be
used to partially finance the development and acquisition of facilities,
including the projects referred to elsewhere in this Prospectus that are
currently in various stages of development. At the present time, the Company has
not entered into binding contracts or other agreements, arrangements or other
understandings to develop or acquire any additional sites, and the Company will
continue to have broad discretion in identifying potential sites for development
and existing facilities for acquisition. Accordingly, the Company will have
broad discretion in using the net proceeds of the Offering. See "Use of
Proceeds" and "Business -- Growth Strategy -- Development and Acquisition."
DEPENDENCE ON SENIOR MANAGEMENT; OTHER PERSONNEL
The Company depends upon the continued services of Glenn Kaplan, its
Chairman and Chief Executive Officer; Evan Kaplan, its President and Chief
Operating Officer; and Wayne Kaplan, its Vice Chairman and Senior Executive Vice
President. The Company has entered into a five-year employment agreement which
is renewable automatically for successive one-year periods with each of these
individuals. See "Management -- Employment Agreements." The Company's dependence
on these three individuals is increased by the fact that, primarily because of
legal requirements in New York, substantially all of the Company's facilities in
New York are operated by the Kaplans individually. See "-- Operating Agreements;
Management Agreements" and "Certain Transactions." Accordingly, the loss of the
services of any of these three individuals could have an adverse effect on the
Company's business, financial condition, results of operations and prospects.
In addition, the Company competes with other providers of long-term care in
attracting and retaining senior management and other personnel responsible for
various management functions as well as the day-to-day operations of the
Company's facilities. The Company is dependent upon the available pool of such
personnel. A shortage of qualified personnel may require the Company to enhance
its wage and benefits package in order to compete. There can be no assurance the
Company's labor costs will not increase, or that, if they do increase, they can
be matched by corresponding increases in its revenues.
GOVERNMENT REGULATION
The health care industry is subject to extensive federal and state
regulation and frequent regulatory change. See "Business -- Government
Regulation." The Company's facilities are and will continue to be subject to
varying degrees of regulation by health and/or social service agencies and other
regulatory authorities in the various states and localities in which the Company
operates or intends to operate. The
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Company believes that it is in compliance with all applicable law and
regulations; however, there can be no assurance that such is the case. The
success of the Company will be dependent upon its ability to satisfy applicable
law and regulations and to procure and maintain required licenses and
registrations. Changes in applicable laws and regulations, or in the
interpretations thereof, could have an adverse effect on methods and costs of
doing business, and amounts of reimbursement from governmental and other payors.
Although a number of states have not adopted specific assisted living
regulations, in New York, where a majority of the Company's present facilities
is located, an array of statutes and regulations govern assisted living
facilities and the provision of home health care services in such facilities.
These laws include licensure restrictions that prohibit a for-profit corporation
from operating certain types of assisted living facilities (referred to herein
as "licensed facilities"). See "-- Operating Agreements; Management Agreements."
Such facilities include facilities that are designated by the State as Adult
Homes or Assisted Living Program facilities ("ALP facilities"). Accordingly, the
Company is not the licensed operator of any of its New York licensed facilities.
The Company believes that its management relationship with the licensed
operators complies with all applicable law and regulations, although it has not
sought or obtained any ruling from regulatory agencies to that effect. The
Company has been advised that regulations relating to licensed facilities in New
York are presently undergoing review, and the legislature recently established a
task force to study long-term care financing alternatives that may have a
significant effect on the Company's New York facilities. If existing law and
regulations were interpreted as, or amended with the effect of, prohibiting the
Company's management relationship with the licensed operators, there could be an
adverse effect on the Company's business, financial condition, results of
operations and prospects. See "-- Operating Agreements; Management Agreements."
As part of the Company's two ALP facilities, the Kaplans operate the Kapson
Licensed Home Care Services Agency, a partnership that is licensed in some New
York counties. See "Business -- Government Regulation -- New York." Since the
Kapson Licensed Home Care Services Agency provides and, as required by
applicable law and regulations, will continue, even after the Company obtains a
home care services agency license, to provide services that are reimbursed by
Medicaid for Medicaid-covered residents in the New York ALP facilities, the
Kaplans are, and the Company (through its provision of management services to
the ALP facilities) may be, subject to federal and state Medicaid fraud and
abuse laws and regulations, including anti-kickback provisions. In particular,
those laws may exclude certain health care professionals from holding an
ownership or financial interest in a company that provides or manages home
health care or pharmaceutical services to which health care professionals refer
Medicare or Medicaid patients. New York State has similar laws and regulations
that restrict such financial relationships with entities that provide
pharmaceuticals. See "Business -- Government Regulation."
OPERATING AGREEMENTS; MANAGEMENT AGREEMENTS
Under applicable New York law and regulations, a for-profit corporation is
not permitted to be the licensed operator of a licensed facility. Therefore, the
Kaplans individually are the licensed operators of all the Company's licensed
facilities in New York, except for one which is operated by its not-for-profit
owner. These facilities are operated pursuant to either an operating agreement
between the Company and the licensed operators or the pre-existing agreement
with the applicable third party owner of the facility that has been assigned to
the licensed operators by the Company. The licensed operators have, in turn,
engaged a wholly owned subsidiary of the Company to provide certain management
services to each such facility.
With respect to these facilities, the operating agreements between the
Company and the licensed operators have a term of 25 years, may be terminated
after five years by the licensed operator, and provide for an operating fee; the
pre-existing agreements with third party owners generally have a term of 5 years
and also provide for an operating fee and, in some instances, an incentive fee
based on the performance of the facility. See "Certain Transactions." Each
management agreement between the licensed operators and the Company's wholly
owned subsidiary may be terminated only for cause, is
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co-terminous with the underlying operating agreement or pre-existing agreement
with third party owners, and provides for a management fee equal to a portion of
the licensed operator's fee. In order to comply with applicable law and
regulations, the management agreement, by its own terms, does not confer upon
the Company's wholly owned subsidiary control over the facility. It specifically
provides that the licensed operators shall retain the authority and power, among
other things, to hire and discharge persons working at the licensed entity,
maintain and control the books and records of the licensed entity, and retain
ultimate authority to dispose of assets used in the operation of the licensed
entity, to incur any liability on behalf of the licensed entity, and to adopt or
enforce policies regarding the operation of the licensed entity.
Accordingly, the licensed operators will maintain control and responsibility
for all operations, including day-to-day operations, of the facility. In the
case of the New York ALP facilities, the licensed operators are responsible for
both the licensed Adult Home portion of the facility and the licensed home care
services agency servicing the facility. In addition, the licensed operators will
remain responsible for the overall compliance of the facility with applicable
law and regulations. Moreover, the operating agreements between the licensed
operators and the Company, the management agreements between the licensed
operators and the Company's wholly owned subsidiary, and the employment
agreements between each of the Kaplans and the Company provide that the licensed
operators act independently of the Company and/or its wholly owned subsidiary
and, in the performance of their obligations as the licensed operators of the
applicable facility, are explicitly relieved of any fiduciary obligation to the
Company and its stockholders. As the Company is not itself the licensed operator
of these facilities, it is highly dependent on the Kaplans as the licensed
operators, and its agreements with them, in order to generate revenue in New
York State.
There can be no assurance that these agreements will not be terminated by
the licensed operators of the applicable facility or the Company, or as a result
of a change in the applicable law or regulations or the interpretation thereof
by the appropriate state agencies. Any termination of these agreements would be
subject to applicable state law and regulations, which may restrict the options
of the Company in dealing with the facility. Although the Company believes that
it is in compliance with applicable law and regulations, the licensed operators
of each facility have agreed that they would cooperate with the Company in
restructuring the current arrangement with respect to the operation and
management of that facility if the need should arise. Any termination of an
operating agreement or a management agreement, for any reason whatsoever, could
have an adverse effect on the Company's business, financial condition, results
of operations and prospects.
This basic structure, and substantially similar agreements, are also used
with respect to one New York facility that is an independent living facility
which, as such, is not a licensed facility. The effect and risks are
substantially the same as those described above, except that New York law and
regulations with respect to licensed facilities are not applicable to this
management arrangement.
REVENUE FROM SUPPLEMENTAL SECURITY INCOME DEPENDENT RESIDENTS AND MEDICAID
In the Company's two ALP facilities, the full monthly payment for services
provided to each Medicaid-eligible resident is paid to the Company by those
residents, at charges based on Supplemental Security Income ("SSI") rates for
the residential portion and by Medicaid for the home care portion. In these
facilities, the combined SSI-based and Medicaid monthly payments average $4,500
per unit.
With few exceptions, the only residents for whom the Company's facilities
accept SSI payments as the residential fee are Medicaid-eligible residents in
the Company's two New York ALP facilities. Currently, less than 1% of the
Company's revenue is derived from SSI payments. The Company anticipates that,
upon stabilization of its New York ALP and other facilities, approximately 11%
of the Company's revenue will be derived from SSI payments. Residential fees
from these residents could be subject to delay. There can be no assurance that
the Company's proportionate percentage of revenue related to the facilities'
receipts based on SSI-rates will not increase, or that the amounts paid under
SSI programs will not be decreased.
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The Company derives revenues from Medicaid only for the home care services
provided to Medicaid beneficiaries residing in the Company's two New York ALP
facilities. Medicaid program payments could be subject to delay. Further, since
the payment for home care services in such facilities is a fixed per patient per
day amount based on an anticipated range of services for the resident's assessed
level of care, the Company is at risk for the cost of services within the
anticipated range even if beyond the amount paid by Medicaid. The Company has
committed to 380 Medicaid beds, and applicable law and regulations forbid a
reduction in the beds committed to Medicaid beneficiaries in the Program without
further state approval, which may or may not be granted. Currently, less than 2%
of the Company's revenue is derived from the Medicaid program. The Company
anticipates that, upon stabilization of its New York ALP and other facilities,
approximately 20% of the Company's revenue will be derived from the Medicaid
program. There can be no assurance that the Company's proportionate percentage
of revenue related to the facilities' receipts from Medicaid will not increase,
or that the amounts paid by Medicaid will not be further limited.
There can be no assurance that acceptance of SSI-based fees, the provision
of services to Medicaid beneficiaries or changes in the applicable SSI or
Medicaid programs and/or applicable law and regulations will not adversely
affect the business, financial condition, results of operations and prospects of
the Company. See "-- Potential Impact of Proposed Legislation Regarding Medicaid
Funding" and "Business -- Government Regulation."
GEOGRAPHIC CONCENTRATION
Since a majority of the Company's current facilities are located within the
New York metropolitan area, the Company will be more susceptible to changes in
general economic factors affecting the health care industry or the laws
governing, and regulatory environment of all or part of, the New York
metropolitan area because any such change or act could affect a high percentage
of the Company's facilities. There can be no assurance that such geographic
concentration will not have an adverse effect on the Company's business,
financial condition, results of operations and prospects. See "Business."
COMPETITION
The long-term care industry is highly competitive and the Company expects
that the assisted living industry will become more competitive in the future.
The Company competes with numerous local, regional and national companies
providing long-term care alternatives such as home health care services
agencies, life care communities, skilled nursing facilities, community-based
service programs, retirement communities and convalescent centers. The Company
expects that as the assisted living industry receives increased attention,
competition will grow, and that new market entrants will include companies
focusing primarily on assisted living. Assisted living providers compete for
residents primarily on the basis of quality of service, price, reputation,
physical appearance and location of the living environment, services offered,
family preferences and physician referrals. Moreover, the Company expects to
face competition for the development or acquisition of assisted living
facilities during the course of its implementation of its growth strategy.
Competition may be increased by changes in the regulatory environment,
especially in New York where assisted living is highly regulated and a majority
of the Company's facilities is located. Some of the Company's present and
potential competitors are significantly larger and have, or may obtain, greater
financial resources than those of the Company. There can be no assurance that
the Company will not encounter increased competition in the future, which could
limit its ability to attract residents or expand its business and thereby have
an adverse effect on the Company's business, financial condition, results of
operations and prospects.
POTENTIAL IMPACT OF PROPOSED LEGISLATION REGARDING MEDICAID FUNDING
The United States Congress is considering legislation which may change
substantially the amount of federal funding available for the Medicaid program,
the method by which such funds are distributed to the states and the extent of
state control over such funds. It is not possible to predict whether and when
legislation relating to Medicaid will be passed, and, if passed, what features
such legislation will contain or whether the President would sign such
legislation. The Company cannot make any assessment as to the ultimate timing
and impact that any pending health care proposals may have on the assisted
living,
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nursing facility and rehabilitation care industries, or on the health care
industry in general. In addition, changes in Medicaid funding have been proposed
in New York State which, alone or in combination with changes in federal
funding, may have a significant impact on the New York Assisted Living Program
as it presently functions or on future funding. Similar changes may take place
in other states in which the Company operates. No assurance can be given that
any such changes will not have an adverse effect on the business, financial
condition, results of operations or prospects of the Company.
BUSINESS RISKS COMMON TO ASSISTED LIVING OPERATIONS
LIABILITY AND INSURANCE. The provision of assisted living and other
services for residents entails an inherent risk of liability. In recent years,
participants in the long-term care industry have become subject to an increasing
number of lawsuits alleging malpractice or related legal theories, many of which
involve large claims and significant defense costs. The Company currently
maintains liability insurance intended to cover such claims and the Company
believes that its insurance is in keeping with industry standards. There can be
no assurance, however, that claims in excess of the Company's insurance coverage
or claims not covered by the Company's insurance coverage (E.G., claims for
punitive damages) will not arise. A successful claim against the Company not
covered by or in excess of the Company's insurance coverage could have a
material adverse effect upon the Company's business, financial condition,
results of operations and prospects. Claims against the Company, regardless of
their merit or eventual outcome, may also have an adverse effect upon the
Company's ability to attract residents or expand its business, and would require
management to devote time to matters unrelated to the operation of the Company's
business. In addition, the Company's insurance policies must be renewed
annually. There can be no assurance that the Company will be able to maintain
liability insurance coverage in the future or that, if such coverage is
available, it will be available on acceptable terms.
ESTABLISHING AND MAINTAINING RENTAL RATES AT PROFITABLE LEVELS. There can
be no assurance that the Company's facilities will continue to be substantially
occupied at current rental rates. If operating expenses increase due to factors
such as the cost of labor, food or energy, government regulation or various
uninsurable risks, the local rental market may limit the extent to which rents
may be increased. Because rent increases generally can only be implemented at
the time of expiration of leases, rental increases may lag behind increases in
operating expenses.
REVENUE FROM FACILITIES. Revenue from the Company's facilities (whether
owned, managed and/or operated by the Company) is dependent upon the performance
of those facilities. The performance of substantially all of the Company's New
York facilities will depend in part on the Kaplans individually because they
will have control over the operation of these facilities. See "-- Operating
Agreements; Management Agreements." The performance of the Company's facilities
will also depend in part upon the ability to attract and retain residents (most
of whom rent on a month-to-month basis), which will in turn depend upon
prevailing financial conditions, the nature and extent of competitive properties
in the areas where such facilities are located, and the real estate market
generally. The failure of the Company to generate sufficient revenue and cash
flow could result in an inability to meet future principal and interest payments
in respect of its indebtedness.
GENERAL REAL ESTATE RISKS. The performance of the Company's facilities is
influenced by factors affecting real estate investments generally, including the
general economic climate and local conditions, such as an oversupply of, or a
reduction in demand for, similar facilities. Other factors include the
attractiveness of properties to residents, zoning, rent control, environmental
quality regulations or other regulatory restrictions, competition from other
forms of housing and the ability of the Company to provide adequate maintenance
and insurance and to control operating costs, including maintenance, insurance
premiums and real estate taxes. Real estate investments also are affected by
such factors as applicable laws, including tax laws, interest rates and the
availability of financing. In addition, real estate investments are relatively
illiquid and, therefore, limit the ability of the Company to vary its portfolio
promptly in response to changes in economic or other conditions.
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CONSTRUCTION/CONVERSION RISKS. Certain construction and conversion risks
are beyond the Company's control and could cause the cost of, and the time
required to complete, construction or conversion to exceed estimates. These
risks include but are not limited to force majeure, labor disputes, adverse
weather, acts of God, supply of materials and labor, and other unknown
contingencies. If existing buildings are to be converted into assisted living
facilities, costs of conversion may be more difficult to assess and control than
with respect to the construction of a new facility. The Company's cash flow
could be adversely affected if construction or conversion is not commenced or
completed, or if there are unpaid subcontractors or suppliers, or if required
occupancy permits are not issued in a timely manner. See "Business -- Growth
Strategy -- Development and Acquisition."
POSSIBLE ENVIRONMENTAL LIABILITIES. The Company's facilities and the
operations thereof are subject to various federal, state and local environmental
and worker health and safety laws and regulations. These laws and regulations
generally relate to these facilities' solid, medical, special waste handling and
disposal practices and work place health and safety. Although the Company
believes that its facilities are in substantial compliance with these laws and
regulations, there can be no assurance that they are or will remain in
compliance, that penalties or fines may not be imposed for non-compliance or
that new, more stringent environmental and worker health and safety laws and
regulations will not be adopted, any of which could have an adverse effect on
the Company's business, financial condition, results of operations or prospects.
In addition, under these environmental laws and regulations, liability could be
imposed on the facilities or the Company for the costs of, among other things,
investigating, remediating and/or monitoring contamination that may be found to
exist in the environment at off-site disposal sites where waste from the
Company's facilities has been disposed of and from contamination at the
Company's facilities or properties. Although the Company is unaware of any
contamination at any of its facilities or properties requiring remediation, any
contamination discovered could result from, for example, a leaking underground
heating fuel storage tank, a spill of cleaning fluids and materials or the
presence of asbestos-containing materials in its facilities. The presence of
such contamination at any of the Company's facilities or properties could also
subject the Company to lawsuits by or liability to neighbors, residents of the
facilities, and workers who may have been injured or damaged by any such
contamination. Moreover, if contamination is found to exist, the Company's
ability to sell or lease the facility or property or to borrow money using that
facility or property as collateral could be adversely affected.
RESTRICTIONS IMPOSED BY LAWS BENEFITING DISABLED PERSONS. Under the
Americans with Disabilities Act of 1990 (the "ADA"), all places of public
accommodation are required to meet certain federal requirements related to
access and use by disabled persons. A number of additional federal, state and
local laws exist which also may require modifications to existing and planned
properties to create access to the properties by disabled persons. While the
Company believes that its facilities are substantially in compliance with
present requirements or are exempt therefrom, if required changes involve a
greater expenditure than anticipated or must be made on a more accelerated basis
than anticipated, additional costs would be incurred by the Company. Further
legislation may impose additional burdens or restrictions with respect to access
by disabled persons, the costs of compliance with which could be substantial.
CONFLICTS OF INTEREST
Pursuant to employment agreements with the Company, each of Glenn Kaplan,
Wayne Kaplan and Evan Kaplan have agreed to devote substantially all of his
business time, energy, skill and efforts to the performance of his duties under
the agreement and shall faithfully serve the Company. These employment
agreements contain non-compete provisions by which the Kaplans agree not to
compete with the assisted living business of the Company in any area within a
ten mile radius of one of the Company's facilities for a period of one year
after the termination of the applicable employment agreement for any reason
other than the non-renewal thereof by the Company on substantially the same
terms. In the past, the Kaplans (who are officers and directors of the Company)
have directly or indirectly selected, bought, sold and owned real estate
investments for their own accounts and they may continue to do so with respect
to investments not involving the provision of assisted living services. In
addition, in order to meet
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the requirement under applicable New York regulations that a licensed facility
located in New York be operated by one or more individuals or general
partnerships composed of individuals, in each case having site control over any
such facility, the Kaplans are the licensed operators of substantially all of
the Company's New York facilities, and, therefore, will have site control over
those facilities. See "-- Operating Agreements; Management Agreements." These
activities and ownership interests create actual or potential conflicts of
interest on the part of the Kaplans. The Board of Directors of the Company has
adopted a policy that all future transactions between the Company and its
officers, directors, principal stockholders and their affiliates will be subject
to approval of a majority of the independent and disinterested outside
directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties. See "Certain Transactions."
CONTROL BY PRINCIPAL STOCKHOLDERS; ANTI-TAKEOVER MEASURES
After the Offering, the three senior executives of the Company, the Kaplans,
will beneficially own in aggregate 53.9% (48.8% if the Underwriters'
over-allotment option is exercised in full) of the Company's issued and
outstanding Common Stock. As a result, the Kaplans may be able to substantially
influence many matters required to be submitted to the stockholders for
approval, including, without limitation, the election of directors. This
concentration of voting power and the right of first refusal each Kaplan has
with respect to the other Kaplans' shares of Common Stock pursuant to a
stockholders' agreement between the Kaplans may, among other things, have the
effect of delaying or preventing a change in control of the Company. See
"Certain Transactions" and "Principal and Selling Stockholders." In the event of
any such change of control, each Kaplan may have the right to receive payments
from the Company if his employment is terminated either by him or the Company.
See "Management -- Employment Agreements." The Kaplans will also, as licensed
operators of a majority of the Company's facilities, have control over those
facilities. See "-- Operating Agreements; Management Agreements." In addition,
the Company's certificate of incorporation provides for authorized but unissued
Preferred Stock, the terms of which may be fixed by the Board of Directors, and
also provides, among other things, that the Board of Directors will be
classified. Such provisions could also have the effect of delaying, deferring or
preventing a change of control of the Company.
BENEFITS TO AFFILIATES
The Kaplans will realize substantial benefits from the Offering. In
particular, the Kaplans who beneficially own in the aggregate 4,150,000 shares
of Common Stock, upon completion of the Offering will own beneficially in the
aggregate shares with a market value of $53,950,000 (assuming no exercise of the
Underwriters' over-allotment option and an initial public offering price of
$13.00). In addition, as partial consideration for the Predecessor's transfer of
its facilities to the Company, the Company shall pay (i) to the Kaplans $6.0
million (the approximate tax liability expected to be incurred by the Kaplans in
connection with transactions pertaining to that transfer) as the cash portion of
the consideration for the Predecessor's transfer of its facilities to the
Company, and (ii) all real estate transfer or gains taxes arising out of such
transfer to the Company of the Company's facilities by its Predecessor
(estimated to be approximately $400,000). See "Certain Transactions" and "--
Shares Eligible for Future Sale."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of shares of Common Stock in the public market
after the Offering or the perception that those sales could occur could
adversely affect the market price of the Common Stock and the Company's ability
to raise equity capital in the future in the equity markets. Upon completion of
the Offering, the Company will have 7,700,000 shares of Common Stock outstanding
(7,966,250 if the Underwriters' over-allotment option is exercised in full). Of
these shares, the 3,550,000 shares sold in the Offering (4,082,500 if the
Underwriters' option is exercised in full) will be tradeable in the public
market immediately without restriction or limitation under the Securities Act of
1933, as amended (the "Securities Act"), except for any shares purchased by
"affiliates" of the Company. The remaining 4,150,000 shares of Common Stock
outstanding are "restricted securities" within the meaning of Rule 144 under the
Securities Act. The holders of all of these restricted securities have agreed
not to sell or otherwise dispose of the shares, without the prior written
consent of the representatives of the Underwriters, until at least 180 days
after the date of this Prospectus. After that date, these shares may
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be sold subject to the limitations of Rule 144. In addition, 3,849,999 of such
shares are further subject to: (i) an agreement with the Company pursuant to
which each Kaplan shall not, for so long as he shall be a licensed operator of
any of the Company's facilities, transfer any shares of Common Stock if it would
result in his personally owning fewer than 500,000 shares of Common Stock
initially, or 250,000 shares of Common Stock after the fifth anniversary of the
consummation of the Offering, in each case, subject to certain exceptions; and
(ii) a stockholders' agreement between the Kaplans pursuant to which (A) each
Kaplan has a right of first refusal with respect to a transfer of the shares of
Common Stock of the other Kaplans, except for a limited exception in the case of
any Kaplan's death, and (B) the Kaplans agree that all their shares of Common
Stock shall be voted as a unit. The Securities and Exchange Commission (the
"Commission") has proposed to amend the holding period required by Rule 144 to
permit sales of "restricted securities" after one year rather than the current
two years (and two years rather than three years for "non-affiliates" who desire
to trade free of other Rule 144 restrictions). If such proposed amendment were
enacted, the "restricted securities" described above would become freely
tradeable (subject to any applicable contractual restrictions) at
correspondingly earlier dates. In addition, each of the Kaplans and their
father, Herbert Kaplan, who in the aggregate beneficially own 4,150,000 shares
of Common Stock, have certain rights, including demand rights, with respect to
the registration of such shares of Common Stock for sale to the public, subject
to their agreement with the Underwriters. If one or more of the Kaplans, by
exercising their registration rights, cause a large number of shares to be sold
in the public market, such sales could have an adverse effect on the market
price for the Company's Common Stock. See "Shares Eligible For Future Sale,"
"Underwriting", and "Certain Transactions -- Registration Rights."
ABSENCE OF PUBLIC MARKET AND DETERMINATION OF INITIAL PUBLIC OFFERING PRICE
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market under the symbol "KPSQ." Prior to the Offering, there has been
no market for the Common Stock and there can be no assurance that an active
public market for the Common Stock will develop or continue after the Offering.
The initial public offering price will be determined by negotiations among the
Company, the Selling Stockholders, and the representatives of the Underwriters.
The negotiated initial public offering price may not be indicative of the market
price for the Common Stock after the Offering. See "Underwriting."
DILUTION
Purchasers of Common Stock in the Offering will experience immediate
dilution in net tangible book value per share of Common Stock of $9.60 from the
initial public offering price per share. See "Dilution."
DIVIDENDS
The Company is newly formed and has never declared or paid a dividend on its
Common Stock. The Company expects to retain its earnings to finance the
operation and expansion of its business and, therefore, does not anticipate
paying any dividends in the foreseeable future. See "Dividend Policy."
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USE OF PROCEEDS
The net proceeds to the Company from the Offering, after deducting estimated
underwriting discount and offering expenses payable by the Company, are
approximately $ million (approximately $ million if the Underwriters'
over-allotment option is exercised in full).
Approximately $20.0 million of the net proceeds will be used to fund a
portion of the costs for the seven assisted living facilities currently under
development and expected to have an aggregate of 817 units and a capacity for
1,015 residents that are described elsewhere in this Prospectus. Although the
Company is continually reviewing and negotiating with respect to assisted living
development and acquisition projects, the Company has no firm commitment or
other agreements, arrangements or understandings with respect to any such
development or acquisition project other than those that are described in this
Prospectus. The Company expects to use approximately $12.0 million of the net
proceeds for all or a portion of the cost of unidentified assisting living
acquisition facilities. The Company will also use a portion of the net proceeds
to pay (i) to the Kaplans $6.0 million (the approximate tax liability expected
to be incurred by the Kaplans in connection with transactions pertaining to the
transfer by the Predecessor of its facilities to the Company) as the cash
portion of the consideration for such transfer, and (ii) all real estate
transfer or gains taxes arising out of such transfer (estimated to be
approximately $400,000). See "Certain Transactions." The Company will use the
balance of the net proceeds to fund additional currently unspecified
developments and acquisitions and for working capital to be used primarily for
pre-development and pre-acquisition costs the Company anticipates incurring in
connection with its development and acquisition program and general corporate
purposes. See "Business -- Growth Strategies -- Development and Acquisition." If
the Underwriters' over-allotment option is exercised, the Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
Pending the uses outlined above, funds will be placed into short term
investments such as governmental obligations, bank certificates of deposit,
banker's acceptances, repurchase agreements, short term debt obligations, money
market funds, and interest bearing accounts.
17
<PAGE>
DILUTION
On a pro forma basis assuming the Predecessor contributed its interest in
the Company's facilities for, among other things, 4,150,000 shares of Common
Stock and giving effect to the pro forma distribution to partners/shareholders
of $6.4 million, the pro forma net tangible deficit of the Company's 4,150,000
shares of Common Stock outstanding at March 31, 1996, was ($14,601,000) or
($3.52) per share. Pro forma net tangible deficit per share is determined by
dividing the net tangible deficit before the Offering by the number of shares of
Common Stock before the Offering. The pro forma net tangible book value as
adjusted for the Offering of the Company's 3,550,000 shares of Common Stock at
March 31, 1996 was $26,149,000, or $3.40 per share. Pro forma net tangible book
value reflects the net tangible book value at March 31, 1996 as if the
transactions discussed under "Selected Financial, Operating and Pro Forma Data"
were completed on that date. For purposes of calculating the pro forma net
tangible book value as adjusted for the Offering at March 31, 1996, the
calculation gives effect to the sale of 3,550,000 shares of Common Stock offered
hereby (after deduction of the underwriting discount and estimated offering
expenses and assuming an initial public offering price of $13.00 per share). Pro
forma net tangible book value per share as adjusted assumes the Underwriters'
over-allotment option is not exercised. Dilution is determined by subtracting
pro forma net tangible book value per share as adjusted for the Offering from
the amount of cash paid by a new investor for one share of Common Stock. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 13.00
Pro forma net tangible (deficit) per share before the
Offering....................................................... (3.52)
Increase in net tangible book value per share attributable to
new
investors as adjusted.......................................... 6.92
---------
Pro forma net tangible book value per share as adjusted for the
Offering........................................................... 3.40
---------
Dilution per share to new investors................................. $ 9.60
---------
---------
</TABLE>
The foregoing computations do not include 600,000 shares of Common Stock
reserved for issuance and available for grant under the Kapson Senior Quarters
Corp. 1996 Stock Incentive Plan. 88,462 shares of Common Stock have been
reserved for issuance pursuant to the exercise of stock options issued under
this plan at an exercise price per share that is equal to the initial public
offering price per share. Accordingly, the exercise of these options will not
result in further dilution to new investors purchasing shares in the Offering.
To the extent that any of the remaining 511,538 shares reserved for issuance
under the Kapson Senior Quarters Corp. 1996 Stock Incentive Plan are issued,
there could be further dilution to new investors if the fair market value of
such shares on the date of grant (which is the exercise price of such shares
under this plan) is less than the initial public offering price per share. See
"Management -- 1996 Stock Incentive Plan."
18
<PAGE>
CAPITALIZATION
The following table sets forth the total capitalization of the Company as of
March 31, 1996, and as adjusted to reflect the issuance of additional shares to
the Kaplans in exchange for their interests in the Company's facilities and the
sale of 3,550,000 shares of Common Stock offered by the Company at an assumed
initial public offering price of $13.00 per share after deducting underwriting
discounts and commissions and estimated offering expenses.
<TABLE>
<CAPTION>
MARCH 31, 1996
----------------------------
PRO FORMA
AS
ACTUAL ADJUSTED (1)(2)
----------- ---------------
(IN THOUSANDS, EXCEPT
SHARE DATA)
<S> <C> <C>
Long-term debt, less current portion................................................ $ 57,928 $ 68,303
----------- ---------------
Stockholders' equity:
Preferred Stock, $0.01; 10,000,000 shares authorized, none issued and
outstanding...................................................................... -- --
Common Stock, $0.01 par value, 30,000,000 shares authorized, no shares issued and
outstanding as of March 31, 1996 (actual) and 7,700,000 shares issued and
outstanding on an adjusted basis................................................. -- 77
Additional paid-in capital.......................................................... -- 26,072
Retained Earnings (accumulated deficit)............................................. (11,407) --
----------- ---------------
Total stockholders' equity (deficit)................................................ (11,407) 26,149
----------- ---------------
Total capitalization................................................................ $ 46,251 $ 94,452
----------- ---------------
----------- ---------------
</TABLE>
- ------------------------
(1) Excludes 532,500 shares of Common Stock subject to the Underwriters'
over-allotment option granted by the Company and the Selling Stockholders.
The Company will not receive any proceeds from the sale of any shares by the
Selling Stockholders, which will occur only if the over-allotment option is
exercised. See "Principal and Selling Stockholders."
(2) Excludes an aggregate of 600,000 shares of Common Stock reserved for
issuance pursuant to the exercise of outstanding stock options under the
Kapson Senior Quarters Corp. 1996 Stock Incentive Plan, under which options
to purchase 88,462 shares have already been granted.
DIVIDEND POLICY
The Company is newly formed and has not declared or paid any dividends on
its Common Stock and does not anticipate paying dividends in the foreseeable
future. It is the present policy of the Company's Board of Directors to retain
earnings, if any, to finance the expansion of the Company's business. The
payment of dividends in the future will depend on the results of operations,
financial condition, capital expenditure plans and other cash obligations of the
Company and will be at the sole discretion of the Board of Directors. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
19
<PAGE>
SELECTED FINANCIAL, OPERATING AND PRO FORMA DATA
The following table presents selected financial and operating data for the
Predecessor and selected pro forma data for the Company. The selected financial
data as of December 31, 1994 and 1995, and for each of the three years in the
period ended December 31, 1995 have been derived from the audited combined
financial statements of the Predecessor included elsewhere in this Prospectus.
The selected financial data as of December 31, 1993 have been derived from the
combined financial statements of the Predecessor not included in this
Prospectus. The selected unaudited financial data as of December 31, 1991 and
1992 and for the years then ended were derived from the unaudited combined
financial statements of the Predecessor not included in this Prospectus. The
selected unaudited financial data as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 were derived from the unaudited combined financial
statements of the Predecessor included elsewhere in this Prospectus. In the
opinion of management, the unaudited combined financial statements reflect all
adjustments, which are of a normal recurring nature, necessary for a fair
presentation of the combined financial position and combined results of
operations for the unaudited periods. The combined results of operations for the
three months ended March 31, 1995 and 1996 are not necessarily indicative of the
results to be expected for the full year.
The selected unaudited pro forma data for the Company as of March 31, 1996,
for the year ended December 31, 1995 and for the three months ended March 31,
1996 include among others, the adjustments to reflect the acquisition of Town
Gate Manor and Town Gate East on April 1, 1996 and the transactions contemplated
in connection with the Offering as described in Note 1, below. The unaudited pro
forma statements of operations for the year ended December 31, 1995 and the
three months ended March 31, 1996 were prepared as if the transactions had
occurred as of January 1, 1995. The unaudited pro forma balance sheet as of
March 31, 1996 was prepared as if the transactions occurred at that date. In the
opinion of management of the Company, all adjustments necessary to present
fairly such pro forma financial data have been made based on the proposed terms
and structure of the transactions. This unaudited pro forma financial data is
not necessarily indicative of what actual results would have been had the
transactions occurred at the beginning of the respective periods nor do they
purport to indicate results of future operations of the Company.
20
<PAGE>
SELECTED FINANCIAL, OPERATING AND PRO FORMA DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------ --------------------
PRO
PREDECESSOR FORMA PREDECESSOR
----------------------------------------------------- ----------- --------------------
1991 1992 1993 1994 1995 1995 (1) 1995 1996
--------- --------- --------- --------- --------- ----------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Assisted living revenues........ $ 10,126 $ 11,553 $ 12,628 $ 13,349 $ 14,275 $ 17,828 $ 3,491 $ 3,873
Management fee.................. 332 24 248 348 443 443 102 225
Other -- affiliates............. -- 242 112 57 45 -- 12 11
--------- --------- --------- --------- --------- ----------- --------- ---------
Total revenues................ 10,458 11,819 12,988 13,754 14,763 18,271 3,605 4,109
--------- --------- --------- --------- --------- ----------- --------- ---------
Operating Expenses:
Assisted living operating
expenses....................... 6,514 7,289 7,591 7,877 8,389 10,988 1,969 2,533
General and administrative...... 1,338 1,038 727 1,102 1,583 2,945 335 531
Depreciation.................... 1,298 1,264 1,188 1,180 1,234 1,440 303 375
--------- --------- --------- --------- --------- ----------- --------- ---------
Total operating expenses...... 9,150 9,591 9,506 10,159 11,206 15,373 2,607 3,439
--------- --------- --------- --------- --------- ----------- --------- ---------
Operating income.................. 1,308 2,228 3,482 3,595 3,557 2,898 998 670
Interest income................... 23 22 12 8 44 48 11 45
Interest expense.................. (3,655) (3,344) (3,417) (3,288) (3,732) (4,854) (841) (1,092)
Interest expense -- affiliates.... (25) (151) (136) (207) (204) -- (51) (61)
Other income (expense), net....... 12 280 (10) (1) (34) (30) 1 (4)
--------- --------- --------- --------- --------- ----------- --------- ---------
Income (loss) before minority
interest and extraordinary
item............................. (2,337) (965) (69) 107 (369) (1,938) 118 (442)
Minority interest................. -- -- -- -- 16 16 -- 51
--------- --------- --------- --------- --------- ----------- --------- ---------
Income (loss) before extraordinary
item............................. (2,337) (965) (69) 107 (353) (1,922) 118 (391)
Extraordinary item................ -- -- -- 4,399 -- -- -- --
--------- --------- --------- --------- --------- ----------- --------- ---------
Net Income (loss)............. (2,337) (965) (69) 4,506 (353) (1,922) 118 (391)
--------- --------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- --------- ----------- --------- ---------
Unaudited pro forma data:
Net Income (loss)............... (2,337) (965) (69) 4,506 (353) (1,922) 118 (391)
Pro forma benefit (provision)
for income taxes (2)........... 935 386 28 (1,803) 141 769 (47) 156
--------- --------- --------- --------- --------- ----------- --------- ---------
Pro forma net income (loss)..... $ (1,402) $ (579) $ (41) $ 2,703 $ (212) $ (1,153) $ 71 $ (235)
--------- --------- --------- --------- --------- ----------- --------- ---------
--------- --------- --------- --------- --------- ----------- --------- ---------
Pro forma net loss per
share (3)(4)................... $ (.15)
-----------
-----------
Pro forma weighted average
number of common shares
outstanding (3)(4)............. 7,700
-----------
-----------
<CAPTION>
PRO
FORMA
-----------
1996(1)
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA
Revenues:
Assisted living revenues........ $ 4,784
Management fee.................. 225
Other -- affiliates............. --
-----------
Total revenues................ 5,009
-----------
Operating Expenses:
Assisted living operating
expenses....................... 3,239
General and administrative...... 890
Depreciation.................... 427
-----------
Total operating expenses...... 4,556
-----------
Operating income.................. 453
Interest income................... 46
Interest expense.................. (1,353)
Interest expense -- affiliates.... --
Other income (expense), net....... (4)
-----------
Income (loss) before minority
interest and extraordinary
item............................. (858)
Minority interest................. 51
-----------
Income (loss) before extraordinary
item............................. (807)
Extraordinary item................ --
-----------
Net Income (loss)............. (807)
-----------
-----------
Unaudited pro forma data:
Net Income (loss)............... (807)
Pro forma benefit (provision)
for income taxes (2)........... 323
-----------
Pro forma net income (loss)..... $ (484)
-----------
-----------
Pro forma net loss per
share (3)(4)................... $ (.06)
-----------
-----------
Pro forma weighted average
number of common shares
outstanding (3)(4)............. 7,700
-----------
-----------
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
----------------------------------------------------- ---------
1991 1992 1993 1994 1995 1995
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Assisted living units owned, managed and/or operated
(end of period)....................................... 393 393 661 661 862 661
Assisted living resident capacity (end of period)...... 784 784 1,143 1,143 1,403 1,143
Weighted average occupancy of fully-stabilized assisted
living facilities..................................... 99.9% 99.9% 98.0% 98.0% 98.0% 98.0%
<CAPTION>
1996
----------
<S> <C>
SELECTED OPERATING DATA:
Assisted living units owned, managed and/or operated
(end of period)....................................... 1,085
Assisted living resident capacity (end of period)...... 1,687
Weighted average occupancy of fully-stabilized assisted
living facilities..................................... 98.0%
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-------------------------
DECEMBER 31, PRO FORMA AS
----------------------------------------------------- ADJUSTED
1991 1992 1993 1994 1995 1996 1996 (1)(3)(4)
--------- --------- --------- --------- --------- --------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............. $ (24,392) $ (11,233) $ (22,603) $ (17,712) $ (3,596) $ (4,790) $ 33,299
Total assets........................... 33,119 31,825 31,381 34,294 54,407 57,505 102,306
Long-term debt, excluding current
portion............................... 18,500 30,547 18,500 20,461 53,808 57,929 68,303
Partners' and stockholders' equity
(deficit)............................. (11,544) (11,704) (12,325) (8,740) (9,811) (11,407) 26,149
</TABLE>
- ------------------------
(1) The pro forma statement of operations data for the year ended December 31,
1995 and the three months ended March 31, 1996 gives effect to (a) the
acquisition on April 1, 1996 by the Predecessor of the operations of Town
Gate Manor (Rochester, New York) and Town Gate East (Penfield, New York);
(b) operating fees payable to the Kaplans as operators for various New York
facilities, net of management fees payable to a subsidiary of the Company;
(c) compensation of the Kaplans and additional general and administrative
costs of operating as a public company; (d) the initial capitalization of
the Company; (e) the issuance of 4,150 shares of the Company's common stock
as consideration for the conveyance of facilities and interests therein and
(f) the elimination of net indebtedness and interest payable to an
uncombined affiliate of the Predecessor all as if the transactions had
occurred as of January 1, 1995. The pro forma balance sheet as of March 31,
1996 gives effect to these transactions as if they occurred on that date.
See "Pro Forma Financial Information."
(2) Includes a pro forma income tax adjustment for federal and state income
taxes to reflect the Predecessor as a C Corporation. See Note 2 to the
Combined Financial Statements of the Predecessor.
(3) Reflects the aggregate $6,400 distribution payable to the Kaplans to be
paid from the proceeds of the Offering which will be used primarily to
satisfy (i) the tax liabilities of the Kaplans expected to be incurred
pertaining to the transfer of the Predecessor interests in the facilities
to the Company ($6,000) and (ii) real estate transfer and gains taxes
arising out of the transaction estimated to be approximately ($400).
(4) Reflects the proposed issuance of 3,550 shares in connection with the
Offering.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NOTE ON FORWARD-LOOKING STATEMENTS
Certain information contained in this Prospectus are forward-looking
statements. Factors set forth in "Risk Factors" could affect the Company's
actual results and could cause the Company's actual results to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
the Company in this Prospectus. Prospective investors in the shares of the
Company's Common Stock offered hereby should carefully consider the factors set
forth in "Risk Factors," in addition to the other information appearing in this
Prospectus.
OVERVIEW
Kapson Senior Quarters Corp. is one of the largest providers of assisted
living services in the United States and has owned, managed and/or operated
assisted living facilities since 1972. Assisted living facilities are an
increasingly popular form of senior housing which generally provide a
residential alternative for elderly senior citizens who need or desire help with
their activities of daily living and certain home health care services, in a
non-institutional environment. Many of the Predecessor's facilities also
provide, through its Extended Care Program, additional specialized care and
services to residents in the beginning stages of Alzheimer's disease, dementia
and other cognitive impairments. The Company owns, manages and/or operates 15
assisted living facilities, having in the aggregate 1,623 units with a capacity
for 2,392 residents, a majority of which facilities are located in New York; the
remaining facilities are located in New Jersey, Connecticut and Pennsylvania. Of
these facilities, the Company owns all or a portion of eleven facilities with an
aggregate of 1,145 units and a capacity for 1,749 residents. In addition, the
company currently has under development seven assisted living facilities with an
expected aggregate of 817 units and a capacity for 1,015 residents. Prior to the
Offering, the Company's facilities were owned, managed and/or operated by one or
more S corporations, limited partnerships or limited liability companies of the
Company's predecessor, The Kapson Group (the "Predecessor"). The Kapson Group is
a general partnership of which Glenn Kaplan, Wayne Kaplan and Evan Kaplan
(collectively, the "Kaplans") are the sole partners.
Subsequent to March 31, 1996, the Predecessor consummated three
transactions: (i) on April 1, 1996, two facilities containing in the aggregate
167 units and a capacity for 199 residents were acquired for an aggregate
purchase price equal to $10.4 million financed through mortgage notes under a
credit facility in the principal amount of $40.0 million obtained from Health
Care REIT, Inc.; (ii) effective April 1, 1996, a 49% interest in the entity
owning a facility located at Chestnut Ridge, New York, was sold to a third party
unaffiliated with the Company for $1.2 million; and (iii) also effective April
1, 1996, the Company acquired a 23.75% interest in a facility located in
Montville, New Jersey which it was already managing, at a cost of $475,000.
The historical financial statements of the Predecessor represent the
combined historical results of operations and financial condition of: (i) the
five facilities that were wholly owned by the Predecessor (Senior Quarters at
Stamford, Senior Quarters at Huntington Station, Senior Quarters at Centereach
I, Senior Quarters at Centereach II, and Senior Quarters at Chestnut Ridge);
(ii) a management company which received management fees from (A) two facilities
in which the Predecessor did not have an ownership interest (Senior Quarters at
Cranford and The Regency at Glen Cove), and (B) one facility in which the
Predecessor acquired, effective April 1, 1996, a 23.75% interest (Change Bridge
Inn); (iii) an entity through which the Predecessor controlled a 50% interest in
a newly-developed facility in East Northport, New York (Senior Quarters at East
Northport) which began operations on March 15, 1996; and (iv) two entities
through which the Predecessor owned a minority interest in facilities that were
under construction (a 10% interest in Senior Quarters at Glen Riddle and an 11%
interest in Senior Quarters at Jamesburg); and (v) an entity that provided
administrative support to the Predecessor and other affiliated entities.
On June 7, 1996, the Company was formed in order to consolidate and expand
the assisted living business of the Predecessor. At or prior to the consummation
of the Offering, the Predecessor shall have
23
<PAGE>
transferred to the Company, among other things, the following: (i) certain
wholly owned subsidiaries of the Predecessor that own the entire fee in the land
and building underlying six facilities (Town Gate East, Town Gate Manor, Senior
Quarters at Huntington Station, Senior Quarters at Centereach I, Senior Quarters
at Centereach II, and Senior Quarters at Stamford); (ii) certain wholly owned
subsidiaries of the Predecessor that own, directly or indirectly, less than the
entire fee in the land and building underlying five facilities (Change Bridge
Inn, Senior Quarters at Chestnut Ridge, Senior Quarters at East Northport,
Senior Quarters at Jamesburg, and Senior Quarters at Glen Riddle); (iii) two
wholly owned subsidiaries of the Predecessor that provided management services
for all the foregoing facilities, in addition to four facilities in which the
Predecessor did not have an equity interest (Castle Gardens, The Regency at Glen
Cove, Senior Quarters at Lynbrook, and Senior Quarters at Cranford); (iv) seven
wholly owned subsidiaries of the Predecessor owning, directly or indirectly, all
or a portion of development projects in seven facilities (Senior Quarters at
Patterson, Senior Quarters at Albany, Mayfair at Glen Cove, Senior Quarters at
Briarcliff Manor, Senior Quarters at Tinton Falls, one project in Westchester
County, New York and another in Bucks County, Pennsylvania); and (v)
substantially all of its other assets associated with its assisted living
business. In addition, at or prior to the consummation of the Offering certain
agreements and/or assignments of pre-existing agreements shall have been
executed pursuant to which the Kaplans act as the licensed operators of
substantially all of the Company's New York facilities and be paid an operating
fee of which a portion is paid to a wholly owned subsidiary of the Company as a
fee for management services. See "Certain Transactions." With respect to Senior
Quarters at East Northport, management fees accrue but shall not be paid in any
year until the co-owner of that property recovers a preferred rate of return
upon his equity investment for that year.
In consideration of the transfer of the Company facilities to the Company
described in the foregoing paragraph, the Company shall have, at or prior to the
consummation of the Offering: (i) issued to the Kaplans, as sole partners of the
Predecessor, 4,150,000 shares of Common Stock, and paid to them the sum of $6.0
million (representing the approximate amount of a tax liability expected to be
incurred by the Kaplans as a result of transactions pertaining to the transfer
of the Predecessor's facilities to the Company), and (ii) agreed to pay all real
estate transfer and gains taxes arising out of such transactions (estimated to
be approximately $400,000).
The pro forma combined statement of operations and balance sheet of the
Company therefore differ from the historical financial statements in significant
respects. They give effect to: (a) the acquisition on April 1, 1996 by the
Predecessor of the operations of Town Gate Manor (Rochester, New York) and Town
Gate East (Penfield, New York); (b) operating fees payable to the Kaplans as
operators for various New York facilities, net of management fees payable to a
subsidiary of the Company; (c) compensation of the Kaplans and additional
general and administrative costs of operating as a public company; (d) the
initial capitalization of the Company; (e) the issuance of 4,150,000 shares of
the Company's common stock as consideration for the conveyance of facilities and
interests therein by the Predecessor, and (f) the elimination of net
indebtedness and interest payable to an uncombined affiliate of the Predecessor,
all as if the transactions had occurred as of January 1, 1995 and March 31,
1996, respectively. As the Company is newly formed, all references in this
Prospectus to the Company in connection with historical financial data or
otherwise include the Predecessor.
The revenues of the Company are derived primarily from two sources: (i)
revenue from assisted living services, and (ii) management and/or operating fees
for the management and/or operation of facilities owned in whole or part by
third parties. Historically, most revenues consisted of assisted living service
revenue which comprised 96.7% of gross revenues in 1995. The Company expects
that revenues from ancillary services that it provides to the residents of its
facilities, such as home health care and the Extended Care Program, will
increase as a percentage of total revenue as the Company seeks to expand the
number of such services that it offers at its facilities.
24
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31, 1995.
REVENUES. Assisted living revenues increased to $3.9 million for the three
months ended March 31, 1996, compared to $3.5 million for the three months ended
March 31, 1995, an increase of 10.9%. The increase is attributable to the
opening of Senior Quarters at Chestnut Ridge on September 1, 1995 which
contributed assisted living revenues of $358,000, and, to a lesser extent, the
opening of Senior Quarters at East Northport on March 15, 1996 which contributed
assisted living revenues of $64,000. Management fee revenue increased to
$225,000 for the three months ended March 31, 1996, compared to $102,000 for the
three months ended March 31, 1995, an increase of 119.8%. The increase was
primarily attributable to Change Bridge Inn and Castle Gardens which the Company
assumed management responsibility for on August 8, 1995 and January 1, 1996,
respectively.
OPERATING EXPENSES. Assisted living operating expenses increased to $2.5
million for the three months ended March 31, 1996, compared to $2.0 million for
the three months ended March 31, 1995, an increase of 28.6%. As a percentage of
assisted living revenues, assisted living operating expenses were 65.4% and
56.4% for the three months ended March 31, 1996 and 1995, respectively. The
increase in assisted living operating expenses as a percentage of assisted
living revenues is primarily attributable to the opening of Senior Quarters at
Chestnut Ridge and Senior Quarters at East Northport on September 1, 1995, and
March 15, 1996, respectively. As is consistent with the Company's experience
during the "rent-up" of a new facility, assisted living operating expenses as a
percent of assisted living revenues are higher than for a facility which is
operating at or near full occupancy. Excluding Senior Quarters at Chestnut Ridge
and Senior Quarters at East Northport, for the three months ended March 31,
1996, assisted living operating expenses as a percent of assisted living
revenues would have been 60.7%. General and administrative expense was $531,000
for the three months ended March 31, 1996, compared to $335,000 for the three
months ended March 31, 1995, an increase of 58.4%. As a percentage of total
revenues, general and administrative expense was 12.9% and 9.3% for the three
months ended March 31, 1996 and 1995, respectively. The increase is primarily
the result of the opening of Senior Quarters at Chestnut Ridge and Senior
Quarters at East Northport and preparations for the opening of the Senior
Quarters at Lynbrook, Senior Quarters at Patterson, Senior Quarters at Jamesburg
and Senior Quarters at Glen Riddle facilities.
INTEREST EXPENSE. Interest expense was $1.1 million for the three months
ended March 31, 1996, compared to $840,000 for the three months ended March 31,
1995, an increase of 30.0%. The increase is attributable to the opening of
Senior Quarters at Chestnut Ridge and Senior Quarters at East Northport
facilities on September 1, 1995 and March 15, 1996, respectively. Interest
expense with respect to these two facilities was capitalized prior to their
opening.
NET INCOME (LOSS). Net income (loss) was ($391,000) for the three months
ended March 31, 1996, compared to $118,000 for the three months ended March 31,
1995. As discussed above, the decrease in net income is primarily the result of
the opening of Senior Quarters at Chestnut Ridge and Senior Quarters at East
Northport and to a lesser extent higher payroll and benefit costs in connection
with the Company's expansion plans. Excluding Senior Quarters at Chestnut Ridge
and Senior Quarters at East Northport, net income would have been $39,000 for
the three months ended March 31, 1996. The Company did not pay income taxes. The
minority interest for the three months ended March 31, 1996 is related to the
partial ownership of Senior Quarters at East Northport by an unrelated
third-party.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
REVENUES. Assisted living revenues increased to $14.3 million for the year
ended December 31, 1995, compared to $13.3 million for the year ended December
31, 1994, an increase of 6.9%. The increase is attributable primarily to
increased rental rates and to the opening of Senior Quarters at Chestnut Ridge
on September 1, 1995, which contributed revenue of approximately $283,000.
Excluding Senior Quarters at Chestnut Ridge, assisted living revenues increased
4.8%. Management fee revenue increased to $443,000 for the year ended December
31, 1995, compared to $348,000 for the
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year ended December 31, 1994, an increase of 27.3%. The increase was primarily
attributable to Senior Quarters at Cranford, a facility managed by the Company
which opened in late 1993 and for which revenue increased significantly in 1995
due to a full year of stabilized occupancy.
OPERATING EXPENSES. Assisted living operating expenses increased to $8.4
million for the year ended December 31, 1995, compared to $7.9 million for the
year ended December 31, 1994, an increase of 6.5%. As a percentage of assisted
living revenues, assisted living operating expenses were 58.7% and 59.0% for the
years ended December 31, 1995 and 1994, respectively. Excluding: (i) pre-opening
expenses and negative margins during the "rent-up" period for Senior Quarters /
Chestnut Ridge; and (ii) a one-time tax refund related to a real estate tax
grievance, assisted living operating expenses would be 55.9% of assisted living
revenues for the year ended December 31, 1995. General and administrative
expense was $1.6 million for the year ended December 31, 1995, compared to $1.1
million for the year ended December 31, 1994, an increase of 43.7%. As a
percentage of assisted living and management fee revenues, general and
administrative expense was 10.8% and 8.0% for the years ended December 31, 1995
and 1994, respectively. The increase is primarily the result of: (i)
approximately $360,000 related to higher payroll and employee benefit costs in
connection with a strategic decision by the Company to invest in its management
and facility development capabilities in order to support future growth through
the development, acquisition and management of additional facilities; (ii)
approximately $78,000 of general and administrative expenses related to Senior
Quarters at Chestnut Ridge; and (iii) to a lesser extent, approximately $44,000
of general and administrative expenses related to pre-opening costs for Senior
Quarters at East Northport, an assisted living facility that opened on March 15,
1996.
INTEREST EXPENSE. Interest expense was $3.7 million for the year ended
December 31, 1995, compared to $3.3 million for the year ended December 31,
1994, an increase of 13.5%. The increase is primarily attributable to the
opening of Senior Quarters at Chestnut Ridge at which point interest expense
with respect to this facility was no longer capitalized.
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM. Income (loss) before extraordinary
item was ($353,000) for the year ended December 31, 1995, compared to $107,000
for the year ended December 31, 1994. The decrease in net income is primarily
the result of the opening of Senior Quarters at Chestnut Ridge and higher
payroll costs in connection with the Company's expansion plans. The Company did
not pay federal or state income taxes.
EXTRAORDINARY ITEM. For the year ended December 31, 1994, the Company
recorded an extraordinary gain of $4.4 million. This gain resulted from a
settlement with various lenders to satisfy certain outstanding mortgage notes
payable and accrued interest payable at a $4.4 million discount. The Predecessor
simultaneously refinanced this debt with other lenders at then prevailing market
rates.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993.
REVENUES. Assisted living revenues increased to $13.4 million for the year
ended December 31, 1994, compared to $12.6 million for the year ended December
31, 1993, an increase of 5.7%. The increase is attributable primarily to
increased rental rates. Management fee revenue increased to $348,000 for the
year ended December 31, 1994, compared to $248,000 for the year ended December
31, 1993, an increase of 40.4%. The increase was primarily attributable to The
Regency at Glen Cove, a facility which the Company assumed management
responsibility for in 1993 and received a full year of management fees in 1994.
OPERATING EXPENSES. Assisted living operating expenses increased to $7.9
million for the year ended December 31, 1994, compared to $7.6 million for the
year ended December 31, 1993, an increase of 3.8%. As a percentage of assisted
living revenues, assisted living operating expenses were 59.0% and 60.1% for the
years ended December 31, 1994 and 1993, respectively. Excluding the negative
impact of facilities which have been opened less than a year, historically it
has been the Company's experience that assisted living operating expenses
generally have decreased as a percentage of assisted living revenues with regard
to a year-to-year comparison. During 1994, however, the decrease was limited by
the fact that the Company experienced an increase in its employee health care
benefit costs as a
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percentage of wages and salaries. In response to this increase, on July 1, 1995,
the Company changed its health care benefit program to offer a more
cost-effective managed care option and, as a result, employee health care
benefit costs as a percentage of wages and salaries have decreased. General and
administrative expense was $1.1 million for the year ended December 31, 1994,
compared to $727,000 for the year ended December 31, 1993, an increase of 51.5%.
As a percentage of total revenue, general and administrative expense was 8.0%
and 5.6% for the years ended December 31, 1994 and 1993, respectively. The
increase is primarily the result of hiring of additional personnel to support
anticipated growth.
INTEREST EXPENSE. Interest expense was $3.3 million for the year ended
December 31, 1994, compared to $3.4 million for the year ended December 31,
1993.
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM. Income (loss) before extraordinary
item was $107,000 for the year ended December 31, 1994, compared to ($69,000)
for the year ended December 31, 1993. The increase is primarily due to improved
operating margins, and reduced interest payments which were partially offset by
higher interest expense to affiliates.
EXTRAORDINARY ITEM. For the year ended December 31, 1994, the Company
recorded an extraordinary gain of $4.4 million. This gain resulted from a
settlement with various lenders to satisfy certain outstanding mortgage notes
payable and accrued interest payable at a $4.4 million discount. The predecessor
simultaneously refinanced this debt with other lenders at then prevailing market
rates.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $2.5 million for the three months
ended March 31, 1996, compared to $273,000 for the three months ended March 31,
1995. The increase is primarily attributable to an increase in restricted cash
related to escrow deposits made in connection with long-term debt and to a
decrease in accounts payable and account expenses. Net cash provided by
operating activities was $2.0 million, $476,000 and $1.8 million for the years
ended December 31, 1995, 1994 and 1993, respectively. The increase in 1995,
compared to 1994 is primarily attributable to an increase in accounts payable
and accrued expenses. The decrease in 1994, compared to 1993, is primarily
attributable to an increase in restricted cash related to escrow deposits made
in connection with long-term debt and to a decrease in accrued interest.
Net cash used in investing activities was $3.1 million for the three months
ended March 31, 1996, compared to $4.4 million for the three months ended March
31, 1995. Net cash used in investing activities was $16.5 million, $725,000 and
$472,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Substantially all of the cash used in investing activities for the three months
ended March 31, 1996 and 1995 and the year ended December 31, 1995 was for the
development of new facilities, compared to facility improvements made and
equipment purchased during the years ended December 31, 1994 and 1993. Net cash
used in investing activities was funded primarily through long-term debt and
cash provided by operations.
Net cash provided by financing activities was $3.9 million for the three
months ended March 31, 1996 and for three months ended March 31, 1995. Net cash
provided by financing activities primarily consists of the proceeds of long-term
debt and to a lesser extent contributions by minority partners offset by
principal repayments of long-term debt and distributions to partners and
shareholders. Net cash provided by (used in) financing activities was $16.0
million, $818,000 and ($963,000) for the years ended December 31, 1995, 1994,
and 1993, respectively. The increase in 1995, compared to 1994, is primarily the
result of long-term debt associated with Senior Quarters at East Northport. Net
cash used in financing activities was negative in 1993 as a result of payments
on long-term debt by the Company and stockholder distributions.
Historically, the Company has operated with significant working capital
deficits primarily as a consequence of current liabilities owed to an uncombined
affiliate of the Predecessor as well as certain financing activities. The
working capital deficit for the Company was ($3.6 million) and ($17.7 million)
at December 31, 1995 and 1994, respectively. Excluding current liabilities owed
to an affiliate of the
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Company (which will not be an obligation of the Company), the Company's working
capital position would have been a deficit of $1.6 million at March 31, 1996 and
$296,000 and $14.6 million at December 31, 1995 and 1994, respectively. At
December 31, 1994, the Company's working capital position was adversely impacted
by a $15.0 million current portion of long-term debt. Such current portion of
long-term debt was $246,000 at December 31, 1995. On a pro forma basis, which
reflects a $6.0 million payment to partners and stockholders and an assumption
of a liability currently estimated to be approximately $400,000, the Company's
working capital deficit was $11.2 million. Following the Offering and the
application of the estimated net proceeds therefrom, the Company will have
working capital of $33.3 million.
The various facilities owned by the Company, excluding minority-owned
facilities, were subject to mortgage indebtedness in an aggregate amount of
approximately $58.1 million at March 31, 1996. The mortgage indebtedness bears
interest at market rates, currently ranging from 7.7% to 10.5%. In January 1995,
the Predecessor obtained a $40.0 million acquisition and development credit
facility with Health Care REIT, Inc. ("HCR"), pursuant to which temporary
construction financing bears interest at 3.5% above the base rate announced by
The National City Bank of Cleveland but not less than 11.25%, and permanent
financing bears interest at the rate of a ten-year U.S. Treasury Note plus 4.25%
per annum. The permanent financing rate increases by 30 basis points per year.
Approximately $18.4 million of the HCR credit facility has been drawn and is
secured by three properties (Senior Quarters at Chestnut Ridge, Town Gate Manor
and Town Gate East). Indebtedness on two other properties (Senior Quarters at
Huntington Station and Senior Quarters at Stamford) having a combined
outstanding balance of $15.6 million, matures in February 1999, at which time
all unpaid principal balances, if any, become due and payable. While the Company
expects to refinance such debt with the existing lender or with another
financing source, there can be no assurance that the Company will be able to
obtain such refinancing on terms acceptable to the Company, which could result
in an adverse effect on the Company's operating results and financial condition.
The Company is in negotiations with HCR for a revised credit facility in the
amount of $100.0 million in lieu of the current $40.0 million credit facility;
however the terms thereof have not yet been agreed to and there can be no
assurance that such a credit facility will be available.
Certain of the lending arrangements for facilities owned by the Company
contain equity participation features payable at maturity at percentages,
ranging from 25% to 50%, of increases in fair market value of the properties.
With respect to current indebtedness on: (i) Senior Quarters at Huntington
Station and Senior Quarters at Stamford, which matures in February 1999, the
equity participation fee is the greater of (a) $480,000 or (b) 25% of appraised
market value over $17.5 million; (ii) Senior Quarters at Chestnut Ridge, which
matures in 2005, the equity participation fee is the greater of (a) $800,000 or
(b) 50% of appraised market value over $8.0 million; (iii) Town Gate Manor and
Town Gate East, which matures in 2006, the equity participation fee (a) in the
event that the fair market value exceeds $10.4 million by more than 125%, 50% of
the difference, or (b) in the event that the fair market value is less than or
equal to 125% of $10.4 million, 10% of fair market value. The Company is
negotiating with its various lenders in an attempt to remove the equity
participation features of their loans, but there can be no assurance that such
negotiations will be successful.
The net proceeds to the Company from the Offering, at an assumed offering
price of $13.00 per share, after deducting estimated underwriting discount and
offering expenses payable by the Company, are approximately $40.8 million ($44.0
million if the Underwriters' over-allotment option is exercised in full).
Approximately, $20.0 million of the net proceeds will be used to fund the
Company's equity investment in identified development and acquisition projects
for seven assisted living facilities having in the aggregate 817 units and a
capacity for 1,015 residents. The Company expects to use approximately $12.0
million of the net proceeds for all or a portion of the cost of unidentified
assisting living development and acquisition projects. Accordingly, the Company
estimates that this portion of the proceeds will be sufficient to fund its
development and acquisition activities for the next 18 months. The Company will
use a portion of the net proceeds to fund: (i) payment to the Kaplans of the sum
of $6.0 million (representing the approximate tax liability expected to be
incurred by the Kaplans in connection with transactions pertaining to the
transfer by the Predecessor of its facilities to the Company); and (ii) all real
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estate transfer or gains taxes arising out of the transfer by the Predecessor of
its facilities to the Company (estimated to be approximately $400,000). The
Company will use the balance of the net proceeds to fund additional currently
unspecified development and acquisitions and for working capital to be used
primarily for pre-development and pre-acquisition costs the Company anticipates
incurring in connection with its development and acquisition program and general
corporate purposes. See "Use of Proceeds" and "Certain Transactions." Pending
the uses outlined above, funds will be placed into short term investment such as
governmental obligations, bank certificates of deposit, banker's acceptances,
repurchase agreements, short term debt obligations, money market funds, and
interest bearing accounts.
The Company's growth strategy contemplates developing and/or acquiring
approximately 30 facilities containing in the aggregate 3,500 units and a
capacity for 4,100 residents by the end of 1999. The Company intends to either
develop facilities by constructing new facilities or converting existing
buildings into new facilities, or acquiring existing facilities. Over the past
three years, the average cost for the development or acquisition of a new
facility has ranged from $8.0 million to $22.0 million, with an average of $13.5
million. The Company's primary focus is the northeastern United States, which is
traditionally one of the most expensive areas for development because of a
variety of factors, including, but not limited to, the cost of land,
construction, zoning and regulatory compliance.
The Company intends to finance its growth strategy through a variety of
sources, including the proceeds of the Offering, bank and other financing,
long-term operating leases with REITs, future debt or equity offerings, joint
ventures and other sources. To a limited extent, the Company may also use other
forms of financing such as taxable or tax-exempt long-term debt, including
publicly issued debt. Because the Company intends to use such financing for its
properties, the amount of its indebtedness may increase as the Company pursues
its growth strategy. As a result of existing and future indebtedness, a
substantial portion of the Company's cash flow will be devoted to debt service.
There can be no assurance that the Company will generate sufficient cash flow
from operations to cover required interest and principal payments. If the
Company were unable to meet interest and principal payments, it could be
required to seek renegotiation of such payments with its lenders or obtain
additional equity or debt financing. There can be no assurance, however, that
such efforts will be successful or timely or that the terms of any such
financing or refinancing would be acceptable to the Company. Further, in the
event of future financings and refinancings, increases in prevailing interest
rates could increase the Company's debt service obligations.
IMPACT OF CERTAIN ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Standard No. 123, "Accounting for Stock-Based Compensation" (SFAS
No. 123), which prescribes a new method of accounting for stock-based
compensation that determined compensation expense based on fair value measured
at the grant date. SFAS No. 123 gives companies that grant stock options or
other equity instruments to employees, the option of either adopting the new
rules or continuing current accounting, however, disclosure would be required of
the pro forma amounts as if the new rules had been adopted. SFAS No. 123 is
effective for transactions entered into after December 15, 1995. The Company has
not yet decided whether to adopt the new method of accounting.
IMPACT OF INFLATION AND CHANGING PRICES
Operating revenue and management fees from assisted living facilities are
the primary sources of revenue earned by the Company. These properties are
affected by rental rates which are highly dependent upon market conditions and
the competitive environments where the facilities are located. Employee
compensation is the principal cost element of property operations. Although
there can be no assurance it will continue to do so, the Company has been able
historically to offset the effects of inflation on salaries and other operating
expenses by increasing rental rates.
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BUSINESS
GENERAL
Kapson Senior Quarters Corp. (the "Company") is one of the largest providers
of assisted living services in the United States and has owned, managed and/or
operated assisted living facilities since 1972. Assisted living facilities
provide a residential alternative for elderly senior citizens who need or desire
assistance with their activities of daily living and certain home health care
services in a non-institutional environment. A majority of the Company's
assisted living facilities are operated under the "Senior Quarters" tradename,
through which the Company believes it is widely recognized in the northeastern
United States as a leading provider of assisted living services.
The Company's operating philosophy is to provide services and care which
meet the individual needs of its residents, and to enhance their physical and
mental well-being, thereby allowing residents to live longer and to "age in
place." The Company's facilities are designed to provide premium accommodations
and a comprehensive, bundled package of standard services for a single monthly
fee. These facilities offer, on a 24-hour basis, personal, supportive and home
health care services appropriate for their residents in a home-like setting,
which allow residents to maintain their independence and quality of life.
Furthermore, many of the Company's facilities, through its Extended Care
Program, also offer additional specialized care and services to residents in the
beginning stages of Alzheimer's disease, dementia and other cognitive
impairments. At May 31, 1996, the average monthly fee for standard services at
the Company's facilities was approximately $2,980 per unit. The Company believes
that its facilities are generally larger than typical assisted living facilities
in terms of units and resident capacity. Its prototype development facility
consists of 125 units with capacity for up to 200 residents. Over 50 years of
combined experience in the assisted living industry have led the three senior
executives of the Company, Glenn Kaplan, Wayne Kaplan and Evan Kaplan
(collectively, the "Kaplans"), to develop and implement this prototype which
enhances operating margins by capitalizing on economies of scale.
The Company owns, manages and/or operates 15 assisted living facilities with
an aggregate of 1,623 units and a capacity for 2,392 residents, located in New
York, New Jersey, Connecticut and Pennsylvania. Of these facilities, the Company
owns all or a portion of eleven facilities with an aggregate of 1,145 units and
a capacity for 1,749 residents. In addition, the Company currently has under
development seven assisted living facilities in these states with an expected
aggregate of 817 units and a capacity for 1,015 residents. The average age of
residents at the Company's facilities is approximately 85, and the average
length of stay is 24 months. At May 31, 1996, the Company's facilities that were
stabilized (I.E., in operation for at least twelve months) had a weighted
average occupancy rate of 98.3%, with many of them maintaining waiting lists.
Furthermore, such facilities have operated at a 98.0% occupancy rate for the
past three calendar years. Management attributes its success in maintaining high
monthly fees and occupancy levels to a number of factors, such as the premium
nature of its facilities; the comprehensive bundling of standard services as
part of a single package and the quality of those services; referrals from
former residents, their families and health care professionals; and the long
tenure and low turnover of its staff, which produces strong relationships with
the residents and their families.
The Company was formed in order to consolidate and expand the assisted
living facility business of The Kapson Group, a New York general partnership of
which the sole equal partners are the Kaplans, who are brothers. In connection
with the Offering, a series of transactions designed to consolidate The Kapson
Group's assisted living facility business in the Company are being entered into.
See "Business -- Government Regulation" and "Certain Transactions." The address
of the Company's headquarters is 242 Crossways Park West, Woodbury, New York
11797. Its telephone number is (516) 921-8900. The Company is a Delaware
corporation incorporated on June 7, 1996. Its facsimile number is (516)
921-8998.
THE ASSISTED LIVING INDUSTRY
THE ASSISTED LIVING MARKET. The long-term care industry encompasses a wide
continuum of services and residential arrangements for elderly senior citizens.
Skilled nursing facilities provide the highest level of care and are designed
for elderly senior citizens who need chronic nursing and medical
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attention and are not able to live on their own. Further, skilled nursing
facilities tend to be one of the most expensive alternatives while providing
elderly senior citizens with limited independence and a diminished quality of
life. On the other end of the continuum is home-based care, which typically is
provided in an individual's private residence. While this alternative allows the
elderly individual to "age in place" in his or her home and, in certain
instances, can provide most of the services available at a skilled nursing
facility, it does not foster any sense of community or the ability to
participate in group activities.
Assisted living facilities generally are designed to fill the gap in the
middle of this continuum. Assisted living facilities have been described by the
Assisted Living Facilities Association of America ("ALFAA") as providing a
special combination of housing and personal, supportive and home health care
services designed to respond to the individual needs of those who need or desire
help with their activities of daily living, including personal care and
household management. According to ALFAA, residents of assisted living
facilities are generally in their eighties. Services in an assisted living
facility are generally available 24 hours a day to meet the scheduled and
unscheduled needs of residents, thereby promoting maximum dignity and
independence.
The assisted living industry remains highly-fragmented, with only 5% of the
industry's units represented by the top 30 industry participants. The industry
is characterized by participants who operate only a limited number of facilities
and who frequently can offer only basic assistance with a limited number of
activities of daily living. The Company believes that it enjoys several
competitive advantages over typical industry participants, including: (i) the
ability to offer premium accommodations and a comprehensive bundle of standard
services for a single inclusive monthly fee; (ii) more sophisticated,
professional management structures and more highly-trained employees; (iii) a
cost-efficient, user-specific prototype facility; (iv) experience in providing
home health care services; and (v) the proven ability to operate in a highly
regulated environment such as that in the State of New York.
TRENDS AFFECTING THE INDUSTRY. The Company believes its assisted living
business benefits from the following demographic trends, cost-containment
initiatives, long-term care facility supply and demand imbalances and quality of
life advantages affecting the long-term care industry:
AGING POPULATION. The continued aging of the United States population
results in increased demand for care of elderly senior citizens. This group
represents one of the fastest growing segments of the population, and requires a
disproportionately high percentage of health care services. According to U.S.
Bureau of the Census data, the number of people in the United States aged 75 and
older increased by approximately 47% from 1981 to 1995, growing from 10.1
million to 14.8 million. The segment of the population over 85 years of age,
which comprises the largest group of residents at the Company's facilities, is
projected, according to U.S. Census data, to increase by approximately 42%
between the years 1990 and 2000 in the United States. Furthermore, according to
projections by the U.S. Bureau of the Census, by the year 2000 six million
members of the United States population will be aged 85 years or over, and,
according to the Agency for Health and Policy Research, an estimated 57% of
these individuals will need help with one or more activities of daily living.
The Company believes that the aforementioned statistics and the significant
growth of the elderly population in comparison to the general population as
depicted in the graph below will contribute to continued strong demand for
assisted living services.
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PROJECTED PERCENTAGE CHANGE IN THE ELDERLY POPULATION OF THE UNITED STATES
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
85+ 75-84 GENERAL POPULATION
<S> <C> <C> <C>
1980 0.0% 0.0% 0.0%
1990 34.9% 29.5% 9.8%
2000 93.4% 59.8% 19.4%
2010 166.0% 69.0% 23.9%
2020 210.6% 98.4% 26.8%
</TABLE>
Source: U.S. Bureau of the Census.
CHANGING FAMILY DYNAMICS. Changing family dynamics increase the likelihood
that families will utilize the assisted living alternative. Because of the
growing number of two-income households as well as the increased geographical
separation of elderly family members from their children and grandchildren, many
families (especially those with children at home) are not able to care for their
elderly relatives in their homes. Historically, unpaid women (typically
daughters or daughters-in-law) have represented a large portion of the
care-givers of the non-institutionalized elderly. Consequently, due to the
increased number of women in the labor force, there has been a reduction in the
supply of in-home family care-givers. Other factors, including the increase in
single-parent households, as well as wider geographic dispersion of families,
have contributed to the growing inability of families to care for their elderly
relatives in the home.
INCREASED AFFLUENCE OF THE ELDERLY. The net worth of elderly senior
citizens has increased and, consequently, many can better afford to pay for
third-party care. Many seniors have accumulated equity through savings plans as
well as home ownership. According to U.S. Bureau of the Census data, the median
net worth of householders aged 75 or more has increased from $55,178 in 1984 and
$61,491 in 1988 and $76,541 in 1991 to $77,654 in 1993 in the United States.
LIMITATION ON THE SUPPLY OF LONG-TERM CARE FACILITIES. State regulation and
the growing number of persons over the age of 75 may, in some areas, create an
imbalance between the supply and demand for assisted living services. The
majority of states in the United States (including New York) have enacted
certificate of need or similar legislation which generally limits the
construction of new skilled nursing facilities and the addition of beds or
services in existing skilled nursing facilities. High construction costs,
limitations on government reimbursement for the full cost of construction, and
start-up time and expenses also act to constrain growth in the supply of such
facilities. Such legislation benefits the assisted living industry by limiting
the supply of skilled nursing beds available for elderly senior citizens.
Certificates of need are not required for assisted living facilities in most
states, although some states do require assisted living providers to obtain a
license to operate their facilities and to comply with various regulations
regarding building requirements and operating procedures. Furthermore, states
often impose additional requirements on specific types of assisted living
facilities over and above standard congregate care requirements, making it
increasingly difficult for potential industry participants who are not familiar
with applicable regulatory requirements to open new facilities. New York
requires both a public needs assessment and licensure for certain types of
assisting living facilities. Further, the limited pool of experienced assisted
living staff and management, as well as the costs and start-up expenses to
construct an assisted living facility, provide an additional entry barrier for
the assisted living business.
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COST-CONTAINMENT PRESSURES; PUSH-DOWN EFFECT. In response to rapidly rising
health care costs, both government and private pay sources have adopted
cost-containment measures that have encouraged reduced lengths of stay in
hospitals and skilled nursing facilities. Moreover, cost factors are placing
pressure on skilled nursing facilities to shift their focus toward more intense
levels of care which enables them to charge higher fees, thus creating a
shortage of facilities where skilled but less intensive care is available. The
result of these forces is that patients are being "pushed down" from hospitals
and skilled nursing facilities to assisted living facilities. For example, the
State of New York enacted its Assisted Living Program as a cost-effective
long-term care alternative mainly for Medicaid beneficiaries who are eligible
for placement in a skilled nursing facility. The rate paid by Medicaid for the
home care services for Medicaid beneficiaries in an Assisted Living Program is
50% of the rate that would be paid for the same services in a skilled nursing
facility in the same geographical area.
QUALITY OF LIFE ADVANTAGES. The Company believes that assisted living is
becoming the preferred choice over skilled nursing homes for elderly senior
citizens and their families. This preference can be attributed to the ability of
residents of assisted living facilities to "age in place" in a residential
group-setting, thereby promoting independence, dignity and an improved quality
of life.
GROWTH STRATEGY
OVERVIEW. The Company's growth strategy focuses on the expansion of its
existing portfolio through the development and acquisition of additional
assisted living facilities, the expansion of its ancillary services, such as
home health care services, in-house pharmacy services and its Extended Care
Program, and maintaining its focus on cost-efficient facilities management. The
Company also intends to continue to capitalize on public recognition of the
Senior Quarters name to distinguish itself from competitors.
The Company's primary focus is the northeastern United States where it
intends to maintain its position as one of the largest full-service assisted
living providers. The Company also will seek to develop or acquire facilities in
other areas of the United States in which it believes it will be able to create
a sizable presence. The Company believes that by concentrating or "clustering"
its facilities in target areas with desirable demographics, it can increase the
efficiency of its management resources and achieve broad economies of scale.
Three generations of the Kaplan family have shaped the growth strategy of
the Company. Since 1985, the Company has developed ten assisted living
facilities and acquired all or an interest in three others, formed home health
care service agencies in order to offer such services in the Company's
facilities, and developed its prototype facility for cost-effective management.
Most of these facilities have been located in New York State, which has one of
the most extensive regulatory frameworks with respect to the provision of
assisted living services. Accordingly, the Company believes that it not only has
the requisite experience but also the systems, procedures and infrastructure to
support growth on a national basis and to adapt to regulatory change. The
Company intends to continue to finance its development and acquisition of new
facilities through a variety of sources, including the proceeds of the Offering,
bank and other financing, long-term operating leases with REITs, future debt or
equity offerings, joint ventures and other sources.
DEVELOPMENT AND ACQUISITION. Since 1985, the Company has developed ten
assisted living facilities having in the aggregate 1,069 units with a capacity
for 1,599 residents and has acquired the entire or a partial interest in three
facilities having in the aggregate 270 units with a capacity for 311 residents.
The Company presently intends to develop and acquire approximately 30 assisted
living facilities with an aggregate of 3,500 units with a capacity for 4,100
residents by the end of 1999, thereby increasing by approximately 175% the
resident capacity in all of the facilities that it owns, manages and/ or
operates. The Company will seek to realize this growth primarily through the
construction of new facilities and through the acquisition of existing
facilities. The Company intends to pursue the conversion of buildings employed
for other uses on a selective basis, thereby increasing its universe of
potential
33
<PAGE>
development activities. Additionally, the Company will selectively enter into
management contracts with not-for-profit and for-profit institutions and
developers inexperienced in operating an assisted living facility.
The Company believes that the "Senior Quarters" tradename and the Company's
established reputation in the assisted living industry increases its development
and acquisition opportunities and that its participation in a project generally
lends that project credibility with the potential financing sources, local
governing bodies and communities and potential residents. Further, through its
activities as one of the largest developers and operators of assisted living
facilities in the northeastern United States and management's activities in
numerous industry associations, the Company has generated numerous contacts
through which it is able to identify possible development and acquisition
opportunities.
DEVELOPMENT OF NEW FACILITIES
PROTOTYPE FACILITY. Through its quarter of a century of industry
experience, the Company has developed a prototype facility floor plan with more
efficient and flexible multi-purpose common areas and residential unit layout.
The design of this prototype has enabled the Company to reduce the square
footage required by 25% without adversely impacting the quality of its services
and facilities. The prototype facility contains 125 units with a capacity for up
to 200 residents, includes studios, one-bedroom and two-bedroom units, and spans
82,000 square feet.
DEVELOPMENT PROCESS. The development of a facility begins with the zoning
process, which the Company has significant experience at managing. Local zoning
board members are strongly encouraged to visit the Company's existing facilities
on both an escorted and a "drop-in" basis and to discuss with the Company's
senior management any concerns that may arise so that they may be addressed well
in advance of zoning board meetings. While the Company has developed a prototype
for its facilities, this plan is extremely flexible with respect to the exterior
facade, which can be tailored to blend into the surrounding community. The
construction of the Company's new facilities is typically undertaken by a select
group of general contractors with whom the Company works or intends to work on a
continuing basis. All contractors are required to submit performance and payment
bonds in favor of the Company. Several bids are solicited for each project and
the winning bidder is brought into the planning process in its initial stages.
The intensive involvement of the general contractor at such an early stage has
resulted in most of the Company's existing projects being completed on time and
within budget. There can be no assurance, however, that future projects will be
completed on time and within budget.
DEVELOPMENT IN PROGRESS. The Company is currently involved in various
stages of development with respect to the seven assisted living facilities
listed in the chart below, which the Company will have, unless otherwise
indicated, a majority interest in, manage and/or operate.
<TABLE>
<CAPTION>
ANTICIPATED ANTICIPATED
NUMBER OF UNITS/ COMMENCEMENT OF COMPLETION OF
FACILITY LOCATION RESIDENT CAPACITY CONSTRUCTION CONSTRUCTION
- ------------------------------------- ----------------------- ----------------- ------------------- ------------------
<S> <C> <C> <C> <C>
Mayfair at Glen Cove (1) Glen Cove, NY 90 / 90 3d Quarter 1996 3d Quarter 1997
Senior Quarters at Briarcliff Manor Briarcliff Manor, NY 102/130 3d Quarter 1996 3d Quarter 1997
Senior Quarters at Patterson (2) Patterson, NY 100/120 3d Quarter 1996 3d Quarter 1997
Senior Quarters at Albany Albany, NY 125/200 4th Quarter 1996 3d Quarter 1997
Senior Quarters at Tinton Falls Tinton Falls, NJ 125/150 1st Quarter 1997 1st Quarter 1998
Senior Quarters Bucks County, PA 125/125 1st Quarter 1997 1st Quarter 1998
Senior Quarters Westchester County, NY 150/200 2d Quarter 1997 2d Quarter 1998
</TABLE>
- ------------------------------
(1) The Company will manage this facility, but does not own an equity interest
in it. The owner of this facility has the right, on 60 days prior written
notice, to sell to the Company a 20% interest in this facility for a
purchase price based on the fair market value thereof but not exceeding
$200,000.
(2) The Company owns a minority interest in the entity owning the fee interest
in the land and building underlying this facility. See "Certain
Transactions."
34
<PAGE>
PRELIMINARY NEGOTIATIONS FOR FUTURE DEVELOPMENT. The Company is in the
preliminary stage of discussions to develop or acquire an additional 20 sites in
five states. In considering a prospective site for development, the Company
generally considers such factors as a potential market's demographics, the
number of existing long-term care facilities (including those owned or managed
by the Company) in the area, and the income level of the target population.
Preliminary development activities include due diligence activities (including
the evaluation of environmental and geo-technical matters), the preparation of
architectural and engineering plans and the negotiation of definitive agreements
regarding the acquisition of the site and the financing of the development. The
Company currently has no binding commitment or other agreement, arrangement or
understanding to acquire or to proceed with the development of any of these
sites, and there can be no assurance that the Company will ultimately be able to
or elect to acquire and develop any of these sites.
ACQUISITION OF EXISTING FACILITIES
ACQUISITION CRITERIA. Driven by the assisted living industry's current
fragmentation and ongoing consolidation, the Company believes that there are a
large number of acquisition opportunities available for well financed leading
operators. Through its extensive experience in the assisted living industry and
its development and acquisition team, the Company continually seeks to acquire
facilities in its targeted markets. In evaluating potential acquisitions, the
Company reviews and considers: (i) the location, ability to cluster with
existing facilities, and demographics of the area, (ii) the current and
projected revenues and cash flow of the facility, and (iii) the Company's
ability to increase bottom line profitability through enhanced services
(including home health care), operational efficiencies and capital improvements.
ACQUISITION PROCESS. Through its experience in developing and operating
assisted living facilities and management's participation in industry
associations, the Company has generated numerous contacts through which it is
able to identify possible acquisitions. The Company is regularly contacted by
other operators, industry participants and groups, as well as lenders and banks
associated and unassociated with the Company. The Company believes that it is
chosen over others due to their recognition as an experienced operator and its
ability to operate effectively in highly regulated states. Management intends to
pursue single and portfolio acquisitions of assisted living facilities where the
Company believes it can add increased value to the existing operations. Further,
the Company will seek to acquire independent living facilities where there is an
opportunity to reposition the existing operation into a Senior Quarters assisted
living facility.
EXISTING MANAGED OR PARTIALLY OWNED FACILITIES. The Company intends, in the
future, to discuss with one or more third-party owners of interests in the
Company's existing facilities, the potential for purchase by the Company of all
or a part of their interests. The Company would use the same analysis that would
be applied to new acquisitions when reviewing these opportunities. The Company
currently has no firm commitments or other agreements, arrangements or
understandings.
CONVERSIONS OF EXISTING FACILITIES USED FOR OTHER PURPOSES. The Company has
extensive experience with the conversion of existing buildings into assisted
living facilities which it believes expands its universe of potential
development opportunities. In certain instances, the conversion of an existing
facility may have compelling economic advantages compared to the development of
a new facility, including: (i) lower total development costs; (ii) less time
required for preparation of the facility; and (iii) an expedited zoning permit
process. While the Company believes that the majority of the facilities it
develops in the future will be newly constructed, the Company also believes that
its extensive experience with conversions enlarges its universe of potential
development projects and will enable it to take advantage of economically
lucrative conversion opportunities that do arise.
35
<PAGE>
CONVERSION OF EXISTING BUILDINGS SINCE 1985
<TABLE>
<CAPTION>
FACILITY CONVERSION
- ------------------------------------- --------------------------------------------------------------------------
<S> <C>
Senior Quarters at Huntington Station In 1986, the Company purchased a vacant school building and developed an
assisted living facility by adding a new wing and implementing extensive
renovation and rehabilitation.
Senior Quarters at Stamford This assisted living facility was formerly a luxury hotel that was
purchased by the Company in 1988 and thereafter converted into a managed
residential facility with its own Assisted Living Services Agency.
The Regency at Glen Cove This assisted living facility was formerly an unfinished condominium
project that was converted, designed and built in 1993 by its owner with
the Company's assistance.
Senior Quarters at Cranford The Company assisted the owner of this former hotel in converting it to an
assisted living facility in 1993.
Senior Quarters at Chestnut Ridge This assisted living facility was formerly a hotel that, in 1995, was
converted by doing extensive renovation and adding a new building which
incorporated many of the common areas.
Senior Quarters at East Northport The Company converted this former school building into an ALP facility in
1995-96 by performing extensive renovation and adding two residential
wings.
</TABLE>
ADDITION OF THIRD-PARTY MANAGEMENT CONTRACTS. The Company currently has
four facilities in which it manages for not-for-profit institutions and other
unaffiliated third-parties. The Company believes that management contracts are
not only generally profitable but also allow management a close look at a
facility which may lead to a further acquisition. Management believes that they
are chosen due to their established track record in operating assisted living
facilities.
EXPANSION OF COMPANY-PROVIDED ANCILLARY SERVICES. The Kaplans own and
operate a New York licensed home care services agency, which offers home care
services in most of the Company's New York facilities, and an Assisted Living
Services Agency as part of its Connecticut facility. The Company intends to
provide such services in all of its facilities, where permitted under applicable
law, and has applied for such licensure to provide such services in New York and
Connecticut. The Company expects to apply in the next year for registration as a
pharmacy in New York in order to offer and provide in-house pharmacy services in
its New York facilities and, where permissible, at its other facilities. See
"-- Government Regulation." In addition, the Company intends to offer its
Extended Care Program for residents suffering from cognitive impairments at many
of its existing facilities and all of its new facilities. The Company believes
not only that these ancillary services will enable the Company to attract
additional residents and enable residents to stay at the Company's assisted
living facilities longer, rather than having to transfer to more expensive
skilled nursing facilities, but also that its provision of such services will
increase as its growth strategy is implemented.
The Company also seeks to enhance and increase the amount and diversity of
assisted living services it provides through (i) the continued education of the
senior community, and particularly the residents and their families, concerning
the cost effectiveness of receiving additional services in an assisted living
facility, (ii) the continued development and refinement of assisted living
programs designed to meet the needs of its residents as they "age in place" and
(iii) the consistent delivery of quality services for residents.
COST-EFFICIENT FACILITIES MANAGEMENT. The Company's growth strategy also
emphasizes continued cost-efficient management at its assisted living
facilities. This includes the use of the Company's new facility prototype, the
balancing of increases in costs with increases in assisted living fees, and the
maximization of occupancy rates. In addition, because its facilities are
relatively close to one another, the
36
<PAGE>
Company is able to take advantage of volume purchases of supplies from vendors
with whom it has an established relationship, thereby reducing operating
expenses. Lastly, the Company maintains an aggressive facility maintenance
program which helps not only to attract and retain residents but also to avoid
costly replacements and repairs.
THE COMPANY'S ASSISTED LIVING FACILITIES
The Company currently owns, manages and/or operates 15 assisted living
facilities containing 1,623 units with a capacity for 2,392 residents. The
following chart sets forth information regarding the Company's existing
facilities.
<TABLE>
<CAPTION>
YEAR OF
NUMBER OF COMMENCEMENT
UNITS/ YEAR OF
RESIDENT OWNED OR CONSTRUCTED KAPSON
FACILITY CITY CAPACITY MANAGED OR CONVERTED OPERATIONS
- ------------------------------------------------- -------------- ---------- ----------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
CONNECTICUT
Senior Quarters at Stamford (1)................ Stamford 94/188 100% 1988 1988
NEW YORK
Senior Quarters at Centereach I (2)............ Centereach 101/200 100% 1979 1978
Senior Quarters at Huntington Station (2)...... Huntington 99/198 100% 1987 1987
Senior Quarters at Centereach II (3)........... Centereach 99/198 100% 1989 1989
The Regency at Glen Cove (4)................... Glen Cove 95/105 Managed 1993 1993
Senior Quarters at Chestnut Ridge (2).......... Chestnut Ridge 98/148 51% 1995 1995
Castle Gardens (5)............................. Vestal 84/84 Managed 1990/1993 1996
Senior Quarters at East Northport (2).......... East Northport 139/200 50% 1996 1996
Senior Quarters at Lynbrook (2)................ Lynbrook 126/200 Managed 1996 1996
Town Gate East (2)............................. Penfield 100/120 100% 1972 1996
Town Gate Manor (2)............................ Rochester 67/79 100% 1970 1996
NEW JERSEY
Senior Quarters at Cranford (1)................ Cranford 173/254 Managed 1993 1993
Change Bridge Inn (1).......................... Montville 103/112 23.75% 1988 1995
Senior Quarters at Jamesburg (1)............... Jamesburg 125/156 10% 1996 1996
PENNSYLVANIA
Senior Quarters at Glen Riddle (1)............. Glen Riddle 120/150 11% 1996 1996
----------
TOTAL............................................ 1623/2392
</TABLE>
- ------------------------------
(1) This facility is directly managed by a wholly owned subsidiary of the
Company pursuant to a management agreement that has been assigned to and
assumed by that subsidiary. See "-- Government Regulation" and "Certain
Transactions."
(2) In order to comply with applicable New York law and regulations, this
facility is operated by the Kaplans individually pursuant to an operating
agreement. The Kaplans have engaged the Company's wholly owned subsidiary
to provide certain management services pursuant to a management agreement.
See "-- Government Regulation" and "Certain Transactions."
(3) This facility is operated by Kaplans individually pursuant to an operating
agreement with the Company. The Kaplans have engaged the Company's wholly
owned subsidiary to provide certain management services pursuant to a
management agreement. See "Certain Transactions."
(4) This facility is operated by its owner, a New York not-for-profit
corporation that is unaffiliated with the Company. The owner has engaged
the Company's wholly owned subsidiary to provide management services
pursuant to a management agreement. See "-- Government Regulation" and
"Certain Transactions."
(5) The portion of this facility that is operated as an independent living
facility (84 beds) is managed by the Company's wholly owned subsidiary
pursuant to an operating agreement. The portion that is operated as an
Enriched Housing Program facility (27 beds) is operated by a New York
not-for-profit corporation.
The Company's facilities are generally located near or in a major population
center and close to shopping malls and social and cultural activity centers.
Management believes that, among other factors,
37
<PAGE>
residents generally choose a facility that is located close to their homes or
the homes of their families. Room configurations consist of studios and
variously sized one bedroom or two bedroom apartments. Communal areas usually
include a variety of activity rooms, a medical examination room, beauty salon/
barbershop, library, chapel, media rooms, billiard room, a crafts room and a
24-hour country kitchen.
The Company believes that its facilities are generally larger than typical
assisted living facilities in terms of units and resident capacity. Management
believes that economies of scale enhance operating margins at large facilities
and that "rent-up" risk is minimized through management's extensive experience
in marketing and developing, acquiring, managing and/or operating large
facilities, and the proximity of the Company's facilities to population centers
that can sustain such facilities. At May 31, 1996, the Company's facilities that
were stabilized (I.E., in operation for at least twelve months) had a weighted
average occupancy rate of 98.3%, with many of them maintaining waiting lists.
Furthermore, such facilities have operated at a 98.0% occupancy rate for the
past three calendar years. Management attributes its success in maintaining high
monthly fees and occupancy rates to a number of factors such as the premium
nature of its facilities; the comprehensive bundling of standard services as
part of a single package and the quality of those services; referrals from
former residents and health care professionals; and the long tenure and low
turnover of its staff which produces strong relationships with residents and
their families.
THE COMPANY'S ASSISTED LIVING SERVICES
The Company's facilities provide services and care which are designed to
meet the individual needs of its residents, enhance their physical and mental
well-being and to promote a supportive, independent and home-like setting. Most
of the Company's facilities are primarily designed as premium facilities at
which residents receive a bundled package of standard services for a single
monthly fee.
TAILORED CARE PLAN. A primary element of the Company's strategy is the
concept of "tailored" care to meet each resident's specific needs. The
customizing of services to meet a resident's needs commences with the admissions
process, during which the resident, his or her family and physician, and the
facility's medical director and management staff discuss the resident's needs
and develop a plan for his or her care. If recommended by the resident's
physician, additional home health care or medical services may be provided at
the facility by a home health care services agency. The care plan is reviewed
and modified on a regular basis.
EXTENDED CARE PROGRAM. The Company has implemented its Extended Care
Program at certain of its facilities. The program is designed to accept
residents with the beginning stages of Alzheimer's Disease, dementia and other
cognitive impairments and to enhance their opportunity to "age in place." This
program, which is provided at additional cost, includes special services such
as: personal care aides specifically trained to help seniors with declining
cognitive functioning; separate activity areas; special activities for cognitive
and behavioral problems, including ones that encourage artistic outlets for
creative expression; additional assistance with bathing, personal hygiene and
dressing; a high staff-to-resident ratio; either a separate dining room or
separate dining times; and special living arrangements. The Company intends to
expand its Extended Care Program to many of its current facilities and to offer
it at all new facilities.
NEW YORK STATE ASSISTED LIVING PROGRAM. In June 1993, the Company was
awarded 400 of the 698 beds (approximately 57%) allocated to the Long Island
Region under the State of New York's Assisted Living Program. This program is
geared to residents who are eligible for Medicaid and who require a higher
acuity of care than is typically provided in assisted living facilities. As part
of this program, the Company has committed to accept 380 Medicaid residents at
two facilities. The remaining number of beds may be filled by private-pay
residents. The Assisted Living Program is closed to new applicants and the
Company is not aware of any proposals pending in the New York State Legislature
to enact similar programs or to award additional beds under the existing
program. See "-- Government Regulation."
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<PAGE>
The Company's ALP facilities offer, in addition to the residential and
assisted living services provided at its other licensed facilities, certain home
care services which are provided by the licensed home care services agency owned
by the Kaplans or other home care services agencies, as appropriate. Under the
program, residential fees are generally paid in accordance with SSI residential
rates and the home care services provided to residents who are Medicaid
beneficiaries are reimbursed by Medicaid on a per day capitated basis. The
reimbursement rate is equal to 50% of the amount that would be paid for the
anticipated services at each resident's level of care (based on social and
nursing assessments) to nursing facilities in the same geographic area for a
Medicaid resident's home care services. As a result, there is a cost savings to
the State, and yet the Company's revenues are comparable to those derived from
private pay residents in non-ALP facilities. The Company's two ALP facilities
(Senior Quarters at Centereach I and Senior Quarters at East Northport) began
operation in March and April 1996, respectively. The Company operates its ALP
facilities with the same number of staff as its other facilities, although the
professional training of the staff is higher (I.E., home health aides rather
than personal care aides and the medical director is a registered nurse).
Although ALP facilities are, in general, highly regulated, the Company is
confident that its experience in operating under New York's Assisted Living
Program will better enable it to obtain future awards under similar programs in
New York or other states and manage increased regulatory requirements.
SERVICE AND CARE PACKAGE. The Company's facilities typically charge a
single monthly fee which includes a large package of services and amenities. The
Company believes that this fee is larger than that of typical providers of
assisted living services, and that such a fee is viable because (i) the
Company's facilities are designed as premium facilities, (ii) the Company's
basic package includes services that typical assisted living providers charge
for on an "as-needed" basis, (iii) the overall quality of its services, and (iv)
the long tenure of its staff which, because of its low turnover, becomes well
known and trusted by the facility's residents and their families. At May 31,
1996, the average monthly fee for standard services at the Company's facilities
was approximately $2,980 per unit. Over the past five years, the Company's
facilities have increased their monthly rates on average by 5%-7% per year while
wage costs and other costs have generally increased on average by 4% and 3%,
respectively. Among other things, the Company believes that this fee structure
distinguishes the Company from other assisted living providers and enhances the
home-like environment of its facilities, makes it easier for the Company to
predict operating expenses at any given facility and, therefore, increases
profitability at its facilities.
39
<PAGE>
The Company's monthly fee generally covers the following services and
amenities:
RESIDENTIAL SERVICES & AMENITIES
- Three daily meals served by waiters/ waitresses
- 24-hour staff on hand
- Housekeeping, laundry and linen services
- Daily afternoon socials
- A full social activities calendar
- Exercise room
- Library
- Bingo room, billiard room, card room and other recreational areas
- On-site convenience store
- Private dining room
- Cocktail bar/Country kitchen
- Shuffleboard, bocce and barbecue areas
- Full-time concierge services
- Security staff on duty at all hours
- Safety and security systems
- Daily transportation to local events, shopping and attractions
HEALTH SERVICES
PERSONAL CARE ASSISTANCE
- Assistance with activities of daily living, such as bathing, personal
hygiene and dressing
- Monitoring of prescribed medication
HEALTH CARE MONITORING
- Evaluation of present condition and setting of goals for improvement
- Maintenance of comprehensive medical records
A MEDICAL EXAMINING ROOM
- Private exam room for use of visiting physicians and other health care
professionals who charge separately for their services
- All visits are coordinated and reviewed by the facility's full-time
Medical Director
SKILLED NURSING AND HOSPITAL CARE
- Relationships with each area's providers of quality medical care
- Referral and admission assistance with skilled nursing facilities
- Medical Director who maintains current referral list of specialized
physicians
- If allowed by law, nursing services are provided by on-site staff.
AN EMERGENCY CALL SYSTEM
- Immediate contact with the reception area at all hours by emergency call
cord in every room and bathroom and a direct link intercom in living area
of each apartment
- Personnel trained in emergency procedures on premises 24 hours a day
WELLNESS MONITORING. The staff at the Company's facilities closely monitors
the physical and mental health of its residents in order to identify and respond
to changes and then, together with the resident and the resident's family and
physician, as appropriate, designs a solution to fit that resident's particular
needs. This monitoring activity takes place at meals and other scheduled
activities, and informally as the staff performs its services around the
facility. In addition, the staff works with home health care services agencies
to provide services that the facilities cannot provide, such as physical and
occupational therapy.
SOCIAL AND RECREATIONAL ACTIVITIES. The Company believes that an essential
part of enjoying an assisted living environment as well as maintaining a healthy
lifestyle is participation in social and
40
<PAGE>
recreational activities. Residents are encouraged to participate in facility
activities, and numerous activities rooms (such as bingo rooms, card rooms,
cocktail lounges) are included in the design of each of its facilities. At a
typical Company facility there will be between eight and 14 scheduled activities
per day, seven days a week. The activities vary facility by facility in
accordance with the particular interests of the facility's residents.
RESIDENT PARTICIPATION. Each facility has a Residents' Council and a Food
Service Committee comprised of several residents who are elected by their
co-residents. The Residents' Council meets with the Administrator of the
facility on a regular basis to discuss concerns and suggestions of the
residents. The Food Service Committee meets with the Administrator and the Chef
on a frequent basis to discuss possible changes and variations to the menu. Both
of these groups help to involve residents in the community while providing
day-to-day quality control.
OPERATIONS OF THE COMPANY'S FACILITIES
CORPORATE. Over the past 24 years the Company has provided centralized
management services to each of its facilities, including the development of
operating procedures, recruiting and training, financial accounting services, a
licensing facilitator and legal support systems. As part of the Company's
training procedures, new staff train at existing facilities to observe methods
of administration, cash management, personal care assistance, housekeeping,
maintenance, security, medication management, food preparation, nutrition
planning, supervision of recreational activities and other operational elements.
For a description of management arrangements regarding the operation of certain
facilities, see "Certain Transactions."
FACILITY. The operational staff at each of the Company's assisted living
facilities generally consists of an administrator, who has overall
responsibility for the operation of the facility (subject, however, to the
control of the licensed operator, where applicable), a medical director, a
recreation director, a case manager or social worker and an assistant
administrator. At least one personal care aide is on duty 24 hours per day to
respond to emergencies, and scheduled 24-hour assisted living services are
available to residents. Each facility has a kitchen staff, a housekeeping staff
and a small maintenance staff. The Company's assisted living facilities have on
average 70 to 80 full-time or part-time employees depending on the size of the
facility and the extent of assisted living services provided in that facility.
The Company's facilities place emphasis on diet and nutrition, as well as
preparing attractively presented healthy meals which can be enjoyed by the
residents. The Company's food service program is led by a nutritionist, who
prepares all menus and recipes for each facility. The menus and recipes are
reviewed and changed based on consultation with nutritional experts, input from
the residents, and applicable law and regulations. Under certain circumstances,
the Company also provides special meals for residents who require special diets.
EMPLOYEES. The Company emphasizes maximizing each employee's potential
through support and training. The Company experiences low turnover in the staff
at both its central office and its facilities and, consequently, it is able to
promote from within. Management personnel is trained in the areas of supervision
and management skills. At the facility level, key personnel such as an
administrator or an assistant administrator will generally have received
approximately eight months training at the Company's central office and one of
the Company's facilities prior to the opening of the facility. Other key
personnel, such as medical directors, case managers or recreational directors
will generally have received approximately four months training at one the
Company's facilities prior to assuming duties at a new facility. In addition,
the administrators of each facility conduct monthly in-service training sessions
relating to various practical areas of care-giving at the facility. These
monthly training sessions cover policies and procedures of all facets of
facility operations, including special areas such as state and social service
regulations, quality assurance, fire, safety disaster procedures, and resident
care. In addition, hourly employees are trained in the Company's philosophy of
assisted living, motivational sessions and practical how-to areas of dealing
with residents. The Company believes that the long tenure of its operational
staff is due to the advancement opportunities that arise out of the Company's
rapid growth.
41
<PAGE>
TRANSITION TEAM. In order to manage its growth more effectively, the
Company dispatches a transition team to each new facility that offers its
permanent staff back-up assistance and technical and other advice with respect
to all aspects of the operation of the new facility, such as budgets, policies,
procedures and systems, activities for the elderly, administration and provision
of specific assisted living services, food service, wellness monitoring,
maintenance, and other operational areas. Depending on the size and nature of
the new facility, a transition team generally consists of two to eight persons
who are department heads of other facilities. The team is typically on site
prior to and through the new facility's opening date, and remains there for a
week at a time during the new facility's first two months of operation.
QUALITY CONTROL. The Company ensures the quality of its services through
frequent, thorough reviews. The administrator of each facility conducts a
"walk-through" inspection every day and the department heads hold frequent staff
meetings to discuss issues concerning the operation of the facility. A Vice
President of Operations conducts a regular site review on an unannounced basis.
The Company also uses outside inspectors to examine the facility from the
viewpoint of the family member of a prospective resident and to report their
impressions to Company management.
COMPETITION
The long-term care industry is highly competitive and the Company expects
that the assisted living industry will become more competitive in the future.
The Company competes with numerous local, regional and national companies
providing long-term care alternatives such as home care services agencies, life
care communities, skilled nursing facilities, community-based service programs,
retirement communities and convalescent centers. The Company expects that as
assisted living receives increased attention, competition will grow, and that
new market entrants will include companies focusing primarily on assisted
living. Assisted living providers compete for residents primarily on the basis
of quality of service, price, reputation, physical appearance and location of
the living environment, services offered, family preferences and physician
referrals. Moreover, the Company expects to face competition for the development
or acquisition of assisted living facilities during the course of its
implementation of its growth strategy. Competition may be increased by changes
in the regulatory environment, especially in New York where assisted living is
highly regulated and a majority of the Company's facilities is located. Some of
the Company's present and potential competitors are significantly larger and
have, or may obtain, greater financial resources than those of the Company.
GOVERNMENT REGULATION
The Company's facilities are and will continue to be subject to certain
federal, state and local regulations and licensing requirements. In addition,
the facilities are also subject to various local building codes and ordinances.
These requirements vary from state to state and are monitored to varying degrees
by state agencies. Specific categories and names of licensed facilities also
vary from state to state. Most states in which the Company currently does
business require that assisted living facilities and home health care services
agencies be licensed. New York requires state registration in order to own and
operate a pharmacy; other states in which the Company intends to provide
pharmacy services also regulate such services.
REIMBURSEMENT. Assisted living residents or their families generally pay
the cost of their care from their own financial resources. In certain instances
private long-term care insurance may provide funds for assisted living services.
The purchase of private long-term care insurance appears to be increasing
dramatically as more variety in types of insurance has become available.
Government payments for assisted living facilities have been limited, and
there is no assurance that the proposed federal and state legislation involving
Medicaid, in whatever form such legislation may take, will not reduce government
support. The Company's facilities currently do not accept SSI-based rates from
their residents as full payment of their residential fee except for Medicaid
beneficiaries who are residents in the Company's two New York ALP facilities and
for a small number of residents in the Company's other facilities. Federal SSI
payments are available to certain low-income individuals who are aged, blind or
disabled. Some states, such as New York, supplement federal SSI payments. With
42
<PAGE>
respect to "private-pay" residents, the single monthly fee paid to the Company's
facilities may include a resident's SSI income but the balance is made up either
by that resident's family or other available funds. The Company does not
anticipate that changes in SSI residential rates will have a material effect on
the Company's current facilities, except with respect to its ALP facilities in
New York.
The Medicaid program provides payment for certain financially needy persons,
regardless of age, and is funded jointly by federal, state and local
governments. States may only use federal Medicaid funds to pay for long-term
care in nursing facilities or for certain home care services. Because under New
York's Assisted Living Program an ALP facility is considered to be the
resident's home, federal Medicaid funds may be used for home care services
provided to Medicaid-eligible residents at ALP facilities. Although the New York
Assisted Living Program is not solely for the benefit of Medicaid beneficiaries,
the state has, in the past, given preference to facilities that include Medicaid
residents, and the Company's two ALP facilities are intended to serve primarily
Medicaid residents. The residential fee for Medicaid residents, whether eligible
for SSI or not, is based on the SSI residential rate applicable to ALP
facilities. Home care services provided to residents of the ALP facility who are
Medicaid beneficiaries are reimbursed by Medicaid on a per day basis, which is
equal to 50% of the amount that would be paid for the anticipated services at
each resident's level of care (based on social and nursing assessments) to
nursing facilities in the same geographical area for a Medicaid resident's home
care services. Because the ALP facility only receives a fixed amount from
Medicaid for a range of home care services within the resident's level of care,
the ALP facility is at financial risk should its Medicaid eligible residents
require a level of services within the range for the specified level of care
that exceeds the amount reimbursed by Medicaid. The combined payments for
Medicaid-eligible residents are approximately the same as the overall monthly
fee for a private paying resident in a semi-private accommodation.
OTHER. The significant aspects of both the licensing and regulatory
environments in states where the Company currently operates and applicable
federal law include the following:
NEW YORK. The State of New York has a variety of levels of senior housing
ranging from those for residents requiring limited or no services to those aimed
at residents whose health needs are substantial. Certain of the lower levels,
such as independent living facilities, are subject to little or no regulation as
residential facilities. The Company owns and/or manages two independent living
facilities. However, residential facilities in which personal care and other
services are provided, are licensed and regulated by New York State's Department
of Social Services, and, with regard to ALP facilities, by the Department of
Health, as well. The Company's New York licensed facilities consist of Adult
Homes and ALP facilities. Adult Homes are a class of residential facilities for
adults needing levels of care that are more moderate than the higher levels of
care required for a resident in order to qualify for an ALP facility. The
licensure application process for licensed facilities, which includes an
assessment of public need, is complex and may take one year or more.
New York law and regulations prohibit a for-profit corporation from
operating a licensed facility. Natural persons individually or in partnership
may operate Adult Homes and ALP facilities, and, as the licensed operator(s),
may enter into management contracts. Any such management contract must, however,
provide, among other things, that the licensed operator(s) shall maintain
ultimate responsibility and liability for the licensed entity and the authority
and power to hire and discharge persons working at the licensed entity, maintain
and control the books and records of the licensed entity, retain ultimate
authority to dispose of assets used in the operation of the licensed entity, to
incur any liability on behalf of the licensed entity, and to adopt or enforce
policies regarding the operation of the licensed entity. Any change in the
operator of any type of licensed facility requires prior notification and
approval of the state. New York's licensed facilities are also subject to
periodic inspection and license renewal every four years.
Applicable regulations also include admission standards with respect to the
needs of each individual, and require that assessments be made by a professional
health care provider prior to the provision of home care services. Home care
services may only be provided to residents of a licensed facility by a licensed,
certified or otherwise approved home care services agency. Licensed and
certified agencies
43
<PAGE>
may be owned and operated by the operator of the licensed facility or by a
for-profit corporation but are subject to regulation by the Department of
Health. The Kaplans operate the Kapson Licensed Home Care Services Agency, a
home care services agency licensed by the state to arrange and/or provide,
directly or through sub-contracting, nursing services, home health aides,
physical, occupational and speech therapy, nutritional services, personal care
services, and housekeeper or chore services. The Kapson Licensed Home Care
Services Agency has applied to the New York State Department of Health to extend
its license to additional counties so as to provide such services to all of the
New York facilities serviced by the Company. A significant portion of the home
care services provided in the Company's ALP facilities are already being
provided by the Kapson Licensed Home Care Services Agency. If and when its
license is extended to other counties by the Department of Health, the Kapson
Licensed Home Care Services Agency intends to maintain on-site office space at
the Company's facilities. In addition, the Company has applied for licensure as
a home care services agency so that it may provide all such services in all its
New York facilities (other than its ALP facilities). See "-- Federal and State
Fraud and Abuse Laws and Regulations."
The Company expects to apply within the next year to New York state
authorities for registration as a pharmacy in order to provide in-house pharmacy
services in all of its facilities. A New York pharmacy may be owned by a
for-profit corporation provided that the corporation obtains a registration and
that the actual practice of pharmacy is conducted by licensed pharmacists. New
York pharmacies are subject to inspections, notice requirements relating to,
among other things, changes of ownership, and extensive regulations on all
aspects of pharmacy business practices, including but not limited to the
labeling and dispensing of drugs, the preparation of sterile products, and
recordkeeping. The sale of pharmaceutical products by a pharmacy in other states
is subject to regulation by such states.
Licensed facilities in New York are not required to provide a specific mix
of SSI-eligible and private-pay residents, but preference has, in the past, been
given with respect to applicants for licenses under New York's Assisted Living
Program to those who will commit beds to Medicaid residents. Once approved to
provide a designated number or percentage of Medicaid beds, an ALP facility
operator cannot reduce that amount without further state approval, which may or
may not be granted.
In addition to its Adult Homes, the Company operates two ALP facilities in
New York. Pursuant to state law, ALP facilities combine an Adult Home with a
type of home care services agency, which in the Company's facilities is a
licensed home care services agency. The New York State Department of Social
Services and Department of Health have joint oversight over ALP facilities. To
qualify as an ALP resident, an individual must require more care and services
than can be directly provided by a typical Adult Home and must be medically
eligible for placement in a nursing facility. The Assisted Living Program is
available to residents who pay privately but priority is given to
Medicaid-eligible individuals. Payment for such residents is based on a
combination of residential fees based on SSI-established rates, and a daily
capitated Medicaid payment. See "-- Reimbursement." The Program, which was
enacted in 1991 but has only recently been in operation, is subject to
reevaluation in the near future.
In 1995, the New York State legislature set up a task force to study
long-term care financing, which is expected to issue a report in 1996. Changes
in applicable law or regulations may result from this report in the near future.
NEW JERSEY. The State of New Jersey has four levels of supportive senior
housing, all of which are licensed, regulated and subject to inspection. The two
lowest levels, Class C Boarding Homes and Residential Health Care Facilities,
are not considered assisted living facilities by the State of New Jersey even
though they provide some of the same services as New Jersey assisted living
facilities. The Company owns part of and manages one New Jersey Residential
Health Care Facility. The two highest levels, Assisted Living Residences
("ALRs") and Comprehensive Personal Care Homes ("CPCHs"), were created to
promote "aging in place" by providing supportive health and social services as
needed to enable residents to maintain their independence in a familiar
environment. ALRs are subject to more extensive regulation than CPCHs. The
Company will be managing one ALR and one CPCH in New Jersey.
44
<PAGE>
The state generally requires a certificate of need for an ALR or CPCH
facility under an expedited review process. The state also requires a
certificate of need for Residential Health Care Facilities, but not for Class C
Boarding Homes. The New Jersey legislature has considered legislation exempting
such facilities from any certificate-of-need-type review but such legislation
has not yet passed. The state mandates that five percent of all ALR/CPCH
residents be SSI-eligible and twenty percent of ALR residents must be
nursing-home eligible within 36 months of licensure. Prior state notification
and/or approval is required for changes in ownership, including transfer of ten
percent or more of the corporation's stock. New Jersey prohibits any facility
that is not licensed as an ALR or CPCH from advertising that it is providing
assisted living services and care or other similar services.
CONNECTICUT. Assisted living facilities (designated "managed residential
communities" in the State of Connecticut) are facilities consisting of private
residential units that provide a managed group living environment, including
housing and services primarily for persons aged 55 or older. Managed residential
communities may be owned and operated by a for-profit corporation and do not
themselves need to be licensed but they are regulated and subject to state
inspection. The Company currently owns and operates one managed residential
community in Connecticut. A managed residential community generally may provide
home health care services only through an outside licensed home health care
services agency or by contract with an "Assisted Living Services Agency"
("ALSA"). However, if the managed residential community provides certain core
activities as defined by state regulations, that managed residential community
may itself become a licensed ALSA. Assisted living services are defined by
regulation as nursing services and assistance with activities of daily living
provided to clients living within a managed residential community. A Certificate
of Need is a prerequisite to licensure as an ALSA.
Under the recently enacted ALSA legislation and regulations, the owner and
operator of a managed residential community that owns and operates a licensed
ALSA may also own and operate a licensed home health care services agency but,
unless it is licensed as a home health care services agency, the managed
residential community must otherwise contract with one or more licensed home
health care services agencies for services that cannot be provided by the ALSA.
Once licensed as an ALSA, the managed residential community is required to
provide assisted living services to its residents. Any change in ownership,
including beneficial ownership of 10% or more of the stock of a corporation that
owns or operates such agency, is subject to prior state approval. A change in
ownership of a managed residential community requires notification to the state
and any ALSA providing services to its residents. The Company has been advised
that Medicaid reimbursement is not currently available or projected for ALSA
services. A corporation owned by the Kaplans currently owns and operates a
licensed ALSA offering such services in the Company's Connecticut managed
residential community; however, the Company has applied for licensure to own and
operate its own ALSA in order to provide all such services in this facility.
PENNSYLVANIA. Assisted living facilities in the State of Pennsylvania are
designated "personal care homes" ("PCHs"). PCHs must receive a state license and
are subject to regulation and inspection but there is no certificate of need
procedure and for-profit corporations may own and operate such facilities. There
are no state requirements as to the mix of SSI/private-pay residents in PCHs. A
change of ownership such that there is a change in the approved operators
(principal individuals) would require a new license.
FEDERAL AND STATE FRAUD AND ABUSE LAWS AND REGULATIONS. The Kaplans offer
home care services through their ownership and operation of the Kapson Licensed
Home Care Services Agency. A portion of the services currently provided by the
Kapson Licensed Home Care Services Agency to ALP residents is reimbursed by
Medicaid. The Kapson Licensed Home Care Services Agency is not certified to
provide Medicare-reimbursable services and is not a Medicare provider. As a
Medicaid provider, the Kapson Licensed Home Care Services Agency is subject to
federal and state Medicaid fraud and abuse laws to the extent such services are
reimbursed by Medicaid.
45
<PAGE>
In addition, the Federal "Stark Law" provides that where certain health care
professionals have a "financial relationship" with a provider of
Medicaid-reimbursable "designated health services" (including, among other
things, home health care and pharmacy services), the health care professional
may be prohibited from making a referral to the health care provider, and such
health care professionals may be prohibited from billing for the designated
health service. Although the Company believes that ownership in it is not
subject to the Stark Law, a "financial relationship" may be interpreted by the
government to include ownership of stock of the Company as a provider of
management services to the home health care services agency. Accordingly,
referrals by certain health care professionals who are stockholders of the
Company to the Kapson Licensed Home Care Services Agency or the Company's
pharmacy for residents whose services are reimbursable by Medicaid, and billing
Medicaid by the ALP for such services, may be prohibited under the Stark Law.
Certain exceptions available under the Stark Law to certain health care
professionals who are investors would not be applicable as the Company does not
currently meet the qualifying test of stockholder equity of at least $75.0
million. Submission of a claim for services for which payment is prohibited
under the Stark Law could result in substantial civil penalties. New York State
imposes similar prohibitions against health care professionals referring any
patients to a company that provides pharmacy services in which the health care
professional has an ownership or financial interest such as stock ownership in
the Company. Laws imposing various restrictions applicable to such referrals
exist in many other states. The Company reviews and will continue to review all
aspects of its operations to assure compliance with federal and state health
care fraud and abuse laws, and will monitor developments under such laws.
COMPANY HISTORY
The Kaplan family has an extensive background in real estate and assisted
living. In 1932, the grandfather of the Kaplans founded a family-owned
commercial real estate enterprise with a number of subsequent investments in
hotel and hospitality properties. This enterprise entered the assisted living
business in 1972 by opening its first facility. A second assisted living
facility was opened two years later. Thereafter the family's existing assisted
living facilities were expanded, another was opened and land for future assisted
living projects was purchased. In 1985, The Kapson Group was formed as a New
York general partnership between Glenn Kaplan, Wayne Kaplan and Evan Kaplan. The
Kapson Group retained one of these assisted living facilities. Since that time,
The Kapson Group has phased out its commercial real estate operations, focused
strictly on its assisted living business, and built an executive management team
and assisted living operation with experience and expertise in the financing,
acquisition, development, management and operation of assisted living
facilities.
The Company was formed as a Delaware corporation on June 7, 1996 in order to
consolidate and expand the assisted living facility business of The Kapson
Group. The Kapson Group operated its business in the form of a series of
partnerships and corporations. In anticipation of the Offering, the Company
entered into a number of transactions with The Kapson Group and its affiliates.
For a description of these transactions, see "Certain Transactions."
EMPLOYEES
As of the date hereof, the Company and its facilities employ approximately
900 persons, including 26 in the Company's corporate headquarters. The Company
believes its employee relations are good.
LEGAL PROCEEDINGS
The Company is involved in various lawsuits and other matters arising in the
normal course of business. In the opinion of management of the Company, although
the outcomes of these claims and suits are uncertain, in the aggregate they
should not have a material adverse effect on the Company's financial position or
results of operations.
46
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information regarding the executive officers
and directors of the Company as of June , 1996.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- ----------------------------------------------------------------
<S> <C> <C>
Glenn Kaplan 43 Chairman of the Board of Directors and Chief Executive Officer
Wayne L. Kaplan 40 Vice Chairman of the Board of Directors; Senior Executive Vice
President and Secretary
Evan A. Kaplan 37 President and Chief Operating Officer; Director
John M. Sharpe, Jr. 43 Vice President, Chief Financial Officer and Treasurer Designate
Joseph G. Beck 41 Director
Bernard J. Korman 64 Director
Gerald Schuster 66 Director
</TABLE>
- ------------------------------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
GLENN KAPLAN is the Chairman of the Board of Directors and Chief Executive
Officer of the Company. Prior to June 1996 he was a partner and co-founder of
The Kapson Group. Glenn received a B.S. degree in Accounting from the University
of Bridgeport.
WAYNE L. KAPLAN is the Senior Executive Vice President, Vice Chairman of the
Board of Directors, and Secretary of the Company. Prior to June 1996 he was a
partner and co-founder of The Kapson Group. Wayne is a member of the New York
State Bar, was appointed by Governor Mario Cuomo to the New York State Life Care
Community Council, sits on the Board of Directors of the Assisted Living
Facilities Association of America (ALFAA), the Connecticut Assisted Living
Association (CALA), the Empire State Association of Adult Homes (assisted living
facilities in New York State), and the New Jersey Assisted Living Association.
Wayne received a B.S. degree in business from the University of Rhode Island and
a J.D. degree from the George Washington University School of Law.
EVAN A. KAPLAN is a director and the President and Chief Operating Officer
of the Company. Prior to June 1996 he was a partner and co-founder of The Kapson
Group. Evan received a B.A. degree in Psychology from Syracuse University.
JOHN M. SHARPE, JR. has been appointed as the Vice President, Chief
Financial Officer and Treasurer of the Company effective July 8, 1996. From June
1994 to June 1996 he was the Chief Financial Officer of Executive Plan Design,
Inc., a privately held full brokerage company, where he was responsible for the
administrative and operational functions of the Company and, among other things,
oversaw the establishment of a financial consulting division. From January 1984
to June 1994, he was the Chief Financial Officer and Treasurer of Medical
Sterilization, Inc., a publicly traded medical products manufacturer and service
company where he eventually was involved in arranging financing, and supervised
all financial personnel. Prior to 1984, he was a Senior Associate at Coopers &
Lybrand. He received a B.B.A. degree in accounting at Iona College.
JOSEPH G. BECK, director, is a founding principal and executive committee
member of Shattuck Hammond Partners Inc. ("SHP"), a specialty health care
investment banking firm based in New York. He directs the firm's activities in
the area of long-term care and related companies. Prior to SHP, he was a
Vice-President (1987-1990) and Principal (1990-1993) at Cain Brothers, Shattuck
& Company -- a predecessor to SHP. From 1985 to 1987, he was a Vice-President at
Chemical Bank where he eventually directed the investment banking work with
hospitals and other health care companies. Prior thereto, he
47
<PAGE>
was a senior credit analyst at Moody's Investors Services, Inc., a financial
service company. From 1978 to 1982, he held several positions in health care
regulation and policy analysis for various departments of the New York State
Government and for the New York State Senate. Mr. Beck is a member of the Board
of Trustees of The Lighthouse -- a not-for-profit vision rehabilitation,
research and training agency. He received a B.A. degree from LeMoyne College and
a Masters degree in Health Policy and Management from the Harvard University
School of Public Health.
BERNARD J. KORMAN, director, has been Chairman of the Board of Trustees of
Graduate Health System, a Philadelphia based not-for-profit health system with
hospitals in Pennsylvania and New Jersey, since December 1995. From 1983 to
1986, Mr. Korman was Chairman of PCI Services, Inc. Since 1986, Mr. Korman has
been Chairman of NutraMax Products, a publicly traded consumer healthcare
products company. From 1983 until 1996, Mr. Korman was President, CEO and a
director of MEDIQ Incorporated, a publicly traded healthcare services company.
Mr. Korman is currently a director of: Mental Health Management, Inc.; The New
America High Income Fund; The Pep Boys, Inc; Today's Man, Inc.; Omega Healthcare
Investors, Inc.; and InnoServ Technologies, Inc., PCI Services, Inc., NutraMax
Products, and Mental Health Management, Inc. are all affiliates of MEDIQ
Incorporated. Mr. Korman received a B.S. degree from the University of
Pennsylvania and an L.L.B. degree from the University of Pennsylvania School of
Law.
GERALD SCHUSTER, director, has been President and CEO of Continental Wingate
Company, Inc., a real estate, healthcare and financial services company which
developed and has operated eight long-term care and rehabilitation facilities
with 1,100 beds in New York and Massachusetts, since 1971. Mr. Schuster received
a B.B.A. degree from Clark University.
See "Certain Transactions" and "Principal and Selling Stockholders" for
certain information concerning the Company's Directors and executive officers.
Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan are brothers. There are no
other family relationships among any directors or officers of the Company.
Directors of the Company hold office until the next annual meeting of
stockholders and until their successors are elected and qualified, or until
their earlier resignation or removal. All officers are appointed by and serve at
the discretion of the Board of Directors.
Prior to the consummation of the Offering, the Board of Directors of the
Company intends to expand the size of the Board of Directors to seven and to
elect one additional independent director who is not affiliated with the Kaplans
(such director, together with all current directors who are not affiliated with
the Kaplans, being "Independent Directors").
KEY EMPLOYEES
MARYELLEN K. POKOWITZ has been Vice President of Operations of the Company
since May 1996. Ms. Pokowitz was Head Administrator for the Company from April
1989 to May 1996. Prior to that, Ms. Pokowitz was employed in various
operational positions by the Company since 1977. Ms. Pokowitz was awarded the
"Administrator of the Year" award by the Empire State Association of Adult Homes
in 1990.
PAUL M. HANNAN has been Vice President of Development of the Company since
July 1994. From May 1991 to June 1994, Mr. Hannan was Director of Finance for
Genesis Health Ventures, Inc., a publicly traded long-term health care company,
where he analyzed prospective acquisitions, managed the financial activities and
supervised the development and expansion of existing facilities. Mr. Hannan
received an M.B.A. degree in Finance from Drexel University and a B.S. degree
Business Administration from Delaware Valley College.
ROBERT C. ROSENBERG has been Vice President of Development of the Company
since March 1996. From January 1995 to March 1996, Mr. Rosenberg was Vice
President - Development for the Economic Development Corp. of the City of New
York where he was responsible for financial analysis and due diligence for a
broad range of real estate projects. From December 1992 to August 1994, Mr.
Rosenberg
48
<PAGE>
was Deputy Director of Real Estate for the Metropolitan Transit Authority. From
August 1987 to November 1992, Mr. Rosenberg worked in various development
management positions for Olympia & York Companies (USA). Mr. Rosenberg received
a B.A. in Urban Planning from Stanford University and an M.B.A. degree in
Finance from New York University.
WILLIAM D. BURSON has been Vice President of Marketing for the Company since
March 1996. From September 1991 to March 1996, Mr. Burson was director of
independent living operations for Church Homes, Inc., a 500-bed congregate care
community where he directed general operations and marketing. From 1986 to
September 1991, Mr. Burson was Executive Vice President -- Marketing and Sales
for Retirement Management Group, Inc., a manager of nursing homes and retirement
communities.
DENNIS R. CREGAN has been Project Manager for the Company since October
1994. From January 1994 to June 1994, Mr. Cregan worked for Hunter Real Estate
Management where he was Project Manager for a $12 million capital improvement
project; from May 1990 to December 1993, Mr. Cregan was Manager -- Plant
Engineering for Hazeltine Corporation, a subsidiary of ESCO Electronics Corp., a
publicly traded manufacturer of defense and electronics equipment and systems,
where he was responsible for facilities management, construction budget
administration, contractor selection and compliance with local, state and
federal regulations. From 1982 to May 1990, Mr. Cregan served in several project
planning and administration positions for Hazeltine. Mr. Cregan received a
degree in Architectural Engineering from the State University of New York at
Farmingdale. Mr. Cregan is certified by the International Facilities Management
Association and is a professional member of the National Fire Protection
Association (NFPA) and Construction Specifications Institute (CSI).
JUNE F. HECK has been the Controller for the Company since November 1994.
From December 1993 to November 1994, Ms. Heck served as General Manager --
Corporate Accounting for Synergy Gas Corporation, a publicly traded utility gas
company. From April 1990 to November 1993, Ms. Heck was Accounting Manager of
the Weight Watchers International, Inc. division of H.J. Heinz & Co., a publicly
traded food products company. From August 1984 to April 1990, Ms. Heck served as
Controller for F. Robbins Corp., a commercial heating and air conditioning
company. From July 1981 to February 1984, Ms. Heck was an accountant for Price
Waterhouse. Ms. Heck received a B.S. degree and is pursuing an M.B.A. degree
from the School of Professional Accountancy of the Long Island University --
C.W. Post Campus.
MARLYNN B. COHEN has been Director of Human Resources for the Company since
August 1995. From September 1987 to August 1995, Ms. Cohen was Director of
Administration and Human Resources at Ernst & Young LLP, a public accounting
firm, in Melville, New York. At Ernst & Young, Ms. Cohen was responsible for
employee recruiting, benefit and salary administration, financial budgeting,
computer evaluation and support, and facilities management for a branch office.
Ms. Cohen received a B.A. degree in Economics from New York University.
COMMITTEES OF THE BOARD OF DIRECTORS
AUDIT COMMITTEE. Promptly following consummation of the Offering, the Board
of Directors will establish an Audit Committee that will consist of a majority
of Independent Directors. The Audit Committee will be established to make
recommendations concerning the engagement of independent public accountants,
review with the independent public accountants the plans and results of the
audit engagement, approve professional services provided by the independent
public accountants, review the independence of the independent public
accountants, consider the range of audit and non-audit fees and review the
adequacy of the Company's internal accounting controls.
COMPENSATION COMMITTEE. Promptly following the consummation of the
Offering, the Board of Directors will establish a Compensation Committee,
consisting of a majority of Independent Directors. The Compensation Committee
approves the salaries and other benefits of the executive officers of the
Company and administers any bonus, incentive compensation or stock incentive
plans of the Company. In addition, the Compensation Committee consults with the
Company's management regarding pension and other benefit plans, and compensation
policies and practices of the Company.
49
<PAGE>
ELECTION OF DIRECTORS
Prior to the first annual meeting of the stockholders of the Company, the
Company's Board of Directors will be divided into three classes. Directors of
each class will be elected at the annual meeting of stockholders held in the
year in which the term for such class expires and will serve thereafter for
three years. No determination has been made as to which directors will be
members of each class. See "Description of Capital Stock -- Delaware
Anti-Takeover Law and Certain Charter Provisions."
COMPENSATION OF DIRECTORS
The Company intends to pay its directors who are not employees of the
Company an annual compensation fee of $10,000 and a per meeting fee of $500 for
each Directors' meeting and each committee meeting attended. Under the Company's
1996 Stock Incentive Plan (the "Incentive Plan"), each non-employee director has
been granted, effective as of the date on which the offer price is determined, a
non-qualified option to purchase 10,000 shares of Common Stock at the initial
public offering price, and each new non-employee director upon the date of his
or her election or appointment will be granted a non-qualified option to
purchase 10,000 shares of Common Stock at the fair market value on the date of
grant. All options granted to non-employee directors will vest at the rate of
25% on each of the first four anniversaries of the date of grant, assuming the
non-employee director is a director on those dates, and all such options
generally will be exercisable for a period of ten years from the date of grant.
Upon a Change of Control (as defined in the Incentive Plan) all invested options
(which have not yet expired) will automatically become 100% vested. Directors
who are employees of the Company will not be compensated for services as a
director.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding the
compensation earned for services rendered in all capacities to the Company for
the fiscal year ended December 31, 1995 by the Company's Chief Executive Officer
and each other executive officer whose salary and bonus for such fiscal year was
in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
ANNUAL COMPENSATION (1)
---------------------------------------- ------------------------------------
OTHER ANNUAL RESTRICTED STOCK SECURITIES
NAME AND PRINCIPAL COMPENSATION AWARD(S) UNDERLYING
POSITION YEAR SALARY ($) BONUS ($) ($) ($) OPTIONS #
- --------------------------------- --------- ----------- ----------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Glenn Kaplan .................... 1995 67,177 0 169,189(2) 0 0
Chairman of the Board and Chief
Executive Officer
Wayne L. Kaplan ................. 1995 67,177 0 160,513(2) 0 0
Vice Chairman of the Board,
Senior Executive Vice President
and Secretary
Evan A. Kaplan .................. 1995 67,177 0 160,382(2) 0 0
President and Chief Operating
Officer
<CAPTION>
NAME AND PRINCIPAL ALL OTHER
POSITION COMPENSATION
- --------------------------------- --------------
<S> <C>
Glenn Kaplan .................... 39,500(3)
Chairman of the Board and Chief
Executive Officer
Wayne L. Kaplan ................. 39,500(3)
Vice Chairman of the Board,
Senior Executive Vice President
and Secretary
Evan A. Kaplan .................. 39,500(3)
President and Chief Operating
Officer
</TABLE>
- --------------------------
(1) Other than the salary, bonus and other compensation described above, the
Company did not pay the persons named in the Summary Compensation Table any
compensation, including incidental personal benefits, in excess of 10% of
such executive officer's salary.
(2) Represents distributions from partnerships that own properties ($158,400 in
each case), the personal use of a Company-paid automobile ($1,982, $2,113
and $1,982, respectively), and club membership dues paid in part for Glenn
Kaplan ($8,807).
(3) Represents, in each case, the Company's payment of premiums on a life
insurance policy. See "-- Employment Agreements."
50
<PAGE>
(4) Each of the Kaplans has entered into an employment agreement with the
Company of even date hereof and will be compensated in accordance with the
terms of that employment agreement from the date of this Prospectus.
EMPLOYMENT AGREEMENTS
The Company has entered into substantially similar employment agreements,
effective upon consummation of the Offering of the Company's Common Stock, with
each of Glenn Kaplan (as Chairman and Chief Executive Officer), Wayne L. Kaplan
(as Vice-Chairman, Senior Executive Vice President and Secretary) and Evan A.
Kaplan (as President and Chief Operating Officer) (each individually, an
"Executive"). Each agreement provides for an initial five-year term which is
automatically renewable for successive one-year terms (the "Employment Term")
unless either party gives written notice to the other at least six months prior
to the expiration of the then Employment Term of an intention to terminate.
During the Employment Term, the Executive will be obligated to devote
substantially all his business time, energy, skill and efforts to the
performance of his duties under the agreement and shall faithfully serve the
Company, subject to his right to perform his obligations as operator of one or
more of the Company's facilities in his individual capacity.
The agreement provides for an annual base salary of $213,000 (as adjusted
annually for cost of living increases) and a discretionary bonus. In addition,
under the agreement the Executive will be entitled to long-term disability
coverage, use of an automobile and club membership, and benefits generally
provided to executive employees.
The agreement also provides that during the Employment Term and thereafter,
the Company will indemnify Executive to the fullest extent permitted by law, in
connection with any claim, against Executive as a result of Executive serving as
an officer or director of the Company or in any capacity at the request of the
Company in or with regard to any other entity, employee benefit plan or
enterprise. Following Executive's termination of employment, the Company will
continue to cover the Executive under the Company's directors and officers
insurance for the period during which Executive may be subject to potential
liability for any claim, action or proceeding (whether civil or criminal) as a
result of his service as an officer or director of the Company at the highest
level then maintained for any then or former officer or director.
Any dispute or controversy arising under or in connection with this
Agreement (other than injunctive relief) shall be settled exclusively by
arbitration. Each party shall bear its own legal fees except that, in the event
the Executive prevails on any material issue, the arbitrator shall award the
Executive his legal fees except those attributable to frivolous positions.
The agreement may be terminated at any time by the Executive for Good Reason
(including a Change in Control of the Company) or by the Company for with or
without Cause (as each capitalized term is defined in the agreement). Good
Reason also includes the breach or termination by the Company or its
subsidiaries of any operating agreement between the Company and the Kaplans, as
licensed operators of the Company's facilities, or any management agreement
between the Company's wholly owned subsidiary and the Kaplans. If the employment
of the Executive is terminated for any reason, he may withdraw as a licensed
operator of certain of the Company's facilities. See "Risk Factors -- Operating
Agreements; Management Agreements."
If the Executive terminates his employment with the Company for Good Reason
(including the Company giving notice of non-renewal) or is terminated without
Cause, he will receive severance pay in an amount equal to two year's Base
Salary plus continued medical benefits for two years. In addition, the Executive
shall receive a prorated bonus for the fiscal year of his termination. The
agreement provides that Executive will have no obligation to mitigate the
Company's financial obligations in the event of his termination for Good Reason
or without Cause and there will be no offset against the Company's financial
obligations for other amounts earned by the Executive. If termination is the
result of Executive's death or disability, the Company will pay to the Executive
(or his estate), an amount equal to six months' Base Salary at his then current
rate of pay (reduced in the case of disability by his long-term disability
policy payments). If the Executive's the employment is terminated by him for
Good Reason or by the Company without Cause, he may also withdraw as a licensed
operator of certain of the Company's
51
<PAGE>
facilities; in such an event, he shall be entitled to receive twice his pro rata
share of the net operating fees for the preceding twelve months. See "Risk
Factors -- Operating Agreements; Management Agreements."
1996 STOCK INCENTIVE PLAN
BACKGROUND; PURPOSE; ELIGIBILITY. On June 7, 1996, the Board of Directors
and the stockholders of the Company approved the Incentive Plan. The following
description of the Incentive Plan is intended only as a summary and is qualified
in its entirety by reference to the Incentive Plan. The purpose of the Incentive
Plan is to enhance the profitability and value of the Company and its affiliates
for the benefit of their stockholders by enabling the Company (i) to offer
employees of the Company stock based incentives and other equity interests in
the Company thereby creating a means to raise the level of stock ownership by
employees and in order to attract, retain and reward such employees and
strengthen the mutuality of interests between employees and the Company's
stockholders, and (ii) to make equity based awards to non-employee directors
thereby attracting, retaining and rewarding such non-employee directors and
strengthening the mutuality of interests between non-employee directors and the
stockholders. All employees of the Company and its subsidiaries that satisfy
certain ownership requirements are eligible to be granted awards under the
Incentive Plan. In addition, non-employee directors of the Company will receive
awards of non-qualified stock options under the Incentive Plan, but are not
eligible for other awards thereunder.
ADMINISTRATION. The Incentive Plan will be administered by the Compensation
Committee of the Board of Directors of the Company which is intended to be
comprised solely of two or more directors qualifying as "outside directors"
under Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code") and satisfying any requirements of Rule 16b-3 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). The Compensation Committee will
have full authority and discretion, subject to the terms of the Incentive Plan,
to determine those individuals eligible to receive awards and the amount and
type of awards. Terms and conditions of awards will be set forth in written
grant agreements, the terms of which will be consistent with the terms of the
Incentive Plan. Awards under the Incentive Plan may not be made on or after the
tenth anniversary of the date of its adoption, but awards granted prior to such
date may extend beyond that date.
Available Shares and Other Units. A maximum of 600,000 shares of Common
Stock may be issued or used for reference purposes pursuant to the Incentive
Plan. The maximum number of shares of Common Stock subject to each of stock
options or stock appreciation rights that may be granted to any individual under
the Incentive Plan is 50,000 for each fiscal year of the Company during the term
of the Incentive Plan. If a stock appreciation right is granted in tandem with a
stock option, it shall apply against the individual limits for both stock
options and stock appreciation rights, but only once against the maximum number
of shares available under the Incentive Plan.
In general, upon the cancellation or expiration of an award, the unissued
shares of Common Stock subject to such awards will again be available for awards
under the Incentive Plan, but will still count against the individual specified
limits.
The Compensation Committee may make appropriate adjustments to the number of
shares available for awards and the terms of outstanding awards under the
Incentive Plan to reflect any change in the Company's capital stock, split-up,
stock dividend, special distribution to stockholders, combination or
reclassification with respect to any outstanding series or class of stock or
consolidation, or merger or sale of all or substantially all of the assets of
the Company.
AMENDMENTS. The Incentive Plan provides that it may be amended by the Board
of Directors, except that no such amendment, without stockholder approval to the
extent such approval is required by Rule 16b-3 of the Exchange Act or for the
exception for performance-based compensation under Section 162(m) of the Code,
may increase the aggregate number of shares of Common Stock reserved for awards
or the maximum individual limits for any fiscal year, change the classification
of employees and non-employee directors eligible to receive awards, decrease the
minimum option price of any
52
<PAGE>
option, extend the maximum option period under the Incentive Plan, change any
rights with respect to non-employee directors or to make any other change that
requires stockholder approval under Rule 16b-3 of the Exchange Act or the
exemption for performance-based compensation under Section 162(m) of the Code.
In addition, to the extent required by Rule 16b-3 of the Exchange Act, the
provisions of the Incentive Plan concerning the amount, price and timing of
non-employee director awards generally may not be amended more than once every
six months, except to comply with the requirements of the Code or the Employee
Retirement Security Act of 1974, as amended ("ERISA"). Rule 16b-3 of the
Exchange Act has recently been revised by the Securities and Exchange Commission
and many of the requirements for stockholder approval will no longer be
applicable after August 15, 1996.
TYPES OF AWARDS. The Incentive Plan provides for the grant of any or all of
the following types of awards to eligible employees: (i) stock options,
including incentive stock options and non-qualified stock options; (ii) stock
appreciation rights, in tandem with stock options or freestanding; and (iii)
restricted stock. In addition, the Incentive Plan provides for the one-time
non-discretionary award of stock options to non-employee directors of the
Company. Each of these types of awards is discussed in more detail below. Awards
may be granted singly, in combination, or in tandem, as determined by the
Compensation Committee.
STOCK OPTIONS. Under the Incentive Plan, the Compensation Committee may
grant awards in the form of options to purchase shares of the Company's Common
Stock. Options may be in the form of incentive stock options or non-qualified
stock options. The Compensation Committee will, with regard to each stock
option, determine the number of shares subject to the option, the term of the
option (which shall not exceed ten years, provided, however, that the term of an
incentive stock option granted to a ten percent stockholder of the Company shall
not exceed five years), the exercise price per share of stock subject to the
option, the vesting schedule (if any), and the other material terms of the
option. No option may have an exercise price less than the Fair Market Value of
the Common Stock at the time of grant (or, in the case of an incentive stock
option granted to a ten percent stockholder of the Company, 110 percent of Fair
Market Value), except that, in the case of certain modifications of the stock
options that are deemed to be new issuances under the Code, the exercise price
may continue to be the original exercise price.
The option price upon exercise may, to the extent determined by the
Compensation Committee at or after the time of grant, be paid by a participant
in cash, in shares of Common Stock owned by the participant (free and clear of
any liens and encumbrances), in shares of restricted stock valued at fair market
value on the payment date as determined by the Compensation Committee (without
regard to any forfeiture restrictions applicable to restricted stock), by a
reduction in the number of shares of Common Stock issuable upon exercise of the
option or by such other method as is approved by the Compensation Committee. If
an option is exercised by delivery of shares of restricted stock, the shares of
Common Stock acquired pursuant to the exercise of the option will generally be
subject to the same restrictions as were applicable to such restricted stock.
All options may be made exercisable in installments, and the exercisability of
options may be accelerated by the Compensation Committee. The Compensation
Committee may at any time offer to buy an option previously granted on such
terms and conditions as the Compensation Committee shall establish. The
Compensation Committee may in its discretion reprice options or substitute
options with lower exercise prices in exchange for outstanding options that are
not incentive stock options, provided that the exercise price of substitute
options or repriced options shall not be less than the Fair Market Value at the
time of such repricing or substitution. Options may also, at the discretion of
the Compensation Committee, provide for "reloads," whereby a new option is
granted for the same number of shares as the number of shares of Common Stock or
restricted stock used by the participant to pay the option price upon exercise.
RESTRICTED STOCK. The Incentive Plan authorizes the Compensation Committee
to award shares of restricted stock. Upon the award of restricted stock, the
recipient has all rights of a stockholder with respect to the shares, including
the right to receive dividends currently, unless so specified by the
Compensation Committee at the time of grant, subject to the conditions and
restrictions generally
53
<PAGE>
applicable to restricted stock or specifically set forth in the recipient's
restricted stock award agreement. Unless otherwise determined by the Committee
at grant, payment of dividends, if any, shall be deferred until the date that
the relevant share of restricted stock vests.
Recipients of restricted stock are required to enter into a restricted stock
award agreement with the Company which states the restrictions to which the
shares are subject and the date or dates or criteria on which such restrictions
will lapse. Within these limits, based on service or other criteria determined
by the Compensation Committee, the Compensation Committee may determine in its
sole discretion, or a combination thereof, the Compensation Committee may
provide for the lapse of such restrictions in installments in whole or in part
or may accelerate or waive such restrictions at any time.
STOCK APPRECIATION RIGHTS ("SARS"). The Incentive Plan authorizes the
Compensation Committee to grant SARs either with a stock option ("Tandem SARs")
or independent of a stock option ("Non-Tandem SARs"). A SAR is a right to
receive a payment either in cash or Common Stock as the Compensation Committee
may determine, equal in value to the excess of the Fair Market Value of a share
of Common Stock on the date of exercise over the reference price per share of
Common Stock established in connection with the grant of the SAR. The reference
price per share covered by an SAR will be the per share exercise price of the
related option in the case of a Tandem SAR and will be not less than the per
share Fair Market Value of the Common Stock on the date of grant (or any other
date chosen by the Committee) in the case of a Non-Tandem SAR subject to the
same exception that applies to stock options.
A Tandem SAR may be granted at the time of the grant of the related stock
option or, if the related stock option is a non-qualified stock option, at any
time thereafter during the term of the stock option. A Tandem SAR generally may
be exercised at and only at the times and to the extent the related stock option
is exercisable. A Tandem SAR is exercised by surrendering the same portion of
the related option. A Tandem SAR expires upon the termination of the related
stock option.
A Non-Tandem SAR will be exercisable as provided by the Compensation
Committee and will have such other terms and conditions as the Compensation
Committee may determine. A Non-Tandem SAR may have a term no longer than ten
years from its date of grant. A Non-Tandem SAR is subject to acceleration of
vesting or immediate termination upon termination of employment in certain
circumstances.
The Compensation Committee is also authorized to grant "limited SARs,"
either as Tandem SARs or Non-Tandem SARs. Limited SARs would become exercisable
only upon the occurrence of a Change in Control (as defined in the Incentive
Plan) or such other event as the Compensation Committee may designate at the
time of grant or thereafter.
CHANGE IN CONTROL. Subject to the next sentence, unless determined
otherwise by the Compensation Committee at the time of grant, upon a Change in
Control (as defined in the Incentive Plan), all vesting and forfeiture
conditions, restrictions and limitations in effect with respect to any
outstanding award will immediately lapse and any unvested awards will
automatically become 100% vested. However, unless otherwise determined by the
Compensation Committee at the time of grant, no acceleration of exercisability
shall occur with regard to certain options that the Compensation Committee
reasonably determines in good faith prior to a Change in Control will be honored
or assumed or new rights substituted therefor by a participant's employer
immediately following the Change in Control.
AWARDS TO NON-EMPLOYEE DIRECTORS. The Incentive Plan provides for a
one-time nondiscretionary award of 10,000 options to purchase Common Stock to
each non-employee director. See "Management -- Compensation of Directors."
54
<PAGE>
401(K) PLAN
The Predecessor established and maintained a tax-qualified plan under
Section 401(a) of the Code including a Section 401(k) feature (the "401(k)
Plan"). The Company has become the sponsor and will continue to maintain the
401(k) Plan. The 401(k) Plan provides retirement and other benefits to employees
of the Company and provides employees with a means to save for their retirement.
Employees become eligible to participate in the 401(k) Plan after they have
attained age 21 and have worked for at least twelve consecutive months during
which they complete at least 1,000 hours of service.
Subject to legal limitations, participants may elect, on a salary reduction
basis, to have one percent to 15% of their eligible compensation contributed to
their accounts under the 401(k) Plan. The Company may make a discretionary match
of participants' contributions to the 401(k) Plan up to 6% of eligible
compensation ("Matching Contributions"). In addition, the Company may make a
discretionary contribution to the 401(k) Plan ("Optional Contributions") which
will be allocable based on relative eligible compensation of participants who
have completed 1,000 hours of service during the plan year and are employed on
the last day of the plan year (or have retired, died or incurred a disability
during a plan year).
Participants are always fully vested in the value of their 401(k)
contributions and amounts "rolled over" from other qualified retirement plans.
Participants become vested in the Company's Matching Contributions and Optional
Contributions based on a graded seven year vesting schedule (or upon a
participant's attainment of age 65 while still employed, retirement after
attaining age 65, death, disability or a termination of the 401(k) Plan, if
earlier). Benefits under the 401(k) Plan may be distributed in a number of
different forms to be elected by a participant, including a lump sum,
installment payments and various annuity forms. In certain circumstances,
participants may receive loans or make hardship withdrawals from their accounts
in the 401(k) Plan. Participants may direct the investment of their accounts
under the 401(k) Plan among the various investment vehicles offered under the
401(k) Plan.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 145 of the General Corporation Law of the State of Delaware grants
each corporation organized thereunder the power to indemnify its officers and
directors against liability for certain of their acts. Article Ninth of the
Company's Certificate of Incorporation provides that no director of the Company
shall be liable to the Company for breach of fiduciary duty as a director to the
fullest extent permitted by the laws of the State of Delaware. Article Tenth of
the Company's Certificate of Incorporation provides that the Company shall, to
the extent permitted by Delaware law, indemnify its officers and directors
against liability for certain of their acts.
The Underwriting Agreement provides for reciprocal indemnification between
the Company, its controlling persons, on the one hand, and the Underwriter and
its controlling persons, on the other hand, against certain liabilities in
connection with this offering, including liabilities under the Securities Act.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Compensation policies and decisions, including those relating to salary,
bonuses and benefits of executive officers, have been set or made by the Board
of Directors since the formation of the Company. The Kaplans have participated
as members of the Board of Directors in deliberations concerning executive
officer compensation. Upon consummation of the Offering, the Board of Directors
will create a Compensation Committee consisting of a majority of Independent
Directors which will recommend to the Board the compensation to be paid to the
Company's executive officers.
55
<PAGE>
CERTAIN TRANSACTIONS
CONSOLIDATING TRANSACTIONS. The Company was formed in order to consolidate
and expand the assisted living business of its Predecessor. The Predecessor
historically operated its business through a number of partnerships, limited
liability companies and corporations. In connection with the Offering, the
Predecessor and the Company are entering into certain transactions pursuant to
which the Company shall receive substantially all of the Predecessor's assets
associated with its assisted living business. In addition, a number of
transactions are being entered into in connection with the operation of the
Company's facilities, largely in order to comply with applicable law and
regulations.
CONVEYANCE OF ASSISTED LIVING BUSINESS TO THE COMPANY. At or prior to the
consummation of the Offering, the Predecessor shall have transferred to the
Company, among other things, the following: (i) certain wholly owned
subsidiaries of the Predecessor that own the entire fee in the land and building
underlying six facilities (Town Gate East, Town Gate Manor, Senior Quarters at
Huntington Station, Senior Quarters at Centereach I, Senior Quarters at
Centereach II and Senior Quarters at Stamford); (ii) certain wholly owned
subsidiaries of the Predecessor that own, directly or indirectly, less than the
entire fee in the land and building underlying five facilities (Change Bridge
Inn, Senior Quarters at Chestnut Ridge, Senior Quarters at East Northport,
Senior Quarters at Jamesburg, and Senior Quarters at Glen Riddle); (iii) two
wholly owned subsidiaries of the Predecessor that provided management services
for all the foregoing facilities, in addition to four facilities in which the
Predecessor did not have an equity interest (Castle Gardens, The Regency at Glen
Cove, Senior Quarters at Lynbrook, and Senior Quarters at Cranford); (iv) seven
wholly owned subsidiaries of the Predecessor owning, directly or indirectly, all
or a portion of development projects in seven facilities (Senior Quarters at
Patterson, Senior Quarters at Albany, Mayfair at Glen Cove, Senior Quarters at
Briarcliff Manor, Senior Quarters at Tinton Falls, one project in Westchester
County, New York, and another in Bucks County, Pennsylvania); and (v)
substantially all of its other assets associated with its assisted living
business. In consideration of the foregoing, the Company shall have at or prior
to the consummation of the Offering: (i) issued to the Kaplans, as sole partners
of the Predecessor, 4,150,000 shares of Common Stock, and paid to them the sum
of $6.0 million (representing the approximate tax liability expected to be
incurred by the Kaplans in connection with transactions pertaining to the
transfer by the Predecessor of its facilities to the Company), and (ii) agreed
to pay all real estate transfer and gains taxes arising out of the foregoing
transactions (estimated to be approximately $400,000). As a result of these
transactions, the Company shall have assumed all indebtedness encumbering the
Company's facilities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
ARRANGEMENTS REGARDING OPERATION OF CERTAIN FACILITIES. Because of New York
law and regulations, the Kaplans individually are the operators of substantially
all the Company's assisted living facilities located in New York. Of these
facilities, the Kaplans are or will be the operators of Town Gate East, Town
Gate Manor, Senior Quarters at Huntington Station, Senior Quarters at Centereach
I, Senior Quarters at Centereach II, Senior Quarters at Chestnut Ridge and
Senior Quarters at Lynbrook either pursuant to a separate operating agreement
entered into by the Company (each, an "Operating Agreement") or the pre-existing
agreement with the unaffiliated owner of the facility (that was assigned to the
Kaplans). Each Operating Agreement has a term of 25 years, may be terminated
after five years by the licensed operator, and provides for an operating fee
equal to 5% of gross revenues from the facility. The pre-existing agreements
with third party owners generally have a term of 5 years and provide for an
operating fee equal to 5% of gross revenues or the greater of 5% of gross
revenues and a minimum fee (ranging from $96,000 to $150,000 per annum). In some
instances, the Company may also be entitled to an incentive fee or may have an
equity interest in the facility. The Kaplans, as operators of each of these
facilities, have engaged a wholly owned subsidiary of the Company to provide
certain management services in connection with the day-to-day operations of each
facility it operates, in each case pursuant to a separate management agreement
(each, a "Management Agreement"). Each Management Agreement is co-terminous with
the underlying Operating Agreement or pre-existing agreement with the third-
party owner. The fee payable to the Company's subsidiary under each Management
Agreement is 30%
56
<PAGE>
of the operators' fee, increasing to 96% of all their fees generated by
aggregate gross revenues of all facilities operated under this fee structure
exceeding $23.0 million. The Kaplans have also agreed that, with respect to any
other projects for which the Company may not act as the licensed operator (such
as Senior Quarters at East Northport), they will act as licensed operators in
exchange for a fee equal to 5% of gross revenues and pay the Company's wholly
owned subsidiary a servicing fee equal to 96% of their operating fee. The
employment agreements with each Kaplan provide that if his employment with the
Company is terminated for any reason, he may withdraw as licensed operator of
certain of the Company's facilities. If his employment is terminated by him for
good cause (including the Company giving a notice of non-renewal) or by the
Company without cause, upon his withdrawal as a licensed operator, he shall be
entitled to receive a lump sum equal to twice his pro rata share of the licensed
operators' fee (net of fees payable under the Management Agreements) over the
preceding twelve months. This basic structure, and substantially similar
agreements, are used with respect to one New York facility that is not a
licensed entity. See "Management -- Employment Agreements."
CERTAIN TRANSACTIONS REGARDING SALES OF COMMON STOCK.
RESTRICTIONS ON TRANSFER. Each Kaplan has agreed with the Company that he
shall not, for so long as he shall be the licensed operator of any of the
Company's facilities, transfer any shares of Common Stock if it would result in
his personally owning fewer than 500,000 shares of Common Stock initially, or
250,000 shares of Common Stock after the fifth anniversary of the consummation
of the Offering, in each case, subject to certain exceptions. In addition, a
stockholders' agreement between the Kaplans, provides (i) each Kaplan with a
right of first refusal with respect to a transfer of the shares of Common Stock
of the other Kaplans, except for a limited exception in the case of his death,
and (ii) that the Kaplans shall vote all their shares of Common Stock as a unit.
REGISTRATION RIGHTS. After the Offering, each of the Kaplans along with
Herbert Kaplan, who beneficially own in the aggregate 4,150,000 shares of Common
Stock (assuming no exercise of the Underwriters' over-allotment option) will be
entitled to certain rights with respect to the registration of such shares under
the Securities Act. Under the terms of the agreement between the Company and the
Kaplans, if the Company proposes to register any of its securities under the
Securities Act, either for its own account or for the account of other security
holders exercising registration rights, each of the Kaplans are entitled to
notice of such registration and are entitled to include shares of such Common
Stock therein. The stockholders benefiting from these rights may, acting
jointly, also require the Company on two separate occasions to file a
registration statement under the Securities Act at the Company's expense with
respect to shares of Common Stock beneficially owned by then, and the Company is
required to use its diligent reasonable efforts to effect such registration.
These rights are subject to certain restrictions, conditions and limitations,
among them (i) the right of the underwriters of an offering to limit the number
of shares included in such registration and (ii) the lock-up agreement whereby
the Company and the Kaplans have agreed with the Underwriters, except in
connection with the Offering and the Underwriters' over-allotment option, not to
sell or otherwise dispose of any shares of Common Stock or other equity
securities of the Company for at least 180 days after the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. See "Underwriting."
SHATTUCK HAMMOND FEE. The Company will pay its financial advisor, Shattuck
Hammond Partners Inc., approximately $1.2 million (assuming no exercise of the
Underwriters' over-allotment and an initial public offering price of $13.00 per
share), as its fee for services rendered in connection with the Offering. Joseph
G. Beck, a director of the Company, is a founding principal, executive committee
member and shareholder of Shattuck Hammond Partners Inc.
FUTURE TRANSACTIONS. The Board of Directors of the Company has adopted a
policy that future transactions between the Company and its officers, directors,
principal stockholders and their affiliates will be subject to approval of a
majority of the Independent Directors, and will be on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to
beneficial ownership of the Common Stock as of June , 1996, after giving
effect to the conveyance of the Company's facilities and the payment of the
consideration to the Kaplans as adjusted to reflect the sale of the Common Stock
offered hereby, by: (i) each person known by the Company to be the beneficial
owner of more than 5% of the Company's Common Stock; (ii) each of the Company's
directors; (iii) the Company's Chief Executive Officer and each of the Company's
other executive officers; and (iv) the Company's directors and executive
officers as a group:
<TABLE>
<CAPTION>
OWNERSHIP
AFTER
OFFERING
AND
SHARES OVER-ALLOTMENT
OWNERSHIP PRIOR TO OFFERING OWNERSHIP AFTER OFFERING SUBJECT TO OPTION (2)
------------------------------- ---------------------------- OVER- -----------
NAME AND ADDRESS OF NUMBER OF NUMBER OF ALLOTMENT NUMBER OF
BENEFICIAL OWNER (1) SHARES PERCENTAGE SHARES PERCENTAGE OPTION SHARES
- ------------------------------------ --------------- -------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Glenn Kaplan (3).................... 300 100.0% 4,150,000 53.9% 88,750 3,883,750
Wayne L. Kaplan (3)................. 300 100.0 4,150,000 53.9 88,750 3,883,750
Evan A. Kaplan (3).................. 300 100.0 4,150,000 53.9 88,750 3,883,750
John M. Sharpe, Jr. ................ 0 0 0 0 0 0
Joseph G. Beck...................... 0 0 0 0 0 0
Bernard J. Korman................... 0 0 0 0 0 0
Gerald Schuster..................... 0 0 0 0 0 0
Directors and officers as a group (7
persons)........................... 300 100.0% 4,150,000 53.9% 266,250 3,883,750
<CAPTION>
NAME AND ADDRESS OF
BENEFICIAL OWNER (1) PERCENTAGE
- ------------------------------------ ---------------
<S> <C>
Glenn Kaplan (3).................... 48.8%
Wayne L. Kaplan (3)................. 48.8
Evan A. Kaplan (3).................. 48.8
John M. Sharpe, Jr. ................ 0
Joseph G. Beck...................... 0
Bernard J. Korman................... 0
Gerald Schuster..................... 0
Directors and officers as a group (7
persons)........................... 48.8%
</TABLE>
- ------------------------------
(1) Except as otherwise noted, the address of the Company's Directors,
executive officers and Selling Stockholders is c/o Kapson Senior Quarters
Corp., 242 Crossways Park West, Woodbury, New York 11797.
(2) Assumes Underwriters' over-allotment option is exercised in full. The
Selling Stockholders will sell 50% of any shares with respect to which the
option is exercised.
(3) Includes shares owned of record by Glenn Kaplan, Wayne Kaplan, and Evan
Kaplan, each of whom share voting power and dispositive power over all of
these shares, and Herbert Kaplan, who has a pecuniary interest in, and has
shared voting power and shared dispositive power over 300,001 shares.
Herbert Kaplan is the father of the Kaplans.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of the Company's capital stock does not purport to
be complete and is qualified in its entirety by reference to (i) applicable
provisions of Delaware law and (ii) to the provisions of the Company's
Certificate of Incorporation and By-laws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
The authorized capital stock of the Company consists of 30,000,000 shares of
Common Stock, par value $.01, and 10,000,000 shares of Preferred Stock, par
value $.01, in one or more classes and series. As of June , 1996, there were
4,150,000 shares of Common Stock issued and outstanding. Upon consummation of
the Offering, assuming no exercise of the Underwriters' over-allotment option,
there will be 7,700,000 shares of Common Stock and no shares of Preferred Stock
issued and outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote per share of record on
all matters to be voted upon by the stockholders. Holders do not have cumulative
voting rights. Stockholders casting a plurality of the votes of stockholders
entitled to vote in an election of directors may elect all of the directors.
Subject to the preferential rights of any preferred stock that may at the time
be outstanding, each share of Common Stock will have an equal and ratable right
to receive dividends when, if and as declared from time to time by the Board of
Directors out of funds legally available therefor. The Company may in the future
be subject to certain agreements which restrict the payment of dividends. The
Company does not anticipate paying cash dividends in the foreseeable future. See
"Dividend Policy."
In the event of liquidation, dissolution or winding up at the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payments to creditors and after satisfaction of the liquidation
preference, if any, of any preferred stock that may at the time be outstanding.
Holders of Common Stock have no preemptive, subscription, conversion or
redemption rights and are not subject to further calls or assessments by the
Company. The outstanding shares of Common Stock are, and the shares of Common
Stock offered by the Company in the Offering will be, when issued and paid for,
validly issued, fully paid and nonassessable.
UNDESIGNATED PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the Board of
Directors, without any vote or action by the stockholders (subject to applicable
law or regulatory agencies or by the rules of Nasdaq or any stock exchange on
which the Company's Common Stock may then be listed), to issue up to 10,000,000
shares of preferred stock, par value $.01 per share, in one or more classes and
series and to fix the designations, preferences, rights, qualifications,
limitations and restrictions thereof, including the voting rights, dividends
rights, dividend rate, conversion rights, terms of redemption (including sinking
fund provisions), redemption price or prices, liquidation preferences and number
of shares constituting any series. Although it presently has no intention to do
so, the Board of Directors, without stockholder approval, could issue preferred
stock with voting and conversion rights that could adversely affect the voting
powers of the holders of the Common Stock and the market price of the Common
Stock. Issuance of preferred stock may also have the effect of delaying,
deferring or preventing the change of control of the Company without further
action by the stockholders and may discourage bids for the Common Stock at a
premium over the market price.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; (ii) upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time the
transaction commenced (for the purposes
59
<PAGE>
of determining the number of shares outstanding, under Delaware law, those
shares owned (x) by persons who are directors and also officers and (y) by
employee stock plans in which employee participants do not have the right to
determine confidentially whether shares held subject to the plan will be
tendered in a tender or exchange offer are excluded from the calculation); or
(iii) on or subsequent to such date, the business combination is approved by the
board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at least
66 2/3% of the outstanding voting stock which is not owned by the interested
stockholder.
Section 203 defines a business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction which results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation which has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
Certain provisions of the Company's Certificate of Incorporation and
Delaware law may have a significant effect in delaying, deferring or preventing
a change in control of the Company and may adversely affect the voting and other
rights of other holders of Common Stock. In particular, the ability of the Board
of Directors to issue Preferred Stock without further stockholder approval may
have the effect of delaying, deferring or preventing a change in control of the
Company and may adversely affect the voting and other rights of other holders of
Common Stock. In addition, the Company's Certificate of Incorporation provides
for a classified Board of Directors and the inability of stockholders to vote
cumulatively for directors.
LIMITATION ON DIRECTORS' LIABILITY
The Certificate of Incorporation of the Company limits the liability of
Directors and officers to the Company or its holders to the fullest extent
permitted by Delaware Law. The inclusion of this provision in the Certificate of
Incorporation may have the effect of reducing the likelihood of derivative
litigation against Directors or officers of the Company and may discourage or
deter stockholders or management from bringing a lawsuit against Directors of
the Company for breach of their duty of care, even though such an action, if
successful, might otherwise have benefited the Company and its stockholders.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon consummation of the Offering, there will be 22,300,000 shares (assuming
no exercise of the Underwriters' over-allotment option) of Common Stock, par
value $.01, and 10,000,000 shares of preferred stock, par value $.01, available
for future issuance without stockholder approval, except as may be required for
a particular transaction by the Company's Certificate of Incorporation, by
applicable law or regulatory agencies or by the rules of Nasdaq or any stock
exchange on which the Company's Common Stock may then be listed. These
additional shares may be utilized for a variety of corporate purposes, including
future public offerings to raise additional capital or to facilitate corporate
acquisitions. The Company does not currently have plans to issue additional
shares of capital stock. See "Shares Eligible for Future Sale."
STOCK TRANSFER AGENT AND REGISTRAR
The Stock Transfer Agent and Registrar for the Common Stock is
. Its address and telephone number is .
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has not been any public market for the Common
Stock of the Company. No prediction can be made as to the effect, if any, that
market sales of shares of Common Stock or the availability of shares of Common
Stock for sale will have on the market price prevailing from time to time.
Nevertheless, sales of Common Stock or the perception that sales of substantial
amounts of Common Stock could occur in the public market after the restrictions
described below could adversely affect the prevailing market price of the Common
Stock and the ability of the Company to raise equity capital in the future.
Upon completion of the Offering, the Company will have outstanding 7,700,000
shares of Common Stock (7,966,250 shares if the over-allotment option is
exercised in full). Of these shares, 3,550,000 shares of Common Stock sold in
the Offering (4,082,500 if the over-allotment option is exercised in full) will
be tradeable without restriction or limitation under the Securities Act, except
to the extent such shares are subject to the agreement with the Underwriters
described below, and except for any shares purchased by "affiliates" (as that
term is defined in the Securities Act) of the Company which will be subject to
the resale limitations under Rule 144 of the Securities Act. The remaining
4,150,000 outstanding shares of Common Stock held by existing stockholders
(3,883,750 shares if the over-allotment option is exercised in full) are
"restricted securities" within the meaning of Rule 144 (the "Restricted
Shares"). The Restricted Shares were issued and sold by the Company in private
transactions in reliance upon exemptions from registration under the Securities
Act and may not be sold in a public distribution except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption,
including that provided by Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the Offering, a person (or persons whose shares are aggregated) who owns shares
that were purchased from the Company (or any affiliate) at least two years
previously, including persons who may be deemed affiliates of the Company, is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of the Company's Common
Stock (approximately 77,000 shares immediately after the Offering assuming no
exercise of the Underwriters' over-allotment option) or the average weekly
trading volume of the Company's Common Stock in the Nasdaq National Market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. Sales under Rule 144 are also subject to certain
manner of sale provisions, notice requirements and the availability of current
public information about the Company. Any person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days preceding a sale, and who owns shares within the
definition of "restricted securities" under Rule 144 under the Securities Act
that were purchased from the Company (or any affiliate) at least three years
previously, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitations, manner of sale provisions, public information
requirements or notice requirements.
The Commission has proposed to amend the holding period required by Rule 144
to permit sales of "restricted securities" after one year rather than two years
(and two years rather than three years for "non-affiliates" who desire to sell
such shares under Rule 144(k). If such proposed amendment were enacted, the
"restricted securities" would become freely tradeable (subject to any applicable
contractual restrictions) at correspondingly earlier dates.
After the Offering, the holders of 4,150,000 shares of Common Stock
(assuming no exercise of the Underwriters' over-allotment option), or their
transferees, will be entitled to certain rights with respect to the registration
of such shares under the Securities Act, subject to the contractual restrictions
described below. See "Certain Transactions -- Registration Rights." Registration
of such shares under the Securities Act would result in such shares becoming
freely tradeable without restriction under the Securities Act (except for shares
purchased by affiliates) immediately upon the effectiveness of such
registration.
The Company, the Selling Stockholders, each director, executive officer and
affiliate of the Company has agreed with the Underwriters, except in connection
with the Offering and the Underwriters' over-allotment option, not to sell or
otherwise dispose of any shares of Common Stock or other equity
61
<PAGE>
securities of the Company for at least 180 days after the date of this
Prospectus without the prior written consent of the representatives of the
Underwriters. See "Underwriting." Each Kaplan has also agreed with the Company
that he shall not, for so long as he shall be the licensed operator of any of
the Company's facilities, transfer any shares of Common Stock if it would result
in his personally owning fewer than 500,000 shares of Common Stock initially, or
250,000 shares of Common Stock after the fifth anniversary of the consummation
of the Offering, in each case, subject to certain exceptions. In addition, a
stockholders' agreement between the Kaplans, provides (i) each Kaplan with a
right of first refusal with respect to a transfer of the shares of Common Stock
of the other Kaplans, except for a limited exception in the case of his death,
and (ii) that the Kaplans shall vote all their shares of Common Stock as a unit.
The Company intends to file a registration statement under the Securities
Act covering approximately 600,000 shares of Common Stock issued or reserved for
issuance under the 1996 Plan. See "Management -- 1996 Stock Incentive Plan."
Such registration statement is expected to be filed prior to the end of the 1996
fiscal year and will automatically become effective upon filing. Accordingly,
shares registered under such registration statement pursuant to the Plan will,
subject to Rule 144 volume limitations applicable to affiliates, be available
for sale in the open market, except to the extent that such shares are subject
to vesting restrictions. At June , 1996, options to purchase 88,462 shares
were issued and outstanding under the Plan, none of which were vested.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
among the Company, the Selling Stockholders and the Underwriters (the
"Underwriting Agreement"), the Company has agreed to sell to the underwriters
named below (the "Underwriters"), for whom Salomon Brothers Inc is acting as
representative (the "Representative"), and each such Underwriter has severally
agreed to purchase from the Company, the aggregate number of shares of Common
Stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------------------------------------------------------------------------- -------------
<S> <C>
Salomon Brothers Inc ..........................................................
Raymond James & Associates, Inc. ..............................................
Wheat, First Securities, Inc. .................................................
-------------
Total...................................................................... 3,550,000
-------------
-------------
</TABLE>
In the Underwriting Agreement, the several Underwriters have agreed, subject
to the terms and conditions set forth therein, to purchase all of the shares of
Common Stock offered hereby (other than those subject to the over-allotment
option described below) if any such shares are purchased. In the event of a
default by an Underwriter, the Underwriting Agreement provides that, in certain
circumstances the purchase commitments of the non-defaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Representative that the several
Underwriters propose to offer shares of Common Stock directly to the public at
the public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may re-allow, a concession not in
excess of $ per share to certain other dealers. After the public offering, the
public offering price and such concessions may be changed.
The Company and the Selling Stockholders have each granted the Underwriters
an option, exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 266,250 and 266,250 additional shares of Common
Stock, respectively (532,500 in the aggregate), to cover over-allotments, if
any, at the price to public less the Underwriting Discount set forth on the
cover page of this Prospectus. To the extent that the Underwriters exercise such
option, each Underwriter will have a firm commitment, subject to certain
conditions, to purchase the same proportion of the option shares as the number
of shares of Common Stock to be purchased by such Underwriter in the above table
bears to the total number of shares of Common Stock offered by the Underwriters
hereby. In the event that the Underwriters exercise less than the full
over-allotment option, the number of shares to be sold pursuant thereto shall be
allocated equally as between the Company and the Selling Stockholders in
proportion to the number of such persons' or entity's shares subject to such
option.
The Company, the Selling Stockholders, and each director, executive officer
and affiliate of the Company has agreed that they will not offer, sell, contract
to sell or otherwise dispose of, directly or indirectly, with certain
exceptions, any shares of Common Stock or any securities convertible into, or
exchangeable for, shares of Common Stock for a period of at least 180 days from
the date of this Prospectus without the prior consent of the Representative.
The Underwriting Agreement provides that the Company and the Selling
Stockholders will indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments the Underwriters may be required to make in respect thereof.
The Representative has informed the Company that it does not intend to
confirm sales to any account over which it exercises discretionary authority.
Prior to the Offering, there has been no market for the Common Stock. The
initial public offering price has been determined by negotiation between the
Company and the Underwriters. The initial public
63
<PAGE>
offering price for the Common Stock has been determined by negotiation between
the Company and the Underwriters and is based on, among other things, the
Company's financial and operating history and condition, the prospects of the
Company and its industry in general, the management of the Company and the
market prices of securities of companies in businesses similar to those of the
Company.
EXPERTS
The combined financial statements of the Predecessor as of December 31 1994
and 1995 and for each of the years in the three year period ended December 31,
1995 and the Balance Sheet of the Company as of June 10, 1996, included in this
registration statement, have been included herein in reliance upon the reports
of Coopers & Lybrand L.L.P., independent accountants, appearing elsewhere
herein, given on the authority of that firm as experts in accounting and
auditing.
The financial statements of Town Gate East (a partnership) and Town Gate
Manor (a partnership) as of December 31, 1994 and 1995 and for each of the years
in the three-year period ended December 31, 1995, included in this registration
statement, have been included herein in reliance upon the report of Rotenberg &
Company LLP, independent accountants, appearing elsewhere herein, given on the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Common Stock offered hereby is being passed upon for the
Company by Proskauer Rose Goetz & Mendelsohn LLP, New York. Certain legal
matters in connection with the Offering are being passed upon for the
Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus, filed as part of the Registration Statement, does not contain
all of the information included in the Registration Statement and the exhibits
and schedules thereto, certain portions of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is hereby
made to the Registration Statement and the exhibits and schedules filed
therewith. Statements contained in this Prospectus by reference as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and in each such instance, reference is made to the copy of
such contract, agreement or other document filed as an exhibit to the
Registration Statement for a more complete description of the matters involved,
and each such statement shall be deemed qualified in its entirety by such
reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge and copied at the offices of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W. Washington,
D.C. 20549 and at the Commission's regional offices located at 7 World Trade
Center, 13th Floor, New York, New York 10048; and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
may be obtained at the prescribed rates from the Commission's Public Reference
Section at Room 1024, Judiciary Plaza, 450 Fifth Street. N.W., Washington, D.C.
20549.
As a result of the Offering, the Company will be subject to the
informational requirements of the Exchange Act. So long as the Company is
subject to the periodic reporting requirements of the Exchange Act, it will
furnish the reports and other information required thereby to the Commission.
The Company intends to furnish holders of the Common Stock with annual reports
containing, among other information, audited financial statements certified by
an independent public accounting firm and quarterly reports containing unaudited
condensed financial information for the first three quarters of each fiscal
year. The Company also intends to furnish such other reports as it may determine
or as may be required by law.
64
<PAGE>
KAPSON SENIOR QUARTERS CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Pro Forma Combined Condensed Balance Sheet as of March 31, 1996...................................... F-3
Pro Forma Combined Condensed Statement of Operations for the year ended December 31, 1995............ F-4
Pro Forma Combined Condensed Statement of Operations for the three months ended March 31, 1996....... F-5
Notes to Pro Forma Combined Condensed Balance Sheet.................................................. F-6
Notes to Pro Forma Combined Condensed Statement of Operations........................................ F-8
THE KAPSON GROUP (THE PREDECESSOR)
Report of Independent Accountants.................................................................... F-12
Combined Balance Sheets as of December 31, 1994 and 1995
and (unaudited) as of March 31, 1996................................................................ F-13
Combined Statements of Operations for the years ended December 31, 1993, 1994
and 1995 and (unaudited) for the three months ended March 31, 1995 and 1996......................... F-14
Combined Statements of Changes in Partners and Shareholders' (Deficit) for
the years ended December 31, 1993, 1994 and 1995 and (unaudited)
for the three months ended March 31, 1996........................................................... F-15
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and
(unaudited) for the three months ended March 31, 1995 and 1996...................................... F-16
Notes to Combined Financial Statements............................................................... F-17
KAPSON SENIOR QUARTERS CORP. (THE COMPANY)
Report of Independent Accountants.................................................................... F-26
Balance Sheet as of June 10, 1996.................................................................... F-27
Notes to Balance Sheet............................................................................... F-28
TOWN GATE EAST
Report of Independent Accountants.................................................................... F-31
Balance Sheets as of December 31, 1994 and 1995 and (unaudited) as of March 31, 1996................. F-32
Statements of Income for the years ended December 31, 1993, 1994 and 1995 and (unaudited) for the
three months ended March 31, 1995 and 1996.......................................................... F-33
Statements of Changes in Partners' Capital for the years
ended December 31, 1993, 1994 and 1995 and (unaudited) as of March 31, 1996......................... F-34
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and (unaudited) for the three months ended March 31, 1995 and 1996............................. F-35
Reconciliation of Net Income to Net Cash Flows from Operating Activities............................. F-36
Notes to Financial Statements........................................................................ F-37
TOWN GATE MANOR
Report of Independent Auditors....................................................................... F-41
Balance Sheets as of December 31, 1994 and 1995 and (unaudited) as of March 31, 1996................. F-42
Statements of Income for the years ended December 31, 1993, 1994 and 1995 and (unaudited) for the
three months ended March 31, 1996................................................................... F-43
Statements of Changes in Partners' Capital for the years ended December 31, 1993, 1994 and 1995 and
(unaudited) for the three months ended March 31, 1996............................................... F-44
Statements of Cash Flows for the years ended December 31, 1993, 1994 and
1995 and (unaudited) for the three months ended March 31, 1995 and 1996............................. F-45
Reconciliation of Net Income to Net Cash Flows from Operating Activity............................... F-46
Notes to Financial Statements........................................................................ F-47
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
At or prior to the consummation of the Offering, the Company will acquire
from the Kapson Group(the Predecessor) the following: (i) certain wholly owned
entities of the Predecessor that own the entire fee in the land and building
underlying six entities Town Gate Manor and Town Gate East (acquired by the
Predecessor on April 1, 1996 for approximately $10,375,000 financed through
mortgage notes with an institution at annual interest of 4.25% above U.S.
Treasury notes) Senior Quarters at Huntington Station, Senior Quarters at
Centereach I, Senior Quarters at Centereach II and Senior Quarters at Stamford)
(ii) certain wholly owned entities of the Predecessor that have a majority
ownership of the fee in the land and building (Senior Quarters at East Northport
and Senior Quarters at Chestnut Ridge (iii) certain wholly owned entities that
own a minority interest in certain facilities (Senior Quarters at Jamesburg and
Senior Quarters at Glen Riddle). The unaudited pro forma combined condensed
financial statements reflect the following: 1) adjustment for the allocation of
the purchase price of Town Gate Manor and Town Gate East based on the estimated
fair value of the assets assumed and the related financing in accordance with
the purchase method of accounting; 2) additional compensation for senior
executives of the Company and additional general and administrative costs of
operating as a public company; 3) operating fees to be paid to the Kaplans to
operate certain New York facilities, and 4) the initial capitalization of the
Company and the issuance of approximately 4,150,000 shares of the Company's
common stock to the Kaplans for the conveyance of their facilities and interests
to the Company. See "Certain Transactions" elsewhere in this Prospectus.
The unaudited pro forma combined condensed balance sheet as of March 31,
1996 was prepared as if the acquisition of Town Gate Manor and Town Gate East
and the Certain Transactions had occurred at that date. The unaudited pro forma
statements of operations for the year ended December 31, 1995 and for the three
months ended March 31, 1996 were prepared as if the acquisition of Town Gate
Manor and Town Gate East and the Certain Transactions had occurred as of January
1, 1995.
In the opinion of management, all adjustments necessary to present fairly
such pro forma financial statements have been made based on the proposed terms
and structure of the transactions. The Company anticipates, however, that
changes in the composition of the assets to be acquired and liabilities to be
assumed will occur due to changes in the ordinary course of business. The
Company believes any related change in adjustments will not be material to the
pro forma combined condensed financial statements. In addition, the pro forma
adjustments relating to the fair value adjustments for the acquisition of Town
Gate Manor and Town Gate East are subject to revision when final analyses of
such values are completed. In management's opinion, such adjustments are not
expected to materially differ from the final fair value adjustments.
These unaudited pro forma combined condensed financial statements are not
necessarily indicative of what actual results would have been had the
transactions occurred at the beginning of the respective periods nor do they
purport to indicate the results of future operations of the Company. These
unaudited pro forma financial statements should be read in conjunction with the
accompanying notes, "Certain Transactions", "Management's Discussion and
Analysis of Financial Condition and Results of Operations", and the audited and
unaudited historical financial statements and notes thereto of the Predecessor,
Town Gate Manor and Town Gate East included elsewhere in this Prospectus.
F-2
<PAGE>
KAPSON SENIOR QUARTERS CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
TOWN GATE TOWN GATE PRO FORMA PRO FORMA
PREDECESSOR MANOR EAST SUBTOTAL ADJUSTMENTS AS ADJUSTED
------------- ----------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents............ $ 1,757 $ 36 $ 86 $ 1,879 $ 395(a) $ 36,635
11(b)
34,350(g)
Accounts receivable.................. 53 3 26 82 (28)(a) 54
Prepaid expenses and other current
assets.............................. 255 46 133 434 (179)(a) 255
------------- ----------- ----------- --------- ------------- ------------
Total current assets............... 2,065 85 245 2,395 34,549 36,944
Property and equipment, net............ 48,059 1,439 2,315 51,813 2,667(a) 54,480
Facility development costs............. 274 -- -- 274 -- 274
Restricted cash........................ 4,829 -- -- 4,829 -- 4,829
Deferred financing costs, net.......... 2,133 22 29 2,184 (52)(a) 2,132
Intangibles............................ -- -- -- -- 3,226(a) 3,226
Other assets........................... 145 10 3 158 277(a) 421
(14)(b)
------------- ----------- ----------- --------- ------------- ------------
Total assets....................... $ 57,505 $ 1,556 $ 2,592 $ 61,653 $ 40,653 $ 102,306
------------- ----------- ----------- --------- ------------- ------------
------------- ----------- ----------- --------- ------------- ------------
LIABILITIES AND PARTNERS'/SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.... $ 269 $ -- $ -- $ 269 -- $ 269
Accounts payable and accrued
expenses............................ 2,870 (6) 52 2,916 (48)(a) 2,865
(3)(b)
Accrued interest..................... 271 -- -- 271 -- 271
Due to affiliates.................... 3,206 9 -- 3,215 (9)(a) --
(3,206)(f)
Deferred revenue..................... 240 -- -- 240 -- 240
------------- ----------- ----------- --------- ------------- ------------
Total current liabilities.......... 6,856 3 52 6,911 (3,266) 3,645
Long-term debt......................... 57,928 1,159 1,798 60,885 7,418(a) 68,303
Residential security deposits.......... 1,374 -- -- 1,374 -- 1,374
Deferred interest payable.............. 141 -- -- 141 -- 141
Other liabilities...................... -- -- -- -- 81(a) 81
------------- ----------- ----------- --------- ------------- ------------
Total liabilities.................. 66,299 1,162 1,850 69,311 4,233 73,544
------------- ----------- ----------- --------- ------------- ------------
Minority interest...................... 2,613 -- -- 2,613 -- 2,613
------------- ----------- ----------- --------- ------------- ------------
Commitments and contingencies.......... -- -- -- -- -- --
Partners' and shareholders' (deficit).. (11,407) 394 742 (10,271) (1,136)(a) --
11,407(e)
Common stock........................... -- -- -- -- 77(c) 77
Paid in capital........................ -- -- -- -- 26,072(d) 26,072
------------- ----------- ----------- --------- ------------- ------------
Total partners' and shareholders'
equity (deficit).................... (11,407) 394 742 (10,271) 36,420 26,149
------------- ----------- ----------- --------- ------------- ------------
Total liabilities and partners' and
shareholders' equity (deficit).... $ 57,505 $ 1,556 $ 2,592 $ 61,653 $ 40,653 $ 102,306
------------- ----------- ----------- --------- ------------- ------------
------------- ----------- ----------- --------- ------------- ------------
</TABLE>
F-3
<PAGE>
KAPSON SENIOR QUARTERS CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOWN GATE TOWN GATE PRO FORMA PRO FORMA
PREDECESSOR MANOR EAST SUBTOTAL ADJUSTMENTS AS ADJUSTED
------------- ----------- ----------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Assisted living revenues......... $ 14,275 $ 1,407 $ 2,146 $ 17,828 $ -- $ 17,828
Management fees.................. 443 -- -- 443 -- 443
Other -- affiliate............... 45 -- -- 45 (45)(a) --
------------- ----------- ----------- --------- ------------- ------------
Total revenues................. 14,763 1,407 2,146 18,316 (45) 18,271
------------- ----------- ----------- --------- ------------- ------------
OPERATING EXPENSES:
Assisted living operating
expenses........................ 8,389 854 1,258 10,501 487(b) 10,988
Management fees.................. -- 8 11 19 (19)(c) --
General and administrative....... 1,583 73 96 1,752 1,193(d) 2,945
Depreciation..................... 1,234 75 136 1,445 (5)(e) 1,440
------------- ----------- ----------- --------- ------------- ------------
Total operating expenses....... 11,206 1,010 1,501 13,717 1,656 15,373
------------- ----------- ----------- --------- ------------- ------------
Operating income (loss).......... 3,557 397 645 4,599 (1,701) 2,898
Interest income.................. 44 -- 4 48 -- 48
Interest expense................. (3,732) (127) (191) (4,050) (804)(f) (4,854)
Interest expense -- affiliates... (204) -- -- (204) 204(g) --
Other income (expense), net...... (34) 8 (4) (30) -- (30)
------------- ----------- ----------- --------- ------------- ------------
Income (loss) before minority
interest...................... (369) 278 454 363 (2,301) (1,938)
Minority interest in net loss of
combined partnership............ 16 -- -- 16 -- 16
------------- ----------- ----------- --------- ------------- ------------
Net income (loss)................ $ (353) $ 278 $ 454 $ 379 $ (2,301) $ (1,922)
------------- ----------- ----------- --------- ------------- ------------
------------- ----------- ----------- --------- ------------- ------------
UNAUDITED PRO FORMA DATA
Pro forma benefit for income
taxes........................... -- -- -- -- 769(h) 769
------------- ----------- ----------- --------- ------------- ------------
Pro forma net income (loss)...... $ (353) $ 278 $ 454 $ 379 $ (1,532) $ (1,153)
------------- ----------- ----------- --------- ------------- ------------
------------- ----------- ----------- --------- ------------- ------------
Pro forma net loss per common
share........................... $ (.05) $ (.15)
------------- ------------
------------- ------------
Pro forma weighted average number
of common shares outstanding.... 7,700 7,700(i) 7,700
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
F-4
<PAGE>
KAPSON SENIOR QUARTERS CORP.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
TOWN GATE TOWN GATE PRO FORMA PRO FORMA
PREDECESSOR MANOR EAST SUBTOTAL ADJUSTMENTS AS ADJUSTED
------------- ------------- ------------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Assisted living revenues.......... $ 3,873 $ 357 $ 554 $ 4,784 $ -- $ 4,784
Management fees................... 225 -- -- 225 -- 225
Other -- affiliates............... 11 -- -- 11 (11)(a) --
------------- ----- ----- --------- ------------- ------------
Total revenues.................. 4,109 357 554 5,020 (11) 5,009
------------- ----- ----- --------- ------------- ------------
Operating expenses:
Assisted living operating
expenses......................... 2,533 264 310 3,107 132(b) 3,239
Management fees................... -- 2 3 5 (5)(c) --
General and administrative........ 531 9 20 560 330(d) 890
Depreciation...................... 375 20 35 430 (3)(e) 427
------------- ----- ----- --------- ------------- ------------
Total operating expenses........ 3,439 295 368 4,102 454 4,556
------------- ----- ----- --------- ------------- ------------
Operating income (loss)........... 670 62 186 918 (465) 453
Interest income................... 45 -- 1 46 -- 46
Interest expense.................. (1,092) (20) (30) (1,142) (211)(f) (1,353)
Interest expense -- affiliates.... (61) -- -- (61) 61(g) --
Other income (expense), net....... (4) -- -- (4) -- (4)
------------- ----- ----- --------- ------------- ------------
Income (loss) before minority
interest....................... (442) 42 157 (243) (615) (858)
Minority interest in net loss of
combined partnerships............ 51 -- -- 51 -- 51
------------- ----- ----- --------- ------------- ------------
Net income (loss)................. $ (391) $ 42 $ 157 $ (192) $ (615) $ (807)
------------- ----- ----- --------- ------------- ------------
------------- ----- ----- --------- ------------- ------------
UNAUDITED PRO FORMA DATA:
Pro forma benefit for income
taxes............................ -- -- -- -- 323(h) 323
------------- ----- ----- --------- ------------- ------------
Pro forma net income (loss)....... $ (391) $ 42 $ 157 $ (192) $ (292) $ (484)
------------- ----- ----- --------- ------------- ------------
------------- ----- ----- --------- ------------- ------------
Pro forma net loss per common
share............................ $ (.05) $ (.06)
------------- ------------
------------- ------------
Pro forma weighted average number
of common shares outstanding..... 7,700 7,700(i) 7,700
------------- ------------- ------------
------------- ------------- ------------
</TABLE>
F-5
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) Elimination of the historical cost basis balance sheet of Town Gate Manor
and Town Gate East prior to its acquisition by the Predecessor and recording
the assets acquired and related financing based upon fair value.
<TABLE>
<CAPTION>
HISTORICAL NET
ACCOUNT BALANCE SHEET FAIR VALUE ADJUSTMENT
- ------------------------------------------------------------------ --------------- ----------- -----------
<S> <C> <C> <C>
Cash.............................................................. $ 123 $ 518 $ 395
Accounts receivable............................................... 28 -- (28)
Prepaid expenses and other current assets......................... 179 -- (179)
Property and equipment (net)...................................... 3,755 6,422 2,667
Intangibles (goodwill $2,903 and covenants not to compete $322)... -- 3,226 3,226
Deferred financing costs.......................................... 52 -- (52)
Other assets...................................................... 13 290 277
Accounts payable and accrued expenses............................. 48 -- (48)
Due to affiliates................................................. 9 -- (9)
Long-term debt.................................................... 2,957 10,375 7,418
Other liabilities................................................. -- 81 81
Partners' and stockholders' capital............................... $ 1,136 $ -- $ (1,136)
</TABLE>
(b) Elimination of the historical cost basis balance sheet of an entity that is
contributing only its investment in a majority owned Joint Venture (Senior
Quarters at East Northport) to the Company
<TABLE>
<S> <C>
Cash.......................................................................... $ 11
Other Assets.................................................................. (14)
Accounts payable and accruals................................................. (3)
</TABLE>
(c) COMMON STOCK:
<TABLE>
<S> <C>
Issuance of 3,550,000, shares of common stock $.01 par value pursuant to the
initial public offering...................................................... 36
Issuance of 4,150,000, shares of common stock $.01 par value to the Kaplans in
consideration for their contribution of facilities and interests therein..... 41
---------
$ 77
---------
---------
(d) PAID IN CAPITAL:
Issuance of 3,550,000, shares of common stock $.01 par value pursuant to the
initial public offering at an assumed offering price of $13 per share........ $ 46,114
Issuance of 4,150,000, shares of common stock $.01 par value to the Kaplans in
consideration for their contribution of facilities, and interests therein.... (41)
Carry over of historical cost basis of the net assets of the facilities of the
Predecessor.................................................................. (11,407)
Estimated costs of the offering ($2,200) and underwriters discount ($3,200)... (5,400)
Assumption by the Kaplans of amounts due to affiliates of the Predecessor that
will not be obligations of the Company....................................... 3,206
Distributions payable to the Kaplans to be paid from the proceeds of the
Offering which will be used primarily to satisfy (i) the tax liabilities of
the Kaplans expected to be incurred pertaining to the transfer of the
Predecessor interests in the facilities to the Company ($6,000) and (ii) real
estate transfer and gains taxes arising out of the transaction estimated to
be approximately ($400)...................................................... (6,400)
---------
$ 26,072
---------
---------
</TABLE>
F-6
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AS OF MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(e) PARTNERS' AND SHAREHOLDERS' (DEFICIT):
<TABLE>
<S> <C>
Elimination of historical partners' and shareholders' (deficit) of the
facilities of the Predecessor................................................ $ 11,407
---------
---------
</TABLE>
(f) DUE TO AFFILIATES:
<TABLE>
<S> <C>
Assumption by the Kaplans of amounts due to affiliates of the Predecessor that
will not be obligations of the Company....................................... $ (3,206)
---------
---------
</TABLE>
(g) CASH:
<TABLE>
<S> <C>
Gross proceeds from offering.................................................. $ 46,150
Less: estimated cost of the offering ($2,200) and Underwriters Discount
($3,200)..................................................................... (5,400)
Distributions payable to the Kaplans to be paid from the proceeds of the
Offering which will be used primarily to satisfy (i) the tax liabilities of
the Kaplans expected to be incurred pertaining to the transfer of the
Predecessor interests in the facilities to the Company ($6,000) and (ii) real
estate transfer and gains taxes arising out of the transaction estimated to
be approximately ($400)...................................................... (6,400)
---------
$ 34,350
---------
---------
</TABLE>
F-7
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) Other -- affiliates:
<TABLE>
<S> <C>
Elimination of revenue from affiliates for services performed by the
Predecessor which will not be continued by the Company........................ $ (45)
---------
---------
</TABLE>
(b) Assisted living operating expenses:
<TABLE>
<S> <C>
Reduction in historical owners'/administrators' salary and consulting fees of
Town Gate Manor and Town Gate East ($133) offset by compensation to be
incurred under new employment contracts ($120)................................ $ (13)
Operating fees to be incurred by the Company under new operating agreements
(3.5%, of respective revenues, net), (Senior Quarters at Huntington Station,
Senior Quarters at Centereach I, Senior Quarters at Centereach II, Senior
Quarters at Chesnut Ridge, Town Gate Manor and Town Gate East)................ 500
---------
$ 487
---------
---------
</TABLE>
(c) Management fee expense:
<TABLE>
<S> <C>
Elimination of historical management fees paid by Town Gate Manor and Town Gate
East which will not be incurred by the Company................................ $ (19)
---------
---------
</TABLE>
(d) General and administrative:
<TABLE>
<S> <C> <C>
Incremental increase in salaries and related benefits associated with new
employment contracts entered into with the former owners/partners of the
Predecessor who will become the senior officers of the Company.................... $ 413
Estimated additional administrative and financial reporting expenses which would
have been incurred by the Company had it been operating as a public company during
the period:
Salaries and wages.................................................... $ 250
Directors' and officer's insurance and fees........................... 100
Legal and accounting.................................................. 140
Other................................................................. 50 540
---------
Amortization of goodwill ($2,903) associated with the acquisition of Town Gate
Manor and Town Gate East on a straight line basis over fifteen years.............. 194
Amortization of non-compete agreements ($322) associated with the acquisition of
Town Gate Manor and Town Gate East on a straight line basis over seven years, the
life of the agreements............................................................ 46
---------
$ 1,193
---------
---------
</TABLE>
(e) Depreciation and amortization:
<TABLE>
<S> <C>
Adjustment to historical depreciation of buildings and furniture and fixtures
associated with Town Gate Manor and Town Gate East, based upon fair value of
the acquired assets and increase in depreciable lives......................... $ (5)
---------
---------
</TABLE>
F-8
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(f) Interest expense:
<TABLE>
<S> <C>
Interest expense associated with the acquisition of Town Gate Manor and Town
Gate East ($10,375 of debt incurred at 4.25% above the 10 year Treasury rate,
10.82% average for the year) ($1,122), net of elimination of historical
interest expense incurred on debt not assumed by the Predecessor nor the
Company ($318)................................................................. $ (804)
---------
---------
</TABLE>
(g) Interest income -- affiliates:
<TABLE>
<S> <C>
Elimination of interest expense on amounts due ($3,206) to affiliates not being
assumed by the Company......................................................... $ 204
---------
---------
</TABLE>
(h) Benefit for income taxes:
<TABLE>
<S> <C>
The Predecessor and the entities that operated Town Gate Manor and Town Gate
East prior to acquisition were not taxable entities. This adjustment provides
pro forma benefit for income taxes at a 40% effective rate..................... $ 769
---------
---------
</TABLE>
(i) Pro forma net loss per share:
<TABLE>
<S> <C>
Pro forma net loss per share is based upon the pro forma weighted average
number of common shares outstanding of 7,700 after the offering......... 7,700Shares
------
------
</TABLE>
F-9
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(a) Other -- affiliates:
<TABLE>
<S> <C>
Elimination of revenue from affiliates for services performed by the Predecessor
which will not be continued by the Company...................................... $ (11)
---------
---------
</TABLE>
(b) Assisted living operating expenses:
<TABLE>
<S> <C>
Reduction in historical owners'/administrators' salary and consulting fees of
Town Gate Manor and Town Gate East ($34) offset by compensation to be incurred
under new employment contracts ($30)............................................ $ (4)
Operating fees to be incurred by the Company under new operating agreements (3.5%
of the respective revenues, net) (Senior Quarters at Huntington Station, Senior
Quarters at Centereach I, Senior Quarters at Centereach II, Senior Quarters at
Chestnut Ridge, Town Gate Manor and Town Gate East)............................. 136
---------
$ 132
---------
---------
</TABLE>
(c) Management fee expense:
<TABLE>
<S> <C>
Elimination of historical management fees paid by Town Gate Manor and Town Gate
East which will not be incurred by the Company.................................. $ (5)
---------
---------
</TABLE>
(d) General and administrative:
<TABLE>
<S> <C> <C>
Incremental increase in salaries and related benefits associated with new employment
contracts entered into with the former owners/partners of the Predecessor who will
become the senior officers of the Company............................................ $ 136
Estimated additional administrative and financial reporting expenses which would have
been incurred by the Company had it been operating as a public company during the
period:
Salaries and wages....................................................... $ 63
Directors' and officer's insurance and fees.............................. 25
Legal and accounting..................................................... 35
Other.................................................................... 12 135
---
Amortization of goodwill ($2,903) associated with the acquisition of Town Gate Manor
and Town Gate East on a straight line basis over fifteen years....................... 48
Amortization of non-compete agreements ($322) associated with the acquisition of Town
Gate Manor and Town Gate East on a straight line basis over seven years, the life of
the agreements....................................................................... 11
---------
$ 330
---------
---------
</TABLE>
(e) Depreciation and amortization:
<TABLE>
<S> <C>
Adjustment to historical depreciation of buildings and furniture and fixtures
associated with Town Gate Manor and Town Gate East, based upon fair value of the
acquired assets and increase in depreciable lives............................... $ (3)
---------
---------
</TABLE>
F-10
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(f) Interest expense:
<TABLE>
<S> <C>
Interest expense associated with the acquisition of Town Gate Manor and Town
Gate East ($10,375 of debt incurred at 4.25% above the 10 year Treasury rate,
10.05% average for the period) ($261), net of elimination of historical
interest expense incurred on debt of these entities not assumed by the
Predecessor nor the Company ($50).............................................. $ (211)
---------
---------
</TABLE>
(g) Interest income -- affiliates:
<TABLE>
<S> <C>
Elimination of interest expense on amounts due to affiliates ($3,206) not being
assumed by the Company......................................................... $ 61
---------
---------
</TABLE>
(h) Benefit for income taxes:
<TABLE>
<S> <C>
The Predecessor and the entities that operated Town Gate Manor and Town Gate
East were not taxable entities. This adjustment provides pro forma benefit for
income taxes at a 40% effective rate........................................... $ 323
---------
---------
</TABLE>
(i) Pro forma net loss Per Share:
<TABLE>
<S> <C>
Pro forma net loss per share is based upon the pro forma weighted average
number of common shares outstanding of 7,700 after the offering......... 7,700Shares
------
------
</TABLE>
F-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Partners of
The Kapson Group:
We have audited the accompanying combined balance sheets of The Kapson Group
(the Predecessor) as of December 31, 1994 and 1995, and the related combined
statements of operations, changes in partners' and shareholders' (deficit) and
cash flows for each of the years in the three year period ended December 31,
1995. These financial statements are the responsibility of the Predecessor's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of The Kapson Group as
of December 31, 1994 and 1995, and the combined results of its operations and
its cash flows for each of the years in the three year period ended December 31,
1995 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
NEW YORK, NEW YORK
JUNE 7, 1996
F-12
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
COMBINED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- -------------- MARCH 31, 1996 PROFORMA MARCH
--------------- 31, 1996
(UNAUDITED) ---------------
(NOTE 2)
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents................... $ 1,886,634 $ 3,392,318 $ 1,757,512 $ 1,757,512
Accounts receivable......................... 28,441 77,837 52,500 52,500
Prepaid expenses and other current assets... 219,895 270,317 254,963 254,963
-------------- -------------- --------------- ---------------
Total current assets...................... 2,134,970 3,740,472 2,064,975 2,064,975
Property and equipment, net................... 23,563,033 29,445,121 48,058,985 48,058,985
Facility development costs.................... 5,627,426 16,374,566 274,000 274,000
Restricted cash............................... 1,503,834 2,592,185 4,828,823 4,828,823
Deferred financing costs, net................. 1,421,073 2,082,285 2,133,094 2,133,094
Other assets.................................. 44,019 172,163 145,384 145,384
-------------- -------------- --------------- ---------------
Total assets.............................. $ 34,294,355 $ 54,406,792 $ 57,505,261 $ 57,505,261
-------------- -------------- --------------- ---------------
-------------- -------------- --------------- ---------------
LIABILITIES AND PARTNERS' AND SHAREHOLDERS' DEFICIT
Current liabilities
Current portion of long-term debt........... $ 15,000,000 $ 245,867 $ 268,945 $ 268,945
Accounts payable and accrued expenses....... 1,257,548 3,219,472 2,869,820 2,869,820
Accrued interest............................ 261,873 363,198 271,096 271,096
Due to affiliates........................... 3,149,802 3,300,450 3,206,006 3,206,006
Deferred revenue............................ 177,713 207,564 239,571 239,571
Pro forma distribution to partners and
shareholders............................... -- -- -- 6,400,000
-------------- -------------- --------------- ---------------
Total current liabilities................. 19,846,936 7,336,551 6,855,438 13,255,438
Long-term debt................................ 20,461,411 53,807,880 57,928,574 57,928,574
Resident security deposits.................... 1,199,032 1,278,147 1,374,849 1,374,849
Deferred interest payable..................... 47,500 105,200 140,700 140,700
Construction retainage payable................ -- 227,200 -- --
-------------- -------------- --------------- ---------------
Total liabilities......................... 41,554,879 62,754,978 66,299,561 72,299,561
-------------- -------------- --------------- ---------------
Minority interest............................. 1,479,116 1,463,271 2,612,770 2,612,770
-------------- -------------- --------------- ---------------
Commitments and contingencies (Note 7)
Partners' and shareholders' (deficit)......... (8,739,640) (9,811,457) (11,407,070) (17,807,070)
-------------- -------------- --------------- ---------------
Total liabilities and partners' and
shareholders' (deficit).................. $ 34,294,355 $ 54,406,792 $ 57,505,261 $ 57,505,261
-------------- -------------- --------------- ---------------
-------------- -------------- --------------- ---------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-13
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- -----------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Assisted living revenues.............. $ 12,628,697 $ 13,349,033 $ 14,275,484 $ 3,490,911 $ 3,872,648
Management fees....................... 247,750 347,839 442,825 102,402 225,125
Other -- affiliates................... 111,701 57,530 45,065 11,268 11,250
-------------- -------------- -------------- ------------- --------------
Total revenues...................... 12,988,148 13,754,402 14,763,374 3,604,581 4,109,023
-------------- -------------- -------------- ------------- --------------
Operating expenses:
Assisted living operating expenses.... 7,591,122 7,876,884 8,389,875 1,968,834 2,532,708
General and administrative............ 727,009 1,101,616 1,583,155 335,297 531,181
Depreciation.......................... 1,188,134 1,180,418 1,233,843 302,914 374,606
-------------- -------------- -------------- ------------- --------------
Total operating expenses............ 9,506,265 10,158,918 11,206,873 2,607,045 3,438,495
-------------- -------------- -------------- ------------- --------------
Operating income........................ 3,481,883 3,595,484 3,556,501 997,536 670,528
Interest income......................... 12,555 8,693 44,234 11,056 44,797
Interest expense........................ (3,417,046) (3,288,107) (3,732,309) (840,488) (1,092,371)
Interest expense -- affiliates.......... (136,726) (207,956) (203,487) (51,424) (60,971)
Other income (expense), net............. (9,610) (1,070) (34,065) 920 (3,512)
-------------- -------------- -------------- ------------- --------------
Income (loss) before minority interest
and extraordinary item............... (68,944) 107,044 (369,126) 117,600 (441,529)
Minority interest in net loss of
combined partnerships................ -- -- 15,845 -- 50,501
-------------- -------------- -------------- ------------- --------------
Income (loss) before extraordinary
item................................. (68,944) 107,044 (353,281) 117,600 (391,028)
Extraordinary item -- forgiveness of
debt................................. -- 4,398,672 -- -- --
-------------- -------------- -------------- ------------- --------------
Net income (loss)..................... $ (68,944) $ 4,505,716 $ (353,281) $ 117,600 $ (391,028)
-------------- -------------- -------------- ------------- --------------
-------------- -------------- -------------- ------------- --------------
Unaudited pro forma data (2):
Net income (loss)..................... $ (68,944) $ 4,505,716 $ (353,281) $ 117,600 $ (391,028)
Pro forma benefit (provision) for
income taxes......................... 27,578 (1,802,286) 141,312 (47,040) 156,411
-------------- -------------- -------------- ------------- --------------
Pro forma net income (loss)............. $ (41,366) $ 2,703,430 $ (211,969) $ 70,560 $ (234,617)
-------------- -------------- -------------- ------------- --------------
-------------- -------------- -------------- ------------- --------------
Pro forma net loss per share (2)........ -- -- $ (.43) -- $ (.48)
-------------- -------------- -------------- ------------- --------------
-------------- -------------- -------------- ------------- --------------
Pro forma weighted average number of
common shares outstanding (2).......... -- -- 492,308 -- 492,308
-------------- -------------- -------------- ------------- --------------
-------------- -------------- -------------- ------------- --------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-14
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
COMBINED STATEMENTS OF CHANGES IN PARTNERS' AND SHAREHOLDERS' (DEFICIT)
<TABLE>
<S> <C>
Partners' and shareholders' (deficit), December 31, 1992...................... $(11,704,039)
Distributions............................................................... (551,974)
Net loss.................................................................... (68,944)
------------
Partners' and shareholders' (deficit), December 31, 1993...................... (12,324,957)
Distributions............................................................... (920,399)
Net income.................................................................. 4,505,716
------------
Partners' and shareholders' (deficit), December 31, 1994...................... (8,739,640)
Distributions............................................................... (718,536)
Net income.................................................................. (353,281)
------------
Partners' and shareholders' (deficit), December 31, 1995...................... (9,811,457)
Distributions (unaudited)................................................... (1,204,585)
Net loss (unaudited)........................................................ (391,028)
------------
Partners' and shareholders' (deficit), March 31, 1996 (unaudited)............. $(11,407,070)
------------
------------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-15
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
COMBINED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
---------- ----------- ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................... $ (68,944) $ 4,505,716 $ (353,281) $ 117,600 $ (391,028)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation.............................. 1,188,134 1,180,418 1,233,843 302,914 374,606
Amortization of deferred financing
costs.................................... 104,581 216,867 226,456 45,438 56,388
Extraordinary item........................ -- (4,398,672) -- -- --
Minority interest in income of
partnership, net......................... -- -- (15,845) -- (50,501)
Changes in other assets and liabilities:
Accounts receivable..................... 16,695 (10,729) (49,396) (12,209) 25,337
Prepaid expenses and other current
assets................................. 33,312 (29,297) (50,422) (280,804) 15,354
Restricted cash......................... (32,269) (1,471,565) (1,088,351) (638,074) (2,236,638)
Other assets............................ 78,811 (23,620) (128,144) 4,322 26,779
Accounts payable and accrued expenses... (805,503) 230,555 1,961,924 346,932 (349,652)
Accrued interest........................ 811,787 155,937 101,325 20,319 (92,102)
Restricted security deposits............ 520,620 122,845 79,115 (235,150) 96,702
Deferred interest payable............... -- 47,500 57,700 -- 35,500
Deferred revenue........................ (28,602) (50,364) 29,851 55,798 32,007
---------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
operating activities................. 1,818,622 475,591 2,004,775 (272,914) (2,457,248)
---------- ----------- ------------ ----------- -----------
Cash flows from investing activities:
Purchases and development of property and
equipment.................................. (472,324) (724,971) (16,530,708) (4,453,453) (3,115,104)
---------- ----------- ------------ ----------- -----------
Net cash used in investing
activities........................... (472,324) (724,971) (16,530,708) (4,453,453) (3,115,104)
---------- ----------- ------------ ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt.... -- 1,907,136 17,565,212 4,610,063 4,245,194
Principal payments on long-term debt........ (309,377) (370,939) (78,039) (31,284) (101,422)
Deferred financing costs.................... (89,875) (1,481,980) (887,668) (369,513) (107,197)
Due to affiliates........................... (11,956) 204,920 150,648 (54,564) (94,444)
Contribution by minority partners........... -- 1,479,116 -- -- 1,200,000
Distributions to partners and
shareholders............................... (551,974) (920,399) (718,536) (297,165) (1,204,585)
---------- ----------- ------------ ----------- -----------
Net cash provided by (used in)
financing activities................. (963,182) 817,854 16,031,617 3,857,537 3,937,546
---------- ----------- ------------ ----------- -----------
Net increase (decrease) in cash and
cash equivalents..................... 383,116 568,474 1,505,684 (868,830) (1,634,806)
Cash and cash equivalents, beginning of
period....................................... 935,044 1,318,160 1,886,634 1,886,634 3,392,318
---------- ----------- ------------ ----------- -----------
Cash and cash equivalents, end of period...... $1,318,160 $ 1,886,634 $ 3,392,318 $ 1,017,804 $ 1,757,512
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
Cash, paid for interest....................... $2,499,433 $ 3,036,255 $ 3,400,592 $ 853,028 $ 999,159
---------- ----------- ------------ ----------- -----------
---------- ----------- ------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-16
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
1. OPERATIONS:
The Kapson Group (the Predecessor) represents a combination of the
businesses of Sub Chapter S corporations, Partnerships or Limited
Liability Companies which own, as of December 31, 1995, five assisted
living facilities, additional facilities under development (including
joint venture interests), an entity that provides facility management
services to unrelated entities and an entity that provides
administrative support to the Predecessor entities.
The Predecessor develops, owns, operates, and manages assisted living
facilities for senior citizens. As discussed in Note 7, the businesses
of the Predecessor will be acquired by Kapson Senior Quarters Corp. (the
"Company") at or prior to the consummation of an initial public offering
(the "Offering") by the Company.
The assisted living facilities owned and operated by the Predecessor are
as follows:
<TABLE>
<CAPTION>
FACILITY ENTITY FORM %
- --------------------------------------- --------------------------------------- ------------------ ---------
<S> <C> <C> <C>
WHOLLY AND MAJORITY OWNED
Senior Quarters at Stamford Kapson Stamford Corp. Sub Chapter S 100
Senior Quarters at Huntington Station Commco Management Associates, Inc. Sub Chapter S 100
Senior Quarters at Centereach I HK Associates General
Partnership 100
Senior Quarters at Centereach II KapShore Development Corp. Sub Chapter S 100
*Town Gate East Kapson Rochester East, LLC Limited Liability
Company 100
*Town Gate Manor Kapson Rochester Manor, LLC Limited Liability
Company 100
*Senior Quarters at Chestnut Ridge Chestnut Ridge Development LLC Limited Liability
Company 100
Senior Quarters at East Northport Larkfield Garden Associates L.P. Limited
Partnership 50
MINORITY OWNED JOINT VENTURES
(under development)
Senior Quarters at Jamesburg Kapson Jamesburg Development LLC Limited Liability
Company 11
Senior Quarters at Glen Riddle Kapson Glen Riddle Development LLC Limited
Partnership 10
</TABLE>
- ------------------------
*Ownership percentages were acquired or sold in April 1996 (See Note 13)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying combined financial statements include the assets,
liabilities and operations associated with the wholly and majority owned
entities listed above. Since the facilities have ownership and
management interests in common, the assets and liabilities are reflected
at historical cost. Investments in minority owned joint ventures are
accounted for on the equity
F-17
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
method. All significant intercompany accounts and transactions have been
eliminated in combination. Minority interest represents the net equity
attributable to non-affiliated investors that is not owned by the
Predecessor.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
REVENUES
Assisted living revenues are recorded when services are rendered and
consist of resident fees for basic housing, support services and fees
associated with additional services such as personalized health and
support services. Additionally, the Predecessor performs services for
other assisted living facilities and real estate investments. Such fees
are recorded when the respective services are rendered.
CLASSIFICATION OF EXPENSES
All expenses incurred by the Predecessor (except interest, depreciation
and general and administrative costs) are classified as assisted living
operating expenses. All expenses (except interest, depreciation, and
assisted living operating expenses) associated with corporate or support
functions are classified as general and administrative expense.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost with depreciation being
provided over the assets' estimated useful lives using the straight-line
method as follows:
<TABLE>
<CAPTION>
Buildings and improvements...................................... 35 years
<S> <C> <C>
Furniture and equipment......................................... 7-10 years
</TABLE>
Interest incurred during construction periods is capitalized as part of
the building costs. Maintenance and repairs are expensed as incurred;
renewals and improvements are capitalized. Upon disposal of property and
equipment subject to depreciation, the related costs and accumulated
depreciation are removed and resulting gains and losses are reflected in
operations.
If there is an event or a change in circumstances that indicates that
the basis of the Predecessor's long-lived assets may not be recoverable,
the Predecessor's policy is to assess any impairment in value by making
a comparison of the current and projected operating cash flows of the
asset over its remaining useful life, on an undiscounted basis, to the
carrying amount of the asset. Such carrying amounts would be adjusted,
if necessary, to reflect an impairment in the value of the assets.
F-18
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
FACILITY DEVELOPMENT COSTS
Facility development costs include direct costs related to development
and construction of facilities. When a project is completed, it is
transferred to property and equipment. If a project is abandoned, any
costs previously capitalized would be expensed.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized to interest expense over the term
of the related debt using the interest method. Accumulated amortization
was $130,800, $403,400 and $74,400 at (unaudited) March 31, 1996,
December 31, 1994 and 1995, respectively.
INCOME TAXES
The businesses comprising the Predecessor have elected to be taxed as
either S Corporations, Partnerships or Limited Liability Companies
pursuant to the provisions of the Internal Revenue Code and, as such,
are not subject to federal or state income taxes because their taxable
income or loss accrues to individual shareholders, partners or members
respectively.
RESTRICTED CASH
Included in restricted cash are resident security deposits and escrowed
funds in connection with mortgage notes that the Predecessor cannot use
in operating activities.
CASH EQUIVALENTS
The Predecessor considers all investments purchased with original
maturities of three months or less at acquisition to be a cash
equivalent.
PRE-OPENING COSTS
Costs incurred in connection with preparing facility units for initial
rental are expensed as incurred.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data as of March 31, 1996 and for the three months
ended March 31, 1995 and 1996 are unaudited; however, in the opinion of
management, such interim data includes all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of
the combined financial position and the combined results of operations
and cash flows for the periods.
RECENT ACCOUNTING PRONOUNCEMENTS
The Predecessor is not aware of any current accounting pronouncements
that require future adoption that will materially affect the combined
financial condition or combined results of operations of the
Predecessor.
PRO FORMA PRESENTATION (UNAUDITED)
Certain entities that comprise the Predecessor intend on declaring, upon
successful completion of the Offering by the Company, final
distributions to their respective shareholders and
F-19
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
partners in the aggregate of $6,400,000. These distributions will be
funded through proceeds of the Offering and will be used primarily to
satisfy (i) the tax liabilities of the Kaplans expected to be incurred
pertaining to the transfer of the Predecessor interests in the
facilities to the Company ($6,000,000) and (ii) real estate transfer and
gains taxes arising out of the transaction expected to be approximately
$(400,000).
The pro forma net loss per share for the three months ended March 31,
1996 and the year ended December 31, 1995 were determined based upon the
number of shares of common stock assumed to be issued by the Company in
the initial public offering to fund the $6,400,000 distribution based on
an assumed offering price of $13 per share.
The pro forma benefit (provision) for income taxes for the Predecessor
is based on the historical combined financial data of the Predecessor as
if the entities comprising the Predecessor had operated as taxable
corporations for all periods presented and is recorded at the statutory
rate in effect during the period (40%).
3. PROPERTY AND EQUIPMENT:
Property and equipment are stated at cost and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- -------------- MARCH 31, 1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Land........................................ $ 1,419,119 $ 1,959,514 $ 1,959,514
Buildings and improvements.................. 23,756,891 29,728,334 48,361,249
Furniture and equipment..................... 5,927,952 6,396,074 6,748,237
-------------- -------------- --------------
31,103,962 38,083,922 57,069,000
Less, accumulated depreciation.............. 7,540,929 8,638,801 9,010,015
-------------- -------------- --------------
Property and equipment, net................. $ 23,563,033 $ 29,445,121 $ 48,058,985
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The Predecessor's land and buildings and certain furniture and equipment
serve as collateral for long-term debt.
Interest costs capitalized during development approximated $228,000,
$--, $--, $263,000, and $1,105,000, for the (unaudited) three months
ended March 31, 1995 and 1996 and the years ended December 31, 1993,
1994 and 1995, respectively.
4. INVESTMENTS IN JOINT VENTURES:
At December 31, 1995, the Predecessor had an 11% general partnership
interest in a limited partnership (Senior Quarters at Glen Riddle) and a
10% interest in a limited liability company (Senior Quarters at
Jamesburg). The Predecessor did not have operational control of either
facility. The joint venture agreements provide the Predecessor's joint
venture partners with preference distributions on their initial capital
contributions and provisions for a return of capital
F-20
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
4. INVESTMENTS IN JOINT VENTURES: (CONTINUED)
before any distribution can be made to the Predecessor. The facilities
owned by the joint ventures, which will commence operations during 1996,
are currently under development. Summarized financial information for
these joint ventures is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
--------------
<S> <C>
Assets
Land........................................................................ $ 1,511,423
Construction in progress.................................................... 6,340,604
Restricted investments...................................................... 20,884,931
Other assets................................................................ 1,344,308
--------------
$ 30,081,266
--------------
--------------
Liabilities and partners' capital::
Bonds payable............................................................... $ 25,585,142
Other liabilities........................................................... 1,267,067
Partners'/members' capital.................................................. 3,229,057
--------------
$ 30,081,266
--------------
--------------
</TABLE>
5. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- -------------- MARCH 31,
--------------
1996
--------------
(UNAUDITED)
<S> <C> <C> <C>
Mortgage note payable to a financial institution bearing
interest at 7.605% per annum due in monthly principal and
interest installments of $119,333 through December 1,
2005 when unpaid balance of $12,954,978 is due. (B)...... $ -- $ 16,000,000 $ 15,945,858
Mortgage note payable to a financial institution bearing
interest at 4% above the financial institution's lending
rate (9.83% at December 31, 1995). Note matures on
February 28, 1999. (A)(B)(C)(E).......................... 6,907,290 6,931,282 6,910,396
Mortgage note payable to a financial institution bearing
interest at 4% above the financial institution's lending
rate (9.83% at December 31, 1995). Note matures on
February 28, 1999. (A)(B)(C)(E).......................... 8,774,147 8,759,298 8,732,903
Mortgage note payable to an institution with interest only
payments through December 1996 at 4.25% above U.S.
Treasury Notes (10.2% at December 31, 1996) beginning
January 1997 monthly payments of principal and interest
are due. The note matures December 2006. (B)(D)(See Note
6)....................................................... -- 8,000,000 8,000,000
</TABLE>
F-21
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM DEBT: (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1994 1995
-------------- --------------
MARCH 31,
--------------
1996
--------------
(UNAUDITED)
Construction note payable to a financial institution,
maturing June 1, 2036 and providing up to $20,599,900 in
funding, bearing interest at 9.325% per annum, interest
accrued through June 1, 1996 and thereafter monthly
payments of principal and interest of $164,072 through
maturity. (F)(See Note 13)............................... $ 4,779,974 $ 14,363,167 $ 18,608,362
<S> <C> <C> <C>
Mortgage note payable bearing interest at prime plus 2%
(10.5% at December 31, 1994). The note provided for
monthly interest only payments and matured in 1995. The
Company refinanced this mortgage with a $16,000,000
facility in 1995......................................... 15,000,000 -- --
-------------- -------------- --------------
35,461,411 54,053,747 58,197,519
Less, current portion..................................... 15,000,000 245,867 268,945
-------------- -------------- --------------
Long-term portion......................................... $ 20,461,411 $ 53,807,880 $ 57,928,574
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
- ------------------------
(A) Effective February 1996, the Predecessor will make monthly payments
equal to the outstanding mortgage principal balance multiplied by 12.0%.
The difference between this payment and the interest expense is applied
as a reduction of principal.
(B) The mortgage notes are collaterized by the facilities property and
equipment.
(C) The mortgage notes include an equity participation provision for the
lender. The Predecessor is obligated to pay the lender at either (i) the
maturity of the loan; (ii) refinancing of the loan; or (iii) sale of the
facility, the greater of $480,000 or 25% of the appraised market value of
the facility in excess of $17,500,000. The Predecessor has treated the
$480,000 as deferred interest and has reflected this amount in the
accompanying financial statements under the effective interest method.
The difference between the effective interest rate and the pay rate is
reflected as deferred interest payable. The effective interest rate on
this note was 10.1%, 9.9% and 10.4% at (unaudited) March 31, 1996,
December 31, 1994 and 1995, respectively.
(D) Monthly principal and interest payments are based upon a 25 year
amortization period. At maturity, the Predecessor has an option to renew
the note for ten years at a rate of 6.25% above U.S. Treasury Notes
increased annually by 30 basis points. Monthly principal and interest
payments will be based upon a 16-year amortization period. The note also
includes an equity participation for the lender. The Predecessor is
obligated to pay the lender at the expiration of the initial term,
prepayment or upon default, the greater of $800,000 or 50% of the
difference between the fair market value of the facility and $8,000,000.
The Predecessor has treated the $800,000 as deferred interest and has
reflected this amount in the accompanying financial statements under the
effective interest method. The difference between the effective interest
rate and the pay rate is reflected as deferred interest payable. The
effective interest rate on this note was 11.6% at (unaudited) March 31,
1996 and December 31, 1995.
F-22
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
5. LONG-TERM DEBT: (CONTINUED)
(E) These notes are partially or totally guaranteed by the respective
partners and shareholders of the Predecessor.
(F) Various prepayment penalties exist.
Principal payments on long-term debt as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
- ----------------------------------------------------------
<S> <C>
1996..................................................... $ 245,867
1997.................................................... 360,889
1998.................................................... 391,506
1999.................................................... 16,116,514
2000.................................................... 463,458
Thereafter.............................................. 36,475,513
--------------
Total............................................... $ 54,053,747
--------------
--------------
</TABLE>
6. CREDIT FACILITY
The Predecessor has available a $40 million recourse line of credit (the
"Credit Facility") from Health Care REIT Inc.. The Credit Facility
provides both construction and permanent financing.
Construction financings, which can also be used for acquisitions,
generally expire in twelve months or the date the certificate of
occupancy is received. Interest on construction financing is 3.5% above
the base rate announced by National City Bank of Cleveland. Monthly
payments of interest only are required. At this expiration date the
construction financing is automatically converted to a permanent
financing.
Permanent financings ("Mortgage Notes") are for initial terms of 10
years, with a 10 year renewal at the Predecessor's option. Interest is
charged at 4.25% above comparable U.S. Treasury Notes during the initial
financing term and 6.25% above comparable U.S. Treasury Notes during any
renewal term. Monthly payments of interest only are due during the first
year, after which monthly payments of principal and interest are due
based on a 25 year amortization period.
The Credit Facility is collateralized by the Predecessor's real estate,
equipment and accounts receivable.
7. COMMITMENTS AND CONTINGENCIES:
MANAGEMENT AGREEMENTS
The Predecessor has agreements with unaffiliated parties to manage their
facilities. These agreements, which range from three to ten years with
five year renewal options, expire at various dates from 1997 through
2006. The fees received under these agreements are generally 5% of gross
rental revenue of the facility and incentive fees related to facility
operating results.
F-23
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES: (CONTINUED)
LEGAL PROCEEDINGS
The Predecessor is named as a defendant in various lawsuits which arise
in the normal course of business. Although the ultimate outcome of these
proceedings cannot be determined, management believes that in no
instance will the outcome have a material adverse effect on the
Predecessor's financial position, result of operations or cash flows.
OPERATING LEASES
The Predecessor is obligated under certain long term non-cancellable
operating leases for its corporate office and office equipment expiring
at various dates through 2007. Future minimum lease payments required
under these leases as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
- -------------------------------------------------------------
<S> <C>
1996..................................................... $ 119,700
1997...................................................... 153,400
1998...................................................... 159,660
1999...................................................... 139,918
2000...................................................... 138,746
</TABLE>
Rent expense was approximately $64,000, $75,000 and $90,000 in 1993,
1994 and 1995, respectively and (unaudited) $22,000 and $29,000 for the
three months ended March 31, 1995 and 1996, respectively.
INITIAL PUBLIC OFFERING
The Company intends to file a Registration Statement under the
Securities Act of 1933 to effect the Offering. The businesses' of the
Predecessor will be contributed to the Company concurrently with the
Offering (see Note 1). In addition to its owned facilities, the
Predecessor will contribute its management agreements with respect to
unaffiliated facilities.
8. EXTRAORDINARY ITEM:
During 1994, the Predecessor negotiated a settlement with various
lenders to satisfy certain outstanding mortgage notes payable and
accrued interest payable at a $4,398,672 discount. The Predecessor
simultaneously refinanced this debt with other lenders at the then
prevailing market rates. This amount has been reflected in the 1994
combined statement of operations as an extraordinary item.
9. RELATED PARTY TRANSACTIONS
DUE TO AFFILIATES
This represents advances from uncombined affiliated entities that are
not presented as a component of the Predecessor. These advances, which
are due on demand and bear interest at rates ranging from 6.53% to
6.92%, were made to assist in the funding of certain of the Predecessor
entities start-up operations.
OTHER -- AFFILIATES
The Predecessor has arrangements with affiliated entities to provide
real estate advisory services. The fees received by the Predecessor are
based on a percentage of the affiliate's annual rental revenue.
F-24
<PAGE>
THE KAPSON GROUP
(THE PREDECESSOR)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION RELATED TO INTERIM DATA AS OF MARCH 31, 1996 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS UNAUDITED)
10. EMPLOYEE BENEFIT PLAN
In August 1995, the Predecessor established a 401(k) plan for all
employees that meet minimum employment criteria. The plan provides that
the Predecessor may, at its option, contribute to the plan up to 6% of
an employee's salary. Employees are always 100% vested in their own
contributions and vested in Predecessor contributions over seven years.
The Predecessor made no contributions for the year ended December 31,
1995 and the three months ended March 31, 1996.
11. CONCENTRATION OF RISK:
BUSINESS AND CREDIT CONCENTRATION
Concentration of credit risk with respect to resident receivables is
limited due to the large number of residents comprising the resident
roster and the policy of the Predecessor to obtain security deposits and
personal guarantees from third parties in many instances.
FINANCIAL RISK
The Predecessor maintains its cash primarily at two financial
institutions which management believes are of high credit quality.
GEOGRAPHIC CONCENTRATION
The Predecessor's facilities are located primarily in New York, New
Jersey and Connecticut. This concentration imposes on the Predecessor
certain risks, which include local economic conditions, that are not
within management's control.
12. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Cash and cash equivalents, restricted cash and variable rate and fixed
rate mortgage notes payable are reflected in the accompanying balance
sheet at amounts considered by management to reasonably approximate fair
value. Management estimates the fair value of its long-term fixed rate
notes payable generally using discounted cash flow analysis based upon
the Predecessor's current borrowing rate for debt with similar
maturities.
13. SUBSEQUENT EVENTS:
In April 1996 the Predecessor purchased two assisted living facilities
in Rochester and Penfield, New York, for approximately $10,375,000 which
it fully financed through mortgage notes under the Credit Facility (Note
6). The mortgage notes require interest only payments through April 1,
1997 at 4.25% above U.S. Treasury notes, after which monthly payments of
principal and interest are due. The notes mature on April 1, 2006. In
addition, the notes provide the lender with an equity participation
payable upon note maturity, calculated as (i) if the fair market value
of the facility exceeds $10,375,000 by more than 125%, then the lender
receives 50% of the difference or (ii) if the fair market value of the
facility is less than or equal to 125% of $10,375,000, then the lender
receives 10% of the fair market value of the facility.
In April 1996, the Predecessor purchased, for cash of $475,000, a 23.75%
interest in an assisted living facility in New Jersey.
In April 1996, the Predecessor received $1,200,000 for a 49% interest in
its Senior Quarters at Chestnut Ridge facility. No gain or loss was
recorded by the Predecessor relating to this transaction.
In April 1996, the Predecessor borrowed an additional $1,991,538 under
its construction financing loan (Note 5).
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors of
Kapson Senior Quarters Corp.
We have audited the accompanying balance sheet of Kapson Senior Quarters
Corp. as of June 10, 1996. This balance sheet is the responsibility of the
Company's management. Our responsibility is to express an opinion on the balance
sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Kapson Senior Quarters Corp. as of
June 10, 1996, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
June 11, 1996
F-26
<PAGE>
KAPSON SENIOR QUARTERS CORP.
BALANCE SHEET
AS OF JUNE 10, 1996
ASSETS
<TABLE>
<S> <C>
Cash................................................................................. $ 300
---------
Total Assets..................................................................... $ 300
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Commitments and Contingencies (Note 5)
Shareholders' Equity:
Preferred Stock; $.01; par value 10,000,000 shares authorized, none issued or
outstanding
Common Stock; $.01; par value; 30,000,000 shares authorized, 300 shares issued and
outstanding....................................................................... $ 3
Additional Paid in Capital......................................................... 297
---------
Total Shareholders' Equity....................................................... $ 300
---------
---------
</TABLE>
The accompanying notes are an integral part of this financial statement.
F-27
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO BALANCE SHEET
JUNE 10, 1996
(1) FORMATION OF THE COMPANY
Kapson Senior Quarters Corp. (the "Company") was incorporated under the
General Corporation Law of Delaware on June 7, 1996 by three individual
equal owners (the "Kaplans"). The Company was formed in order to consolidate
and expand the assisted living facility business of the Kapson Group (the
"Predecessor") of which the Kaplans are owners. In connection with a
proposed public offering (see Note 2), the Prececessor will contribute their
interests in six wholly owned facilities (Senior Quarters at Huntington
Station, Senior Quarters at Centereach I, Senior Quarters at Centereach II,
Senior Quarters at Stamford, Town Gate Manor and Town Gate East); two
majority owned facilities (Senior Quarters at Chestnut Ridge and Senior
Quarters at East Northport), three minority owned facilities (Change Bridge
Inn, Senior Quarters at Jamesburg and Senior Quarters at Glen Riddle) (two
of which are under development) and management agreements for four
facilities -- (The Regency at Glen Cove, Senior Quarters at Cranford, Castle
Gardens and Senior Quarters at Lynbrook( (one of which is under development)
owned by unrelated third parties for, among other things, an aggregate of
approximately 4,150,000 shares of common stock the Company, See Note 2 --
The Initial Public Offering.
(2) STOCKHOLDER EQUITY
COMMON STOCK
The Company is authorized to issue 30,000,000 shares of common stock with a
$.01 par value. On June 7, 1996, the Company issued 300 shares of common
stock to the Kaplans for $1 per share.
THE INITIAL PUBLIC OFFERING
In connection with the Company's plan to expand the assisted living business
of the Predecessor, the Company intends to file a Registration Statement
under the Securities Act of 1933 to effect an initial public offering (the
"Offering"). The proceeds of the Offering are intended to be used for the
development and acquisition of additional assisted living facilities,
working capital and general corporate purposes as well as a distribution to
the Kaplans of an aggregate of $6.4 million which will be used primarily to
satisfy (i) tax liabilities of the Kaplans expected to be incurred
pertaining to the transfer of the Predecessor interests in the facilities to
the Company ($6,000,000) and (ii) real estate transfer and gains taxes
arising out of the transaction estimated to be approximately $400,000.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of Preferred Stock,
$.01 par value, in one or more classes or series and to fix the designation,
preferences, rights, qualifications, limitations and restrictions thereof,
including the voting rights, dividends rights, dividend rates, conversion
rights, terms of redemption, redemption prices, liquidation preferences and
number of shares constituting any series. The Company, may without
shareholder approval, issue preferred stock with voting and conversion
rights that could adversely affect the voting power of the holders of the
common stock and the market price of the common stock.
STOCK OPTIONS
The Company adopted the 1996 Stock Incentive Plan (the "Plan") which may be
awarded to key employees. Under the Plan, a maximum of 600,000 shares of
common stock may be issued pursuant to the Plan. The Plan provides for the
grant of any or all of the following types of awards to eligible employees:
(i) stock options, including incentive stock options and non-qualified stock
options; (ii) stock appreciation rights, in tandem with stock options or
freestanding; (iii) restricted stock; and (iv) performance shares. In
addition, the Plan provides for the non-discretionary award of stock options
to non-employee directors of the Company as a portion of their annual
retainer fee. Awards may be granted singly, in combination, or in tandem, as
determined by the Compensation
F-28
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO BALANCE SHEET (CONTINUED)
JUNE 10, 1996
(2) STOCKHOLDER EQUITY (CONTINUED)
Committee. The maximum number of shares of common stock subject to stock
options, performance shares, restricted stock or stock appreciation rights
that may be granted to any individual under the Plan is 50,000 for each
fiscal year of the Company during the term of the Plan. The exercise price
may not be less than the fair market value of the common stock at the time
of grant. In contemplation of the Offering, the Company has granted
effective as of the date the Offering is priced, 88,462 options to purchase
shares of common stock to key employees and Directors at the Offering price.
(3) CREDIT FACILITY
The Predecessor has available a $40 million recourse line of credit (the
"Credit Facility") from Health Care REIT Inc. that it intends to assign to
the Company in connection with the Offering. The Credit Facility provides
both construction and permanent financing.
Construction financings (which can also be used for acquisitions) generally
expire in twelve months or the date the certificate of occupancy is
received. Interest on construction financing is 3.5% above the base rate
announced by National City Bank of Cleveland. Monthly payments of interest
only are required. At this expiration date the construction financing is
automatically converted to a permanent financing.
Permanent financings ("Mortgage Notes") are for initial terms of 10 years,
with a 10 year renewal at the Predecessor's option. Interest is charged at
4.25% above comparable U.S. Treasury Notes during the initial financing term
and 6.25% above comparable U.S. Treasury Notes during any renewal term.
Monthly payments of interest only are due during the first year, after which
monthly payments of principal and interest are due based on a 25 year
amortization period.
The Credit Facility is collateralized by the Predecessor's real estate,
equipment and accounts receivable.
The Company intends to use the Credit Facility to finance the acquisition of
developed and undeveloped properties, construction, development and
renovation costs and for working capital purposes.
(4) OFFERING COSTS
In connection with the Offering, affiliates will incur legal, accounting,
and related costs which will be reimbursed by the Company upon completion of
the Offering. These costs will be deducted from the gross proceeds of the
Offering and reflected as an adjustment to additional paid in capital.
(5) COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company will enter into employment agreements with Glenn Kaplan,
Chairman of the Board and Chief Executive Officer, Wayne Kaplan, Vice
Chairman of the Board, Senior Executive Vice President, Secretary, and
General Counsel, and Evan Kaplan, President, Chief Operating Officer, and
director, each of whom will receive annual cash compensation and a bonus
pursuant to substantially identical five year employment contracts with the
Company. These agreements will be effective upon the consummation of the
Offering, and are renewable from year to year after the initial five year
period. Each contract provides for a salary of $213,000, increased annually
by a percentage equal to the Consumer Price Index. Each contract also
provides for a discretionary bonus to be set by the Company's Compensation
Committee, based on the earnings of the Company and other criteria
determined by the Compensation Committee. If the executive covered by the
contract is terminated by the Company without cause, the executive shall be
paid the salary provided for in the
F-29
<PAGE>
KAPSON SENIOR QUARTERS CORP.
NOTES TO BALANCE SHEET (CONTINUED)
JUNE 10, 1996
(5) COMMITMENTS AND CONTINGENCIES (CONTINUED)
contract for the remainder of the term of the contract but in no event less
than one year's salary. In addition, the contract provides for a payment
equal to two year's base salary upon the occurrence of certain events
relating to a change of control of the Company and subsequent termination.
Each executive officer has agreed to devote substantially all of his time to
the Company and not to compete with the Company while employed thereby and
for a period of one year from the date of termination unless such executive
officer is terminated without cause.
OPERATING AGREEMENTS
The Kaplans, due to New York State law, are required to individually be the
licensed operators of all of the Company's assisted living facilities
located in New York. the Company has entered into operating agreements with
the Kaplans, relating to the facilities, for a term of 25 years at a net fee
of 3.5% of the respective facilities' revenues.
(6) RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS No. 123"), which prescribes a new method of accounting for
stock-based compensation that determines compensation expense based on fair
value measured at the grant date. SFAS No. 123 gives companies that grant
stock options or other equity instruments to employees, the option of either
adopting the new rules or continuing current accounting, however, disclosure
would be required of the pro forma amounts as if the new rules had been
adopted. SFAS No. 123 is effective for transactions entered into after
December 15, 1995. The Company has not yet determined whether to adopt the
new method of accounting and has not yet determined the effect on the
financial statements.
F-30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Partners
Town Gate East
Penfield, New York
We have audited the accompanying balance sheets of Town Gate East (a
Partnership) as of December 31, 1995 and 1994, and the related statements of
income, changes in partners' capital and cash flows for each of the years in the
three year period ended December 31, 1995. These financial statements are the
responsibility of the facility's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Town Gate East (a
Partnership) as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three year period ended December
31, 1995 in conformity with generally accepted accounting principles.
/s/ Rotenberg & Company LLP
Rochester, NY
February 21, 1996
F-31
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
BALANCE SHEETS
AT DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995
------------- ------------- THREE MONTHS
ENDED
MARCH 31, 1996
---------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and Cash Equivalents....................................... $ 106,746 $ 100,773 $ 86,225
Accounts Receivable -- Net of Allowance for Doubtful Accounts... 19,166 28,709 30,471
Inventories..................................................... 9,654 8,980 8,980
Prepaid Expenses................................................ 56,820 59,457 118,698
------------- ------------- ---------------
Total Current Assets.......................................... $ 192,386 $ 197,919 $ 244,374
Property and Equipment -- Net of Accumulated Depreciation......... 2,433,530 2,349,390 2,318,354
Mortgage Acquisition Costs -- Net of Accumulated Amortization..... 36,624 30,520 29,020
------------- ------------- ---------------
Total Assets................................................ $ 2,662,540 $ 2,577,829 $ 2,591,748
------------- ------------- ---------------
------------- ------------- ---------------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Notes and Mortgage Payable -- Due Within One Year............... $ 94,708 $ 53,040 $ 39,972
Accounts Payable................................................ 41,991 45,136 28,436
Accrued Expenses................................................ 27,623 30,055 8,928
Unearned Resident Care Revenue.................................. 12,333 -- --
------------- ------------- ---------------
Total Current Liabilities..................................... $ 176,655 $ 128,231 $ 77,336
Other Liabilities
Notes and Mortgage Payable -- Due After One Year................ 1,804,759 1,772,572 1,772,572
------------- ------------- ---------------
Total Liabilities........................................... $ 1,981,414 $ 1,900,803 $ 1,849,908
Partners' Capital................................................. 681,126 677,026 741,840
------------- ------------- ---------------
Total Liabilities and Partners' Capital....................... $ 2,662,540 $ 2,577,829 $ 2,591,748
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
The accompanying notes are an integral part of this financial statement
and should be read in conjunction therewith.
F-32
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
------------------------------------------- MARCH 31, 1996
1993 1994 1995 ----------------------------
AMOUNT AMOUNT AMOUNT 1995 1996
------------- ------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 1,978,568 $ 2,036,539 $ 2,137,991 $ 527,325 $ 554,657
Operating Expenses.................... 1,385,669 1,439,418 1,557,656 358,884 361,465
------------- ------------- ------------- ------------- -------------
Income Before Depreciation and
Amortization......................... $ 592,899 $ 597,121 $ 580,335 $ 168,441 $ 193,192
Depreciation and Amortization......... 130,386 135,981 142,203 36,900 36,000
------------- ------------- ------------- ------------- -------------
Income Before Other Income............ $ 462,513 $ 461,140 $ 438,132 $ 131,541 $ 157,192
Other Income.......................... 9,443 13,300 14,468 0 0
------------- ------------- ------------- ------------- -------------
Net Income............................ $ 471,956 $ 474,440 $ 452,600 $ 131,541 $ 157,192
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
F-33
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
TOTAL TOTAL TOTAL
------------- ------------- ------------- THREE MONTHS
ENDED
MARCH 31,
1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance -- Beginning of Year.......................... $ 561,330 $ 687,486 $ 681,126 $ 677,026
Net Income............................................ 471,956 474,440 452,600 157,192
------------- ------------- ------------- ------------
Subtotal.............................................. $ 1,033,286 $ 1,161,926 $ 1,133,726 $ 834,218
Partners' Withdrawals................................. 345,800 480,800 456,700 92,378
------------- ------------- ------------- ------------
Balance -- End of Year................................ $ 687,486 $ 681,126 $ 677,026 $ 741,840
------------- ------------- ------------- ------------
------------- ------------- ------------- ------------
</TABLE>
F-34
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
---------------------------------------------- --------------------------
1993 1994 1995 1995 1996
-------------- -------------- -------------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities
Cash Received from Residents........... $ 1,959,587 2,036,328 $ 2,110,115 $ 515,285 $ 551,941
Cash Paid to Suppliers and Employees... (1,267,332) (1,296,989) (1,361,568) (397,586) (429,658)
Interest Received...................... 2,514 2,465 3,622 719 954
Interest Paid.......................... (142,204) (151,621) (185,253) (15,227) (28,875)
Other Income........................... 6,929 10,835 10,846
-------------- -------------- -------------- ------------ ------------
Net Cash Flows from Operating
Activities........................ $ 559,494 $ 601,018 $ 577,762 $ 103,191 94,362
-------------- -------------- -------------- ------------ ------------
Cash Flows from Investing Activities
Cash Purchases of Property and
Equipment............................. $ (42,230) $ (71,169) $ (44,324) $ (27,078) $ (3,464)
Proceeds from Sale of Assets........... -- -- 9,010
-------------- -------------- -------------- ------------ ------------
Net Cash Flows from Investing
Activities.......................... $ (42,230) $ (71,169) $ (35,314) $ (27,078) $ (3,464)
-------------- -------------- -------------- ------------ ------------
Cash Flows from Financing Activities.....
Repayment of Debt...................... $ (89,840) $ (69,422) $ (91,721) $ (14,240) $ (13,068)
Partners' Withdrawals.................. 345,800) (480,800) (456,700) 105,200) (92,378)
-------------- -------------- -------------- ------------ ------------
Net Cash Flows from Financing
Activities.......................... $ (435,640) $ (550,222) $ (548,421) $ (119,440) $ (105,446)
-------------- -------------- -------------- ------------ ------------
Net Decrease in Cash and Cash
Equivalents............................. $ 81,624 $ (20,373) $ (5,973) $ (43,327) $ (14,548)
Cash and Cash Equivalents -- Beginning of
Year.................................... 45,495 127,119 106,746 106,746 100,773
-------------- -------------- -------------- ------------ ------------
Cash and Cash Equivalents -- End of
Year.................................... $ 127,119 $ 106,746 $ 100,773 $ 63,419 $ 86,225
-------------- -------------- -------------- ------------ ------------
-------------- -------------- -------------- ------------ ------------
</TABLE>
F-35
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Income......................................... $ 471,956 $ 474,440 $ 452,600 $ 131,541 $ 157,192
Adjustments:
Depreciation..................................... 124,282 129,877 136,099 35,400 34,500
Amortization..................................... 6,104 6,104 6,104 1,500 1,500
Bad Debts........................................ -- -- 6,000 -- --
Loss on Sale of Assets........................... -- -- 1,221 -- --
Changes:
Accounts Receivable.............................. (2,721) (10,084) (15,543) 1,012 (1,762)
Inventories...................................... (195) (649) 674 -- --
Prepaid Expenses................................. (11,186) (4,656) (2,637) (51,467) (59,241)
Accounts Payable................................. 18,303) (2,744) 3,145 (10,888) 16,700)
Accrued Expenses................................. 5,817 (1,143) 2,432 8,426 (21,127)
Unearned Resident Care Revenue................... (16,260) 9,873 (12,333) (12,333) --
----------- ----------- ----------- ----------- -----------
Net Cash Flows from Operating Activities....... $ 559,494 $ 601,018 $ 577,762 $ 103,191 $ 94,362
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
NON-CASH TRANSACTIONS
During 1995, long term debt in the amount of $17,866 was incurred to
purchase a vehicle.
F-36
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The partnership maintains its books and prepares its financial statements on
the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates of deposit,
and all highly liquid debt instruments with original maturities of three months
or less. The partnership maintains cash and cash equivalents at financial
institutions which periodically may exceed federally insured amounts.
INVENTORIES
Inventories are stated at the lower of cost or market, on the first-in,
first-out method.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is provided over the estimated useful
lives of the respective assets on the straight line basis as follows:
<TABLE>
<S> <C>
Auto................................................. 5 Years
Building............................................. 40 Years
32 - 40
Building Addition.................................... Years
Equipment............................................ 3 - 15 Years
Improvements......................................... 3 - 20 Years
</TABLE>
Maintenance and repairs are charged to expense. The cost of property and
equipment retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts.
MORTGAGE ACQUISITION COSTS
Mortgage acquisition costs have been capitalized and are being amortized
using the straight line method over the term of the debt.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results can differ from those estimates.
INCOME TAXES
Partnership profit and losses are reported by the individual partners on
their personal tax returns. Accordingly, no provision for taxes is reflected in
these financial statements.
NOTE B -- SCOPE OF BUSINESS
The partnership was organized on November 1, 1978 and is engaged in the
operation of a one hundred twenty (120) certified bed adult care facility in
Penfield, New York.
F-37
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following at December 31, 1994 and 1995
and the three months ended March 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- MARCH 31, 1996
---------------
(UNAUDITED)
<S> <C> <C> <C>
Residents...................................................... $ 16,018 $ 27,961 $ 31,602
Town Gate Manor................................................ 3,148 6,748 4,869
--------- --------- ---------------
$ 19,166 $ 34,709 $ 36,471
Less: Allowance for Doubtful Accounts.......................... -- 6,000 6,000
--------- --------- ---------------
Net Accounts Receivable.................................... $ 19,166 $ 28,709 $ 30,471
--------- --------- ---------------
--------- --------- ---------------
</TABLE>
NOTE D -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1994 1995
------------- ------------- MARCH 31, 1996
---------------
(UNAUDITED)
<S> <C> <C> <C>
Auto.................................................... $ 18,090 $ 24,866 $ 24,866
Building................................................ 1,122,627 1,122,627 1,122,627
Building Additions...................................... 1,668,890 1,668,890 1,699,119
Equipment............................................... 385,976 391,183 391,304
Improvements............................................ 216,841 247,047 250,161
------------- ------------- ---------------
$ 3,412,424 $ 3,454,613 $ 3,458,077
Less: Accumulated Depreciation.......................... 1,054,294 1,180,623 1,215,123
------------- ------------- ---------------
$ 2,358,130 $ 2,273,990 $ 2,242,954
Add: Land............................................... 75,400 75,400 75,400
------------- ------------- ---------------
Net Property and Equipment.......................... $ 2,433,530 $ 2,349,390 $ 2,318,354
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1994, and 1995
and the three months ended March 31, 1996 was $124,282, $129,877, $136,099 and
$34,500, respectively.
Substantially all of the building and equipment is pledged as collateral
security on notes and mortgages payable.
NOTE E -- MORTGAGE ACQUISITION COSTS
Mortgage acquisition costs at December 31, 1994 and 1995 and March 31, 1996,
were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- MARCH 31, 1996
---------------
(UNAUDITED)
<S> <C> <C> <C>
Total Costs.................................................... $ 61,041 $ 61,041 $ 61,041
Less: Accumulated Amortization................................. 24,417 30,521 32,021
--------- --------- ---------------
Net Mortgage Acquisition Costs............................. $ 36,624 $ 30,520 $ 29,020
--------- --------- ---------------
--------- --------- ---------------
</TABLE>
Amortization expense for each of the years ended December 31, 1993, 1994 and
1995 was $6,104, and for the three months ended March 31, 1996, $1,500.
F-38
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- NOTES AND MORTGAGE PAYABLE
Notes and mortgage payable consisted of the following at December 31, 1994
and 1995 and March 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
NOTE PAYABLE -- M & T BANK
$200,000 line of credit bearing interest at prime plus 1%.
Collateralized by all assets of the partnership and guaranteed by
the partners..................................................... $ 40,000 $ -- $
NOTE PAYABLE -- FORD MOTOR CREDIT COMPANY
Installment note paid in full..................................... 5,328 -- --
NOTE PAYABLE -- CHASE MANHATTAN BANK
Installment note payable in monthly payments of $459, including
interest at 10.49%. Note matures in May, 1999. Collateralized by
vehicle.......................................................... -- 15,764 $ 14,797
MORTGAGE PAYABLE -- M & T BANK
Payments are based on a twenty year schedule with the principal
balance due in the tenth year (2001). Monthly payments including
principal and interest at prime plus 1% are $18,608.
Collateralized by the real and personal property used in the
operation of the facility and guaranteed by the partners......... 1,854,139 1,809,848 $ 1,797,747
------------- ------------- -------------
Total Notes and Mortgage Payable................................ $ 1,899,467 $ 1,825,612 $ 1,812,544
Less: Amount Due Within One Year.................................. 94,708 53,040 39,972
------------- ------------- -------------
Amount Due After One Year........................................... $ 1,804,759 $ 1,772,572 $ 1,772,572
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Annual maturities of debt at March 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31 AMOUNT
- --------------------------------------------------------------------- -------------
<S> <C>
1996............................................................... $ 39,972
1997............................................................... 58,482
1998............................................................... 64,482
1999............................................................... 67,787
2000............................................................... 72,244
Thereafter........................................................... 1,509,577
-------------
Total............................................................ $ 1,812,544
-------------
-------------
</TABLE>
Interest expense for the years ended December 31, 1993, 1994 and 1995 and
the three months ended March 31, 1996, was $141,695, $155,160, $184,952, and
$28,875, respectively.
NOTE G -- RELATED PARTY TRANSACTIONS
Josephine Kennedy, partner, receives a salary as administrator of the
facility. Albert R. Christiano, partner, receives a salary for consulting
services and is also the legal counsel for the facility. Den Pac
F-39
<PAGE>
TOWN GATE EAST
(A PARTNERSHIP)
PENFIELD, NEW YORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE G -- RELATED PARTY TRANSACTIONS (CONTINUED)
Management, Inc., a corporation whose stock is solely owned by Dennis
Christiano, partner, receives payments for management services. The amounts of
these transactions for the years ended December 31, 1993, 1994 and 1995 and the
three months ended March 31, 1996 were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1993 1994 1995 1996
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Josephine Kennedy....................................... $ 52,832 $ 55,212 $ 58,150 $ 15,126
Albert R. Christiano.................................... 8,400 10,600 10,800 2,700
Den-Pac Management, Inc................................. 8,400 10,600 10,800 2,700
</TABLE>
There is an intercompany receivable from Town Gate Manor, related through
common ownership, for shared administrative expenses of $3,148, $6,748 and
$4,869 at December 31, 1994 and 1995 and March 31, 1996, respectively. These
amounts are included in accounts receivable.
NOTE H -- EMPLOYEE BENEFIT PLAN
During 1995, the partnership implemented a 401(k) plan whereby all employees
who meet age and length of service requirements may voluntarily defer up to 15%
of wages. The partnership has elected not to make matching contributions under
the plan.
NOTE I -- SUBSEQUENT EVENT
During 1995, the partners agreed to sell the operations and real estate of
Town Gate East for an amount in excess of book value. The sale closing is April
1, 1996.
F-40
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
REPORT OF INDEPENDENT AUDITORS
The Partners
Town Gate Manor
Rochester, New York
We have audited the accompanying balance sheet of Town Gate Manor (a
Partnership) as of December 31, 1995 and 1994, and the related statements of
income, changes in partners' capital and cash flows for each of the years in the
three year period ended December 31, 1995. These financial statements are the
responsibility of the facility's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Town Gate Manor (a
Partnership) as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three year period ended December
31, 1995 in conformity with generally accepted accounting principles.
/s/ Rotenberg & Company LLP
Rochester, New York
January 29, 1996
F-41
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
BALANCE SHEETS
AT DECEMBER 31, 1994 AND 1995 AND MARCH 31, 1996 (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1994 1995
------------- ------------- THREE MONTHS
ENDED MARCH
31, 1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and Cash Equivalents......................................... $ 76,344 $ 133,878 $ 36,328
Accounts Receivable............................................... 2,335 1,648 2,480
Inventories....................................................... 6,134 6,005 6,005
Prepaid Expenses.................................................. 25,612 34,921 55,856
------------- ------------- -------------
Total Current Assets.......................................... $ 110,425 $ 176,452 $ 100,668
Property and Equipment -- Net of Accumulated Depreciation........... 1,495,447 1,458,930 1,439,430
Mortgage Acquisition Costs -- Net of Accumulated Amortization....... 29,368 23,984 22,484
------------- ------------- -------------
Total Assets.................................................. $ 1,635,240 $ 1,659,366 $ 1,562,582
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Mortgage and Loan Payable -- Due Within One Year.................. $ 32,189 $ 42,547 $ 31,800
Accounts Payable.................................................. 30,127 42,323 9,329
Accrued Expenses.................................................. 20,080 26,064 107
Unearned Resident Care Revenues................................... 2,579 -- --
------------- ------------- -------------
Total Current Liabilities..................................... $ 84,975 $ 110,934 $ 41,236
Other Liabilities
Mortgage and Loan Payable -- Due After One Year................... 1,157,611 1,127,304 1,127,304
------------- ------------- -------------
Total Liabilities............................................. $ 1,242,586 $ 1,238,238 $ 1,168,540
Partners' Capital................................................... 392,654 421,128 394,043
------------- ------------- -------------
Total Liabilities and Partners' Capital....................... $ 1,635,240 $ 1,659,366 $ 1,562,582
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of this financial statement
and should be read in conjunction therewith.
F-42
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
----------------------------------------- ------------------------
1993 AMOUNT 1994 AMOUNT 1995 AMOUNT 1995 1996
----------- ------------- ------------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $ 993,443 $ 1,106,551 $ 1,406,311 $ 337,734 $ 357,462
Operating Expenses.......................... 752,185 854,173 1,055,969 251,157 294,247
----------- ------------- ------------- ----------- -----------
Income Before Depreciation.................. $ 241,258 $ 252,378 $ 350,342 $ 86,577 $ 63,215
Depreciation................................ 48,337 58,993 79,755 23,100 21,000
----------- ------------- ------------- ----------- -----------
Income Before Other Income.................. $ 192,921 $ 193,385 $ 270,587 $ 63,477 $ 42,215
Other Income................................ 770 1,198 7,087 0 0
----------- ------------- ------------- ----------- -----------
Net Income.................................. $ 193,691 $ 194,583 $ 277,674 $ 63,477 $ 42,215
----------- ------------- ------------- ----------- -----------
----------- ------------- ------------- ----------- -----------
</TABLE>
F-43
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 TOTAL 1994 TOTAL 1995 TOTAL
----------- ----------- ----------- THREE MONTHS
ENDED MARCH
31, 1996
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Balance -- Beginning of Year................................ $ 298,260 $ 356,871 $ 392,654 $ 421,128
Net Income.................................................. 193,691 194,583 277,674 42,215
----------- ----------- ----------- ------------
Subtotal.................................................... $ 491,951 $ 551,454 $ 670,328 $ 463,343
Partners' Withdrawals....................................... 135,080 158,800 249,200 67,300
----------- ----------- ----------- ------------
Balance -- End of Year...................................... $ 356,871 $ 392,654 $ 421,128 $ 394,043
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
</TABLE>
F-44
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ ------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash Flow Operating Activities.................... $ 987,652 $ 1,116,440 $ 1,404,419 $ 332,901 $ 356,492
Cash Received from Residents.................... (715,576) (766,973) (925,935) (246,751) (346,877)
Cash Paid to Suppliers and Employees............ 264 447 604 53 137
Interest Paid................................... (48,126) (43,436) (121,034) (31,692) (27,255)
Miscellaneous................................... 506 751 2,559 -- --
------------ ------------- ------------- ------------ ------------
Net Cash Flows from Operating Activities........ $ 224,720 $ 307,229 $ 360,613 $ 54,511 $ (17,503)
------------ ------------- ------------- ------------ ------------
Cash Flows from Investing Activities
Cash Purchases of Equipment..................... $ (35,920) (804,498) $ (40,430) $ (17,897) $ --
Proceeds from Sale of Automobile................ -- -- 6,500 -- --
------------ ------------- ------------- ------------ ------------
Net Cash Flows from Investing Activities........ $ (35,920) $ (804,498) $ (33,930) $ (17,897) $ --
------------ ------------- ------------- ------------ ------------
Cash Flows from Financing Activities
Proceeds from Debt.............................. $ -- $ 710,512 $ 10,200 $ 10,200 $ --
Repayment of Debt............................... (59,099) (5,191) (30,149) -- (10,747)
Partners' Withdrawals........................... (135,080) (158,800) (249,200) (58,267) (69,300)
Cash Payment for Mortgage Acquisition Costs..... (6,000) -- -- -- --
------------ ------------- ------------- ------------ ------------
Net Cash Flows from Financing Activities........ $ (200,179) $ 546,521 $ (269,149) $ (48,067) $ (80,047)
------------ ------------- ------------- ------------ ------------
Net Increase in Cash and Cash Equivalents......... $ (11,379) $ 49,252 $ 57,534 $ (11,453) $ (97,550)
Cash and Cash Equivalents -- Beginning of Year.... 38,471 27,092 76,344 76,344 133,878
------------ ------------- ------------- ------------ ------------
Cash and Cash Equivalents -- End of Year.......... $ 27,092 $ 76,344 $ 133,878 $ 64,891 $ 36,328
------------ ------------- ------------- ------------ ------------
------------ ------------- ------------- ------------ ------------
</TABLE>
F-45
<PAGE>
RECONCILIATION OF NET INCOME TO
NET CASH FLOWS FROM OPERATING ACTIVITIES
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Income............................................... $ 193,691 $ 194,583 $ 277,674 $ 63,477 $ 42,215
Adjustments:
Depreciation and Amortization.......................... 48,337 58,993 79,755 23,100 21,000
Gain on Sale of Asset.................................. -- -- (3,924) -- --
Changes:
Accounts Receivable.................................... (6,169) 7,689 687 (2,201) (833)
Inventory.............................................. (143) (814) 129 -- --
Prepaid Expenses....................................... (8,477) (2,720) (9,309) (10,972) (20,935)
Real Estate Tax Escrow................................. (1,787) 27,463 -- -- --
Accounts Payable....................................... (3,169) 5,276 12,196 (3,181) (32,994)
Accrued Expenses....................................... 2,059 14,558 5,984 (13,133) (25,956)
Unearned Resident Care Revenue......................... 378 2,201 (2,579) (2,579) --
----------- ----------- ----------- ----------- -----------
Net Cash Flows from Operating Activities............... $ 224,720 $ 307,229 $ 360,613 $ 54,511 $ (17,503)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
NON-CASH TRANSACTIONS
During 1994, the first and second mortgages were refinanced into a
construction loan. The total amount refinanced was $455,920. Mortgage
acquisition costs of $23,368 were incorporated into the construction loan.
F-46
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
METHOD OF ACCOUNTING
The partnership maintains its books and prepares its financial statements on
the accrual basis of accounting.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include time deposits, certificates of deposit,
and all highly liquid debt instruments with original maturities of three months
or less. The partnership maintains cash and cash equivalents at financial
institutions which periodically may exceed federally insured amounts.
INVENTORIES
Inventories are stated at the lower of cost or market, on the first-in,
first-out method.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost, less accumulated depreciation.
Depreciation of property and equipment is provided over the estimated useful
lives of the respective assets on the straight line basis as follows:
<TABLE>
<S> <C>
Auto.................................................. 5 Years
Building and Building Addition........................ 40 Years
3 - 10
Equipment............................................. Years
3 - 12
Improvements.......................................... Years
</TABLE>
Maintenance and repairs are charged to expense. The cost of property and
equipment retired or otherwise disposed of and the related accumulated
depreciation are removed from the accounts.
MORTGAGE ACQUISITION COSTS
Mortgage acquisition costs have been capitalized and are being amortized
using the straight line method over the term of the debt commencing in 1995.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results can differ from those estimates.
INCOME TAXES
Partnership profit and losses are reported by the individual partners on
their personal tax returns. Accordingly, no provision for taxes is reflected in
these financial statements.
NOTE B -- SCOPE OF BUSINESS
The partnership was organized on November 1, 1978 and is engaged in the
operation of a seventy-nine (79) certified bed adult care facility including an
adult day care program in Rochester, New York. Seventeen (17) of the total beds
were constructed in 1994.
F-47
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE C -- PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 1995 and
1994:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Auto...................................................... $ 14,053 $ -- $
Building.................................................. 966,673 966,673 966,673
Building Addition......................................... 718,593 733,144 733,144
Equipment................................................. 186,112 200,280 200,280
Improvements.............................................. 203,791 215,502 215,502
------------- ------------- -------------
$ 2,089,222 $ 2,115,599 $ 2,115,599
Less: Accumulated Depreciation............................ 639,250 702,144 721,644
------------- ------------- -------------
$ 1,449,972 $ 1,413,455 $ 1,393,955
Add: Land................................................. 45,475 45,475 45,475
------------- ------------- -------------
Net Property and Equipment............................ $ 1,495,447 $ 1,458,930 $ 1,439,430
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Depreciation expense for the years ended December 31, 1993, 1994 and 1995
and the three months ended March 31, 1996 was $48,337, $58,993, $74,371 and
$19,500, respectively.
NOTE D -- MORTGAGE ACQUISITION COSTS
Mortgage acquisition costs consisted of the following at December 31, 1994
and 1995 and March 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1995 1996
--------- --------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Total Costs....................................................... $ 29,368 $ 29,368 $ 29,368
Less: Accumulated Amortization.................................... -- 5,384 6,884
--------- --------- ------------
Net Mortgage Acquisition Costs.................................. $ 29,368 $ 23,984 $ 22,484
--------- --------- ------------
--------- --------- ------------
</TABLE>
Amortization expense for the year ended December 31, 1995, and the three
months ended March 31, 1996 was $5,384 and $1,500, respectively.
F-48
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE E -- MORTGAGE AND LOAN PAYABLE
Mortgages and loan payable consisted of the following at December 31, 1994
and 1995 and the three months ended March 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------- MARCH 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
MORTGAGE PAYABLE -- FIRST NATIONAL BANK
Mortgage payable in monthly installments of $12,895, including
interest at prime plus 1%. Mortgage matures with a balloon
payment due January, 2000. Collateralized by real and personal
property used in the operation of the facility and personally
guaranteed by the partners. Converted from a construction loan in
February, 1995................................................... $ -- $ 1,169,851 $ 1,159,104
CONSTRUCTION LOAN -- FIRST NATIONAL BANK
Loan payable in monthly installments of interest only at prime
plus 1% until converted to a permanent mortgage in February,
1995............................................................. 1,189,800 --
------------- ------------- -------------
Total Mortgages and Loan Payable................................ $ 1,189,800 $ 1,169,851 $ 1,159,104
Less: Amount Due Within One Year.................................. 32,189 42,547 31,800
------------- ------------- -------------
Amount Due After One Year....................................... $ 1,157,611 $ 1,127,304 $ 1,127,304
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
Annual maturities of debt as of March 31, 1996 are as follows:
<TABLE>
<S> <C>
1996................................................... $ 31,800
1997................................................... 46,886
1998................................................... 51,668
1999................................................... 56,937
2000................................................... 971,813
----------
Total.............................................. $1,159,104
----------
----------
</TABLE>
Interest expense for the years ended December 31, 1993, 1994 and 1995 was
$48,126, $52,574 and $121,718, respectively. Interest expense for the period
ended March 31, 1996 was $18,117. Interest capitalized on the new construction
at December 31, 1994 was $15,450.
NOTE F -- RELATED PARTY TRANSACTIONS
Richard Hood, partner, receives a salary as administrator of the facility.
Albert R. Christiano, partner, receives a salary for consulting services and is
also the legal counsel for the facility. Den Pac Management, Inc., a corporation
whose stock is solely owned by Dennis Christiano, partner, receives payments for
management services. The amounts of these transactions for the years ended
December 31, 1993, 1994 and 1995 and the three months ended March 31, 1996, were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------- MARCH 31,
1993 1994 1995 1996
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Richard Hood............................................ $ 51,418 $ 58,475 $ 55,382 $ 13,996
Albert R. Christiano.................................... 7,200 7,200 8,400 2,100
Den Pac Management, Inc................................. 7,200 7,200 8,400 2,100
</TABLE>
F-49
<PAGE>
TOWN GATE MANOR
(A PARTNERSHIP)
ROCHESTER, NEW YORK
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE F -- RELATED PARTY TRANSACTIONS (CONTINUED)
There is an intercompany payable to Town Gate East, related through common
ownership, for shared administrative expenses of $3,148, $6,748 and $8,917 at
December 31, 1994 and 1995 and March 31, 1996, respectively. These amounts are
included in accrued expenses.
NOTE G -- EMPLOYEE BENEFIT PLAN
During 1995, the partnership implemented a 401(k) plan whereby all employees
who meet age and length of service requirements may voluntarily defer up to 15%
of wages. The partnership has elected not to make matching contributions under
the plan.
NOTE H -- SUBSEQUENT EVENT
During 1995, the partners agreed to sell the operations and real estate of
Town Gate Manor for an amount in excess of book value. The sale closing is April
1, 1996.
F-50
<PAGE>
Kapson Senior Quarters Facilities
Residents Monthly Activity Calendar
Employees performing residential services for residents.
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE SELLING STOCKHOLDERS OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH
INFORMATION IS GIVEN IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 8
Use of Proceeds................................ 18
Dilution....................................... 19
Capitalization................................. 20
Dividend Policy................................ 20
Selected Financial, Operating and Pro Forma
Data.......................................... 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 23
Business....................................... 30
Management..................................... 47
Certain Transactions........................... 56
Principal and Selling Stockholders............. 58
Description of Capital Stock................... 59
Shares Eligible for Future Sale................ 61
Underwriting................................... 63
Experts........................................ 64
Legal Matters.................................. 64
Additional Information......................... 64
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS OR WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
SHARES
KAPSON SENIOR
QUARTERS CORP.
COMMON STOCK
PAR VALUE $.01
[LOGO]
SALOMON BROTHERS INC
RAYMOND JAMES & ASSOCIATES, INC.
WHEAT FIRST BUTCHER SINGER
PROSPECTUS
DATED , 1996
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM. 13 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses and costs (other than
underwriting discounts and commissions) expected to be incurred by the Company
in connection with the issuance and distribution of the securities being
registered, all of which will be paid by the Registrant.
<TABLE>
<S> <C>
SEC registration fee........................................... $ 19,709
NASD fee.......................................................
Nasdaq entry fee............................................... 35,000
Shattuck Hammond Financial Advisory Fee........................ 1,153,750
Legal fees and expenses........................................
Printing and engraving expenses................................
Accounting fees and expenses...................................
Blue sky fees and expenses.....................................
Transfer agent and registrar fees.............................. 10,000
Miscellaneous..................................................
----------
Total...................................................... $
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware (the
"GCL") permits indemnification of directors, officers, employees, and agents of
corporations under certain conditions and subject to certain limitations.
Article Tenth of the Registrant's Certificate of Incorporation provides for
indemnification of the Registrant's officers and directors to the fullest extent
provided by the GCL and other applicable laws as currently in effect and as they
may be amended in the future.
The Company has entered into indemnification agreements with each of its
officers and directors and intends to enter into similar agreements with each of
its future officers and directors. Pursuant to such indemnification agreements,
the Company has agreed to indemnify its officers and directors against certain
liabilities, including liabilities arising out of the offering made by this
Registration Statement.
The Company maintains a standard form of officers' and directors' liability
insurance policy which provides coverage to the officers and directors of the
Company for certain liabilities, including certain liabilities which may arise
out of this Registration Statement.
The Underwriting Agreement filed as Exhibit 1.1 hereto provides for
reciprocal indemnification between the Company and its controlling persons, on
the one hand, and the Underwriters and their controlling persons, on the other
hand, against certain liabilities in connection with this offering, including
liabilities under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Upon the formation of the Company on June 7, 1996, , each of the Kaplans
purchased 100 shares of Common Stock directly from the Company at a cost of
$1.00 per share. These shares were issued pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
.11 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Registrant
3.2 By-laws of the Registrant
5.1 Opinion of Proskauer Rose Goetz & Mendelsohn LLP*
10.1 Form of Operating Agreement
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
10.2 Form of Management Services Agreement
<C> <S>
10.3 Kapson Senior Quarters Corp. 1996 Stock Incentive Plan*
10.4 Form of Registration Rights Agreement among the Registrant, Glenn Kaplan, Wayne L. Kaplan, and Evan
A. Kaplan*
10.5 Form of Management Agreement between the Kapson Group and Senior Quarters Management Corp.
10.6 Form of Management Agreement between the Kapson Group and Senior Quarters Management Corp.
10.7 Management Agreement dated July 15, 1992 between Coachmen Restaurant, Inc. and Senior Quarters
Management Corp.
10.8 Management Agreement dated , 1993 between Larkfield Gardens Associates, L.P. and Senior
Quarters Management Corp.
10.9 Management Agreement dated January 21, 1993 between United Community and Housing Development
Corporation and Senior Quarters Management Corp.
10.10 Management Agreement dated May 5, 1995 between Clover Lake Homes, Inc. and Senior Quarters
Management Corp.
10.11 Management Agreement dated June 8, 1995 between Senior Quarters at Forsgate, L.L.C. and Senior
Quarters Management Corp.
10.12 Management Agreement dated August 1995 between Montville Development, L.L.C. and Senior Quarters
Management Corp.
10.13 Management Agreement dated September 1995 between Senior Quarters at Glen Riddle L.P. and Senior
Quarters Management Corp.
10.15 Management Agreement dated January 29, 1996 between Hassett Belfer Senior Housing and Senior
Quarters Management Corp.
10.16 Management Agreement dated April 1996 between The Mayfair at Glen Cove, LLC and Senior Quarters
Management Corp.
10.17 Management Agreement dated June, 1996 between Kapson Chestnut Ridge Development Corp. and Senior
Quarters Management Corp.
10.18 Management Agreement dated February 8, 1993 between Pensun Associates and Senior Quarters Management
Corp.
10.20 Management Agreement dated July 1, 1996 between National Healthplex Inc. and Kapson Management Corp.
10.21 Management Agreement dated July 11, 1994 between National Healthplex Inc. and Senior Quarters
Management Corp.
10.22 Stockholders' Agreement among the Registrant, Glenn Kaplan, Wayne L. Kaplan and Evan A. Kaplan.*
10.23 Form of Employment Agreement
10.24 Form of Indemnification Agreement
21.1 Subsidiaries of Registrant*
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Rotenberg & Company LLP
23.3 Consent of Proskauer Rose Goetz & Mendelsohn LLP (included in Exhibit 5.1)*
24.1 Powers of Attorney (included with signature page)
</TABLE>
* To be filed by Amendment
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II-2
<PAGE>
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of a
registrant pursuant to the provisions described in Item 14, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant
certifies that it has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Woodbury, State of
New York, on the 12th day of June, 1996.
KAPSON SENIOR QUARTERS CORP.
By:
-----------------------------------
Glenn Kaplan
CHAIRMAN OF THE BOARD OF DIRECTORS
AND CHIEF EXECUTIVE OFFICER
SIGNATURES AND POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each director and officer whose
signature appears below hereby constitutes and appoints Glenn Kaplan, Wayne L.
Kaplan and Evan A. Kaplan, or each of them, as his true and lawful
attorney-in-fact and agent, with full power of substitution, to sign on his
behalf individually and in any and all capacities any and all amendments
(including post-effective amendments) to a Registration Statement on Form S-1
and to file the same with all exhibits thereto and all other documents in
connection therewith with the Securities and Exchange Commission, granting to
such attorneys-in-fact and agents, and each of them, full power and authority to
do all such other acts and things requisite or necessary to be done, and to
execute all such other documents as they, or either of them, may deem necessary
or desirable in connection with the foregoing, as fully as the undersigned might
or could do in person, hereby ratifying and confirming all that such
attorneys-in-fact and agents, or either of them, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
Chairman of the Board of Directors
------------------------------------------- and Chief Executive Officer June 12, 1996
Glenn Kaplan (principal executive officer)
<C> <S> <C>
Senior Executive Vice President,
------------------------------------------- Vice Chairman and Secretary and June 12, 1996
Wayne L. Kaplan Director
------------------------------------------- President, Chief Operating Officer June 12, 1996
Evan A. Kaplan and Director
------------------------------------------- Principal Financial Officer and June 12, 1996
June F. Heck Principal Accounting Officer
------------------------------------------- Director June 12, 1996
Bernard J. Korman
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ ------------------------------------ -------------------
------------------------------------------- Director June 12, 1996
Gerald Schuster
<C> <S> <C>
------------------------------------------- Director June 12, 1996
Joseph G. Beck
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------- -----
<C> <S> <C>
.11 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Registrant
3.2 By-laws of the Registrant
5.1 Opinion of Proskauer Rose Goetz & Mendelsohn LLP*
10.1 Form of Operating Agreement
10.2 Form of Management Services Agreement
10.3 Kapson Senior Quarters Corp. 1996 Stock Incentive Plan*
10.4 Form of Registration Rights Agreement among the Registrant, Glenn Kaplan, Wayne L. Kaplan,
and Evan A. Kaplan*
10.5 Form of Management Agreement between the Kapson Group and Senior Quarters Management Corp.
10.6 Form of Management Agreement between the Kapson Group and Senior Quarters Management Corp.
10.7 Management Agreement dated July 15, 1992 between Coachmen Restaurant, Inc. and Senior
Quarters Management Corp.
10.8 Management Agreement dated , 1993 between Larkfield Gardens Associates, L.P. and
Senior Quarters Management Corp.
10.9 Management Agreement dated January 21, 1993 between United Community and Housing Development
Corporation and Senior Quarters Management Corp.
10.10 Management Agreement dated May 5, 1995 between Clover Lake Homes, Inc. and Senior Quarters
Management Corp.
10.11 Management Agreement dated June 8, 1995 between Senior Quarters at Forsgate, L.L.C. and
Senior Quarters Management Corp.
10.12 Management Agreement dated August 1995 between Montville Development, L.L.C. and Senior
Quarters Management Corp.
10.13 Management Agreement dated September 1995 between Senior Quarters at Glen Riddle L.P.
and Senior Quarters Management Corp.
10.15 Management Agreement dated January 29, 1996 between Hassett Belfer Senior Housing and Senior
Quarters Management Corp.
10.16 Management Agreement dated April 1996 between The Mayfair at Glen Cove, LLC and Senior
Quarters Management Corp.
10.17 Management Agreement dated June, 1996 between Kapson Chestnut Ridge Development Corp. and
Senior Quarters Management Corp.
10.18 Management Agreement dated February 8, 1993 between Pensun Associates and Senior Quarters
Management Corp.
10.20 Management Agreement dated July 1, 1996 between National Healthplex Inc. and Kapson
Management Corp.
10.21 Management Agreement dated July 11, 1994 between National Healthplex Inc. and Senior
Quarters Management Corp.
10.22 Stockholders' Agreement among the Registrant, Glenn Kaplan, Wayne L. Kaplan and Evan A.
Kaplan.*
10.23 Form of Employment Agreement
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------- -----
10.24 Form of Indemnification Agreement
<C> <S> <C>
21.1 Subsidiaries of Registrant*
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Rotenberg & Company LLP
23.3 Consent of Proskauer Rose Goetz & Mendelsohn LLP (included in Exhibit 5.1)*
24.1 Powers of Attorney (included with signature page)
</TABLE>
* To be filed by Amendment
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
KAPSON SENIOR QUARTERS CORP.
The undersigned incorporator, in order to form a corporation under the
General Corporation Law of the State of Delaware, hereby certifies as follows:
FIRST: The name of the corporation (hereinafter the "Corporation") is:
Kapson Senior Quarters Corp.
SECOND: The registered office of the Corporation is to be located at 1013
Centre Road, Wilmington, County of New Castle, Delaware 19805-1297. The name of
its registered agent at that address is The Prentice-Hall Corporation System,
Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
FOURTH: The corporation shall have the authority to issue an aggregate of
40,000,000 (forty million) shares, consisting of 30,000,000 (thirty million)
shares of common stock, par value $.01, and 10,000,000 (ten million) shares of
preferred stock, par value $.01. The board of directors may authorize the
issuance from time to time of the preferred stock in one or more classes and/or
series and with such powers, designations, preferences, rights and
qualifications, limitations or restrictions (which may differ with respect to
each class and/or series) as the board may fix by resolution.
FIFTH: The name and mailing address of the incorporator are as follows:
Mark E. Moran, Esq.
Proskauer Rose Goetz & Mendelsohn LLP
1585 Broadway
New York, NY 10036
SIXTH: Unless, and except to the extent that, the bylaws of the Corporation
shall so require, the election of directors of the Corporation need not be by
written ballot.
SEVENTH: Directors shall be divided into three classes, as nearly equal in
number as possible, as determined by the board of directors. One class shall
hold office initially for a term expiring at the annual meeting of stockholders
to be held in 1997, another class shall hold office initially for a term
expiring at the annual meeting of stockholders to be held in 1998, and another
class shall hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1999, and the members of each class shall hold office
until their successors are elected and qualified. At each annual meeting of
stockholders, the successors of the class of directors whose term expires at
that meeting shall be elected to hold office for a term expiring at the annual
meeting of stockholders held in the third year following the year of their
election.
EIGHTH: The Corporation hereby confers the power to adopt, amend or repeal
bylaws of the Corporation upon the board of directors.
NINTH: No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, to the fullest extent now or hereafter permitted by the laws of the
State of Delaware.
TENTH: Each person (and the heirs, executors or administrators of such
person) who was or is a party or is threatened to be made a party to, or is
involved in any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
1
<PAGE>
that such person is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director or officer of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by Delaware Law. The right to indemnification conferred in this ARTICLE TENTH
shall also include the right to be paid by the Corporation the expenses incurred
in connection with any such proceeding in advance of its final disposition to
the fullest extent authorized by Delaware Law. The right to indemnification
conferred in this ARTICLE TENTH shall be a contract right. The rights and
authority conferred in this ARTICLE TENTH shall not be exclusive of any other
right which any person may otherwise have or hereafter acquire. Neither the
amendment nor repeal of ARTICLES NINTH and TENTH hereof, nor the adoption of any
provision of this Certificate of Incorporation or the bylaws of the Corporation,
nor, to the fullest extent permitted by Delaware Law, any modification of law,
shall eliminate or reduce the effect of ARTICLES NINTH or TENTH hereof in
respect of any acts or omissions occurring prior to such amendment, repeal,
adoption or modification.
ELEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of June, 1996.
______________________________________
Mark E. Moran
Sole Incorporator
2
<PAGE>
EXHIBIT 3.2
KAPSON SENIOR QUARTERS CORP.
A DELAWARE CORPORATION
BY-LAWS
ADOPTED ON JUNE 7, 1996
------------------------
ARTICLE I
STOCKHOLDERS
Section 1.1 ANNUAL MEETING.
An annual meeting of stockholders for the purpose of electing directors and
of transacting such other business as may come before it shall be held each year
at such date, time, and place, either within or without the State of Delaware,
as may be specified by the Board of Directors.
Section 1.2 SPECIAL MEETINGS.
Special meetings of stockholders for any purpose or purposes may be held at
any time upon call of the Chairman of the Board, the Vice Chairman, or the
President, at such time and place either within or without the State of Delaware
as may be stated in the notice. A special meeting of stockholders shall be
called by the President or the Secretary, stating time, place, and the purpose
or purposes of the meeting.
Section 1.3 NOTICE OF MEETINGS.
Written notice of duly called meetings of the stockholders, stating the
place, date, and hour thereof shall be given by the Chairman of the Board, the
Vice Chairman of the Board, the President, any Senior Executive Vice President,
to each stockholder entitled to vote thereat at least ten days but not more than
sixty days before the date of the meeting, unless a different period is
prescribed by law. The notice of an annual meeting shall state that the meeting
is called for the election of directors and for the transaction of other
business which may properly come before the meeting, and shall, if any other
action which could be taken at a special meeting is to be taken at such annual
meeting, state the nature of such action. The notice of a special meeting shall
in all instances state the purpose or purposes for which the meeting is called.
Section 1.4 QUORUM.
Except as otherwise provided by law or in the Certificate of Incorporation
or these By-laws, at any meeting of stockholders, the holders of a majority of
the outstanding shares of each class of stock entitled to vote at the meeting
shall be present or represented by proxy in order to constitute a quorum for the
transaction of any business. In the absence of a quorum, a majority in voting
interest of the stockholders present or the chairman of the meeting may adjourn
the meeting from time to time in the manner provided in Section 1.5 of these
By-laws until a quorum shall be present.
Section 1.5 ADJOURNMENT.
Any meeting of stockholders, annual or special, may adjourn from time to
time to reconvene at the same or some other place, and notice need not be given
of any such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At any adjourned meeting at which a
quorum is present, any business may be transacted which might have been
transacted at the original meeting. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 1.6 ORGANIZATION.
The Chairman of the Board, or in his or her absence the Vice Chairman of the
Board, or in their absence one of the following officers, the Chief Executive
Officer, the President, or a Vice President (in
<PAGE>
order of seniority), shall call to order meetings of stockholders, and shall act
as chairman of such meetings. The Board of Directors or, if the Board fails to
act, the stock-holders, may appoint any stockholder, director, or officer of the
Corporation to act as chairman of any meeting in the absence of the Chairman of
the Board, the Vice Chairman of the Board, the Chief Executive Officer, the
President, and all Vice Presidents.
The Secretary of the Corporation shall act as secretary of all meetings of
stockholders, but, in the absence of the Secretary, the chairman of the meeting
may appoint any other person to act as secretary of the meeting.
Section 1.7 VOTING.
Except as otherwise provided by law or in the Certificate of Incorporation
or these By-laws, at any meeting duly called and held at which a quorum is
present, corporate action to be taken by stockholder vote, other than the
election of directors, shall be authorized by a majority of the votes cast at a
meeting of stockholders, except as otherwise provided by law. Directors shall be
elected at each annual meeting of stockholders by a plurality of the votes cast
and shall hold office until the third succeeding annual meeting of stockholders
and until the election and qualification of their respective successors.
Section 1.8 ACTION WITHOUT MEETING. Any action required or permitted to be
taken at any meeting of stockholders may be taken without a meeting, without
prior notice and without a vote, if a consent in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
fewer than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voting. Prompt notice of the taking of any such action shall be
given to those stockholders who did not consent in writing.
Section 1.9 PROXY REPRESENTATION.
Each stockholder entitled to vote at any meeting of stockholders or to
express consent to or dissent from corporate action in writing without a meeting
may authorize another person to act for him by proxy. No proxy shall be valid
after three years from its date, unless it provides otherwise.
Section 1.10 STOCKHOLDERS.
At an annual meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting (a) pursuant to the
Corporation's notice of meeting, (b) by or at the direction of the Board of
Directors or (c) by a stockholder of the Corporation who is a stockholder of
record at the time of giving of the notice provided for in this Section 1.10,
who shall be entitled to vote at such meeting and who complies with the notice
procedures set forth in this Section 1.10. For business to be properly brought
before an annual meeting by a stockholder pursuant to clause (c) above, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than 60 days nor more than 90 days prior to the anniversary of the
preceding year's annual meeting; provided, however, that if the date of the
meeting is changed by more than 30 days from such anniversary date, notice by
the stockholder to be timely must be received no later than the close of
business on the earlier of the 10th day following the date on which notice of
the date of the meeting was mailed or a public announcement of the meeting was
made. A stockholder's notice to the Secretary shall set forth as to each matter
the stockholder proposes to bring before the meeting (a) a brief description of
the business desired to be brought before the meeting and the reasons for
conducting such business at the meeting, (b) the name and address, as they
appear on the Corporation's books of the stockholder proposing such business,
and the name and address of the beneficial owner, if any, on whose behalf the
proposal is made, (c) the class and number of shares of stock of the Corporation
which are owned beneficially and of record by such stockholder of record and by
the beneficial owner, if any, on whose behalf the proposal is made, and (d) any
material interest of such stockholder of record and the beneficial owner, if
any, on whose behalf the proposal is made, in such business. Notwithstanding
anything in this Section 1.10 to the contrary, no business shall be conducted at
an annual meeting except in accordance with the procedures set forth in this
Section 1.10.
2
<PAGE>
The chairman of the meeting shall, if the facts warrant, determine and declare
to the meeting whether or not business was properly brought before the meeting
in accordance with the procedures prescribed by these By-laws, and if (s)he
should so determine, (s)he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted. Notwithstanding
the foregoing provisions of this Section 1.10, a stockholder also shall comply
with all applicable requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder, with respect to the matters
set forth in this Section 1.10.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 NUMBER AND TERM OF OFFICE.
The business, property, and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors of the Corporation. The initial
number of directors which shall constitute the whole Board of Directors shall be
three; provided, however, that the Board of Directors, by resolution adopted by
vote of a majority of the then authorized number of directors, may increase or
decrease the number of directors. No decrease in the number of directors may
shorten the term of any incumbent director. Directors shall be divided into
three classes, as nearly equal in number as possible, as determined by the Board
of Directors. Subject to the provisions of Article IV of these By-laws, one
class shall hold office initially for a term expiring at the annual meeting of
stockholders to be held in 1997, another class shall hold office initially for a
term expiring at the annual meeting of stockholders to be held in 1998, and
another class shall hold office initially for a term expiring at the annual
meeting of stockholders to be held in 1999, and the members of each class shall
hold office until their successors are elected and qualified. At each annual
meeting of stockholders, the successors of the class of directors whose term
expires at that meeting shall be elected to hold office for a term expiring at
the annual meeting of stockholders held in the third year following the year of
their election.
Section 2.2 CHAIRMAN AND VICE CHAIRMAN OF THE BOARD.
The directors may elect a Chairman and a Vice Chairman of the Board of
Directors. The Chairman and Vice Chairman shall be executive officers of the
Corporation and shall be subject to the control of and may be removed by the
Board of Directors.
Section 2.3 MEETINGS.
Regular meetings of the Board of Directors may be held without notice at
such time and place as shall from time to time be determined by the Board.
Special meetings of the Board of Directors shall be held at such time and
place as shall be designated in the notice of the meeting whenever called by the
Chairman of the Board, the Vice Chairman, the Chief Executive Officer (if a
director), the President (if a director) or by a majority of the directors then
in office.
Section 2.4 NOTICE OF SPECIAL MEETINGS.
The Secretary, or in his or her absence any other officer of the
Corporation, shall give each director notice of the time and place of holding of
special meetings of the Board of Directors by mail at least seven days before
the meeting, or by telecopy, telegram, cable, radiogram, or by certified mail
with return receipt requested, by a nationally recognized courier, or by
personal service at least two days before the meeting. Unless otherwise stated
in the notice thereof, any and all business may be transacted at any meeting
without specification of such business in the notice.
Section 2.5 QUORUM AND ORGANIZATION OF MEETINGS.
Except as provided in Section 4.3 of these By-laws, a majority of the total
number of members of the Board of Directors as constituted from time to time
shall constitute a quorum for the transaction of
3
<PAGE>
business, but, if at any meeting of the Board of Directors (whether or not
adjourned from a previous meeting) there shall be less than a quorum present, a
majority of those present may adjourn the meeting to another time and place, and
the meeting may be held as adjourned without further notice or waiver. Except as
otherwise provided by law or in the Certificate of Incorporation or these
By-laws, a majority of the directors present at any meeting at which a quorum is
present may decide any question brought before such meeting. Meetings shall be
presided over by the Chairman of the Board, or in his or her absence, by the
Vice Chairman, the Chief Executive Officer, the President, or such other person
as the directors may select. The Secretary of the Corporation shall act as
secretary of the meeting, but in his or her absence, the chairman of the meeting
may appoint any person to act as secretary of the meeting.
Section 2.6 COMMITTEES.
The Board of Directors may, by resolution adopted by a majority of the whole
Board, designate one or more committees, each committee to consist of one or
more of the directors of the Corporation. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors and permitted by law, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business, property, and affairs of the Corporation, and may authorize the seal
of the Corporation to be affixed to all papers which may require it. Each
committee of the Board of Directors may fix its own rules and procedures. Notice
of meetings of committees, other than of regular meetings provided for by the
rules, shall be given to committee members. All action taken by committees shall
be recorded in minutes of the meetings.
Section 2.7 ACTION WITHOUT MEETING.
Nothing contained in these By-laws shall be deemed to restrict the power of
members of the Board of Directors or any committee designated by the Board to
take any action required or permitted to be taken by them without a meeting, if
all the members of the Board of Directors or committee, as the case may be,
consent in writing to the adoption, and the writing or writings are filed with
the minutes of proceedings of the Board or Committee.
Section 2.8 TELEPHONE MEETINGS.
Nothing contained in these By-laws shall be deemed to restrict the power of
members of the Board of Directors, or any committee designated by the Board, to
participate in a meeting of the Board, or a committee thereof, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
ARTICLE III
OFFICERS
Section 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be the Chairman of the
Board, the Vice Chairman of the Board, the Chief Executive Officer, the
President, the Chief Operating Officer, the Senior Executive Vice President, one
or more other Vice Presidents, the Treasurer, and the Secretary, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect or
appoint such other officers (including a Controller and one or more Assistant
Treasurers and Assistant Secretaries) as it may deem necessary or desirable.
Each officer shall hold office for such term as may be prescribed by the Board
of Directors from time to time. Any person may hold at one time two or more
offices.
4
<PAGE>
Section 3.2 CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at all meetings of the stockholders
and of the Board of Directors. The Chairman of the Board shall also be the Chief
Executive Officer of the Corporation, unless another person is so designated by
the Board of Directors.
Section 3.3 VICE CHAIRMAN OF THE BOARD.
The Vice Chairman of the Board shall, at the request, or in the absence or
disability, of the Chairman of the Board, perform the duties and exercise the
powers of such office.
Section 3.4 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer of the Corporation shall have general
supervision of the business, affairs and property of the Corporation, and over
its several officers. In general, the Chief Executive Officer shall have all
authority incident to the office of Chief Executive Officer and shall have such
other authority and perform such other duties as may from time to time be
assigned by the Board of Directors or by any duly authorized committee of
directors. The Chief Executive Officer, together with the President and the
Senior Executive Vice President, shall have the power to fix the compensation of
elected officers whose compensation is not fixed by the Board of Directors or a
committee thereof and also to engage, discharge, determine the duties and fix
the compensation of all employees and agents of the Corporation necessary or
proper for the transaction of the business of the Corporation. If the Chief
Executive Officer is not also the Chairman of the Board, then the Chief
Executive Officer shall report to the Chairman of the Board or the Vice
Chairman, as the case may be.
Section 3.5 PRESIDENT.
The President shall be the chief operating officer of the Corporation and,
subject to the direction of the Board of Directors, or any duly authorized
committee of directors, shall have general supervision of the operations of the
Corporation. In general, but subject to any contractual restriction, the
President shall have all authority incident to the office of President and chief
operating officer and shall have such other authority and perform such other
duties as may from time to time be assigned by the Board of Directors or by any
duly authorized committee of directors or by the Chairman of the Board of
Directors. The President, together with the Chief Executive Officer and the
Senior Executive Vice President, shall have the power to fix the compensation of
elected officers whose compensation is not fixed by the Board of Directors or a
committee thereof and also to engage, discharge, determine the duties and fix
the compensation of all employees and agents of the Corporation necessary or
proper for the transaction of the business of the Corporation. The President
shall, at the request or in the absence or disability of the Chairman or Vice
Chairman of the Board, or the Chief Executive Officer, perform the duties and
exercise the powers of such officer.
Section 3.6 SENIOR EXECUTIVE VICE PRESIDENT.
The Senior Executive Vice President, together with the Chief Executive
Officer and the President, shall have the power to fix the compensation of
elected officers whose compensation is not fixed by the Board of Directors or a
committee thereof and also to engage, discharge, determine the duties and fix
the compensation of all employees and agents of the Corporation necessary or
proper for the transaction of the business of the Corporation. In general, but
subject to any contractual restriction, the Senior Executive Vice President
shall have all authority incident to the office of Senior Executive Vice
President and shall have such other authority and perform such other duties as
may from time to time be assigned by the Board of Directors or by any duly
authorized committee of directors or by the Chairman of the Board of Directors.
Section 3.7 VICE PRESIDENTS.
Each vice president shall have such powers and duties as the Board, the
Chief Executive Officer, the President or the Senior Vice President assigns to
him or her.
5
<PAGE>
Section 3.8 TREASURER.
The Treasurer of the Corporation shall be in charge of the corporation's
books and accounts. Subject to the control of the Board, (s)he shall have such
other powers and duties as the Board, the Chief Executive Officer, the President
or the Senior Vice President assigns to him or her.
Section 3.9 SECRETARY.
The Secretary shall be the secretary of, and keep the minutes of, all
meetings of the Board and the stockholders, and shall have such other powers and
duties as the Board or the President assigns to him or her. In the absence of
the Secretary from any meeting, the minutes shall be kept by the person
appointed for that purpose by the chairman of the meeting.
ARTICLE IV
RESIGNATIONS, REMOVALS, AND VACANCIES
Section 4.1 RESIGNATIONS.
Any director or officer of the Corporation, or any member of any committee,
may resign at any time by giving written notice to the Board of Directors, the
Chief Executive Officer, the President, the Senior Executive Vice President or
the Secretary of the Corporation. Any such resignation shall take effect at the
time specified therein or, if the time be not specified therein, then upon
receipt thereof. The acceptance of such resignation shall not be necessary to
make it effective.
Section 4.2 REMOVALS.
The Board of Directors, by a vote of not less than a majority of the entire
Board, at any meeting thereof, or by written consent, at any time, may, to the
extent permitted by law, remove with or without cause from office or terminate
the employment of any officer or member of any committee and may, with or
without cause, disband any committee.
Any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares entitled at the time
to vote at an election of directors.
Section 4.3 VACANCIES.
Any vacancy in the office of any director or officer through death,
resignation, removal, disqualification, or other cause, and any additional
directorship resulting from increase in the number of directors, may be filled
at any time by a majority of the directors then in office (even though less than
a quorum remains) or, in the case of any vacancy in the office of any director,
by the stockholders, and, subject to the provisions of this Article IV, the
person so chosen shall hold office until his or her successor shall have been
elected and qualified; or, if the person so chosen is a director elected to fill
a vacancy, (s)he shall (subject to the provisions of this Article IV) hold
office for the unexpired term of his or her predecessor.
ARTICLE V
CAPITAL STOCK
Section 5.1 STOCK CERTIFICATES.
The certificates for shares of the capital stock of the Corporation shall be
in such form as shall be prescribed by law and approved, from time to time, by
the Board of Directors. Each certificate shall be signed by the Chairman or Vice
Chairman of the Board of Directors, if any, or by the Chief Executive Officer or
the President and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary of the Corporation. Any and all signatures on any such
certificates may be facsimiles. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed
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upon a certificate shall have ceased to be such officer, transfer agent, or
registrar before such certificate issued, it may be issued by the Corporation
with the same effect as if (s)he were such officer, transfer agent, or registrar
at the date of issue.
Section 5.2 TRANSFER OF SHARES.
Upon compliance with provisions restricting the transfer or registration of
transfer of shares of capital stock, if any, shares of the capital stock of the
Corporation may be transferred on the books of the Corporation only by the
holder of such shares or by his or her duly authorized attorney, upon the
surrender to the Corporation or its transfer agent of the certificate
representing such stock properly endorsed and the payment of taxes due thereon.
Section 5.3 FIXING RECORD DATE.
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders or any adjournment thereof
or to express consent to corporate action in writing without a meeting, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix, in advance, a record date, which, unless
otherwise provided by law, shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action.
Section 5.4 LOST CERTIFICATES.
The Board of Directors or any transfer agent of the Corporation may direct
one or more new certificate(s) representing stock of the Corporation to be
issued in place of any certificate or certificates theretofore issued by the
Corporation, alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate to be lost,
stolen, or destroyed. When authorizing such issue of a new certificate or
certificates, the Board of Directors (or any transfer agent of the Corporation
authorized to do so by a resolution of the Board of Directors) may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond in such sum as the Board of
Directors (or any transfer agent so authorized) shall direct to indemnify the
Corporation against any claim that may be made against the Corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed or
the issuance of such new certificates, and such requirement may be general or
confined to specific instances.
Section 5.5 REGULATIONS.
The Board of Directors shall have power and authority to make all such rules
and regulations as it may deem expedient concerning the issue, transfer,
registration, cancellation, and replacement of certificates representing stock
of the Corporation.
ARTICLE VI
MISCELLANEOUS
Section 6.1 CORPORATE SEAL.
The corporate seal shall have inscribed thereon the name of the Corporation
and shall be in such form as may be approved from time to time by the Board of
Directors.
Section 6.2 FISCAL YEAR.
The fiscal year of the Corporation shall be determined by resolution of the
Board of Directors.
Section 6.3 NOTICES AND WAIVERS THEREOF.
Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these By-laws to be given to any stockholder, director, or
officer, such notice, except as otherwise provided by law, may
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be given personally, or by mail, or, in the case of directors or officers, by
telecopy, telegram, cable, or radiogram, or by certified mail with return
receipt requested, by a nationally recognized courier, addressed to such address
as appears on the books of the Corporation. Any notice given by telecopy,
telegram, cable, radiogram, by certified mail with return receipt requested, or
by a nationally recognized courier shall be deemed to have been given when it
shall have been delivered for transmission and any notice given by mail shall be
deemed to have been given when it shall have been deposited in the United States
mail with postage thereon prepaid.
Whenever any notice is required to be given by law, the Certificate of
Incorporation, or these By-laws, a written waiver thereof, signed by the person
entitled to such notice, whether before or after the meeting or the time stated
therein, shall be deemed equivalent in all respects to such notice to the full
extent permitted by law.
Section 6.4 STOCK OF OTHER CORPORATIONS OR OTHER INTERESTS.
Unless otherwise ordered by the Board of Directors, the Chairman of the
Board, the Vice Chairman of the Board, the Chief Executive Officer or the
President, and such attorneys or agents of the Corporation as may from time to
time be authorized by the Board of Directors or the Chairman of the Board shall
have full power and authority on behalf of this Corporation to attend and to act
and vote in person or by proxy at any meeting of the holders of securities of
any corporation or other entity in which this Corporation may own or hold shares
or other securities, and at such meetings shall possess and may exercise all the
rights and powers incident to the ownership of such shares or other securities
which this Corporation, as the owner or holder thereof, might have possessed and
exercised if present. The Chairman of the Board, the Vice Chairman of the Board,
the Chief Executive Officer or President, or such attorneys or agents, may also
execute and deliver on behalf of this Corporation powers of attorney, proxies,
consents, waivers, and other instruments relating to the shares or securities
owned or held by this Corporation.
ARTICLE VII
AMENDMENTS
The Board of Directors shall have the power to adopt, amend, or repeal these
By-Laws.
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EXHIBIT 10.1
OPERATING AGREEMENT
DATED ___________ ____, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. RESPONSIBILITIES OF OPERATORS . . . . . . . . . . . . . . . . . . . . . -1-
i. OPERATIONAL POLICIES AND FORMS . . . . . . . . . . . . . . . . . -1-
ii. CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
iii. INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . -1-
iv. REGULATORY COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . -2-
v. EQUIPMENT AND IMPROVEMENTS . . . . . . . . . . . . . . . . . . . -2-
vi. ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
vii. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
viii. BANK ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . -3-
ix. PERSONNEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
x. SUPPLIES AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . -4-
xi. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . -4-
xii. ANNUAL BUDGETS . . . . . . . . . . . . . . . . . . . . . . . . . -4-
(1) PREPARATION AND SUBMISSION. . . . . . . . . . . . . . . . -4-
(2) ADOPTION. . . . . . . . . . . . . . . . . . . . . . . . . -4-
(3) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET . . . . . . . . . -5-
xiii. COLLECTION OF ACCOUNTS . . . . . . . . . . . . . . . . . . . . . -5-
xiv. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
2. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
3. TERM OF AGREEMENT; EFFECT OF TERMINATION. . . . . . . . . . . . . . . . -6-
4. EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . -7-
5. FACILITY OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
a. NO GUARANTEE OF PROFITABILITY. . . . . . . . . . . . . . . . . . -8-
b. STANDARD OF PERFORMANCE; ACTING WITHIN BUDGET. . . . . . . . . . -8-
c. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . -8-
6. WITHDRAWAL OF FUNDS BY OPERATORS. . . . . . . . . . . . . . . . . . . . -8-
7. FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
8. ASSIGNMENT; DELEGATION. . . . . . . . . . . . . . . . . . . . . . . . . -9-
a. OPERATING AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . -9-
b. DELEGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
9. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
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10. RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . .-10-
11. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
12. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS . . . . . . . . . .-10-
13. CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
14. SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-10-
15. CUMULATIVE: NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . .-10-
16. AUTHORIZATION FOR AGREEMENT . . . . . . . . . . . . . . . . . . . . . .-11-
17. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .-11-
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OPERATING AGREEMENT
This Operating Agreement is made as of the ____ day of ___________, 1996,
between Kapson Senior Quarters Corp., a Delaware corporation ("Owner"), and
Glenn Kaplan, Wayne Kaplan and Evan Kaplan (collectively, "Operators").
WHEREAS, Owner is the owner of the adult-care facility described on
SCHEDULE A hereto (the "Facility");
WHEREAS, Operators are duly licensed to operate the Facility, are
experienced and qualified in the field of operating adult-care facilities such
as the Facility, and Owner desires to engage Operators to operate the Facility;
WHEREAS, Operators are willing to operate the Facility, on the terms and
subject to the conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and for other good and valuable consideration, the receipt
and adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
1. RESPONSIBILITIES OF OPERATORS:
A. Owner hereby engages Operators to operate the Facility, and
Operators hereby accept such engagement and agree to operate the Facility, at
Owner's expense, so as to provide all services required by applicable law and
regulation and the terms and conditions set forth in this Agreement. During
the term of this Agreement, Operators shall have full authority to operate
and manage the Facility as an adult-care facility in accordance with
applicable law and regulation and the terms and conditions hereof, and shall
have full and complete control and reign over, and use of, the entire
Facility, including its common areas. Without limiting the generality of the
foregoing, Operators shall have full authority and responsibility as follows:
i. OPERATIONAL POLICIES AND FORMS. Subject to the Annual
Budgets (as defined in Section 1.A.xi hereof), Operators shall establish and
implement such operational policies and procedures, and develop such new
policies and procedures, as they may deem necessary to insure the
establishment and maintenance of operational standards appropriate for the
nature of the Facility.
ii. CHARGES. Operators shall establish the schedules of
charges, including any and all special charges for services rendered at the
Facility.
iii. INFORMATION. Operators shall develop any informational
material, mass media releases, and other related publicity materials, that
they deem necessary for the operation of the Facility. <PAGE>
iv. REGULATORY COMPLIANCE. Operators shall use their
reasonable best efforts to maintain all licenses, permits, qualifications and
approvals from any applicable governmental or regulatory authority required
for the operation of the Facility, to operate the Facility in compliance with
all applicable laws and regulations, and to comply with such laws and
regulations in performing Operators' obligations under this Agreement. In
addition, Operators shall supervise and coordinate the preparation and filing
of (and, where operators are required to do so under applicable law or
regulation, file) all reports or other information required by New York State
Department of Social Services, New York State Housing Finance Agency and
other New York State or other governmental agencies having jurisdiction over
the Facility and shall deliver copies of all such reports to Owner
simultaneously with their filing. Operators shall cooperate with
governmental inspection and enforcement activities.
v. EQUIPMENT AND IMPROVEMENTS. Subject to the Annual
Budgets, Operators shall, on behalf of Owner, acquire or effect the equipment
and improvements which are needed to maintain or upgrade the quality, to
replace obsolete or run-down equipment, or to correct any other survey
deficiencies which may be cited during the term of this Agreement, and shall
make or engage third parties to make all such repairs, replacements and
maintenance and shall acquire all necessary equipment, including replacement
equipment.
vi. ACCOUNTING. Operators shall supervise and coordinate
accounting support to the Facility, including the following:
A. A monthly balance sheet and statement of operations for
the Facility, to be submitted to Owner within thirty (30) days after the end
of each calendar month;
B. Resident billing records;
C. Accounts receivable and collection records;
D. Accounts payable records;
E. All payroll functions, including, preparation of payroll
checks, establishment of depository accounts for withholding taxes, payment
of such taxes (at Owner's sole expense), filing of payroll reports and the
issuance of W-2 forms to all employees;
F. A complete general ledger for the purposes of recording
and summarizing all transactions for the Facility;
G. The preparation and filing of all necessary reports as
required by applicable governmental authorities and the simultaneous
provision of copies thereof to the Owner. Operators shall file all such
reports as are required to be filed by Operators.
All accounting procedures and systems utilized in providing said support
shall be in accordance with the operating capital and cash programs developed
by Operators, which programs shall conform to generally accepted accounting
principles and shall not materially distort income or
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loss. Nothing herein shall preclude Operators from engaging a third party
(in addition to Subsidiary, as defined in Section 5(a) hereof) to assist it
in the performance of the accounting duties provided for herein.
vii. REPORTS. Operators shall supervise and coordinate the
preparation of any reasonable operational information which may from time to
time be specifically requested by Owner, including any information needed to
assist Owner in completing its tax returns and in complying with any
reporting obligations imposed by any mortgagees or lessors of the Facility.
In addition: (i) within thirty (30) days after the end of each calendar
month, Operators shall supervise and coordinate the preparation and the
delivery to Owner of an unaudited balance sheet of the Facility, dated the
last day of such month, and an unaudited statement of income and expenses for
such month relating to the operation of the Facility and (ii) within ninety
(90) days after the end of the fiscal year of the Facility, unaudited
financial statements including a balance sheet of the Facility dated the last
day of said fiscal year and a statement of income and expense for the year
then ended relating to the operation of the Facility. In addition, Operators
shall supervise and coordinate the preparation and the delivery to Owner of
monthly occupancy reports and related information with respect to the
Facility. All books, forms and records in connection with the operation of
the Facility are Operators' property.
viii. BANK ACCOUNTS. Operators shall establish an account and
shall deposit therein all money received during the term of this Agreement in
the course of the operation of the Facility. Such account may be part of a
central cash management system encompassing all adult-care facilities of
Owner for which the Operators serve as licensed operators. Withdrawals and
payments from this account shall be made only on checks signed by one or more
of the Operators or by a person or persons designated by Operators. Owner
shall be given notice as to the identity of authorized signatories. Subject
to paragraph (2) of Section 1.A.xii, all expenses incurred in the operation
of the Facility in accordance with the terms of the Annual Budgets,
including, but not limited to, Facility mortgage or lease payments, payroll
and employee benefits and payment of Fees, shall be paid by check drawn on
this account. Monthly payments shall be made out of this account first to
pay any debt service or rent due with respect to the Facility, next to pay
the Facility operating expenses in such order of priority as Operators deem
appropriate to the operation of the Facility (other than the Fees), and,
thereafter, to pay the Fees. Any Fees which are not paid when due as a
result of an insufficiency of revenues from the Facility to cover the same
shall accrue and shall be due and payable promptly by Owner.
ix. PERSONNEL. Operators shall have full power and
authority to recruit, hire, train, promote, direct, discipline and fire all
Facility personnel, including the Administrator of the Facility; establish
salary levels, personnel policies and employee benefits; and establish
employee performance standards, all as Operators determine to be necessary or
desirable during the term of this Agreement to ensure the efficient operation
of all departments within, and all services offered by, the Facility. All of
the foregoing obligations shall be undertaken in accordance with the Annual
Budgets and applicable law and regulations. All of the Facility personnel
shall be the employees of Owner, unless otherwise agreed by Owner and
Operators, and
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<PAGE>
all salary, bonuses, fringe benefits, payroll taxes and related expenses
payable to or in respect of the Facility's personnel shall be expenses of the
Facility.
x. SUPPLIES AND EQUIPMENT. Operators shall purchase, on
behalf of Owner, supplies and non-capital equipment needed to operate the
Facility within the budgetary limits set forth in the Annual Budgets.
xi. LEGAL PROCEEDINGS. Operators shall, through legal
counsel designated by Operator, direct all legal matters and proceedings that
are within the scope of Operators' authority pursuant to this Agreement,
including without limitation, instituting any necessary legal actions or
proceedings to collect obligations owing to the Facility, canceling or
terminating any contract or agreement for breach thereof or default
thereunder, and otherwise enforce the obligations of the residents, sponsors,
licensees, customers and other users of the Facility. Without limiting the
generality of the foregoing, Operators are authorized to settle, in the name
and on behalf of the Owner and on such terms and conditions as Operators may
deem to be in the best interests of the Facility, any and all claims or
demands arising out of, or in connection with, the operation of the Facility,
whether or not legal action has been instituted, provided that such
settlement does not exceed $20,000 for each such individual claim or demand.
All such amounts shall be expenses of the Facility. Operators will give
notice promptly to Owner of all demands and claims and all settlements and
legal actions, but the failure to give such notice shall not affect the
preceding provisions of this paragraph.
xii. ANNUAL BUDGETS.
(1) PREPARATION AND SUBMISSION. Owner and Operators
acknowledge that they have agreed upon the budget for the Facility through
December 31, 1996. At least ninety (90) days prior to the end of December
31, 1996 and each subsequent calendar year that commences during the term of
this Agreement, Operators shall submit to Owner a proposed annual budget for
the Facility projecting the revenues available and funds required during such
fiscal year in order to operate the Facility and to make capital improvements
necessary or desirable in order to keep the Facility's physical plant in good
condition and repair. The proposed annual budget shall be based upon data
and information then available to Operators and shall include, without
limitation, estimated salaries and fringe benefits for all personnel groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level
of rates and charges sufficient to generate revenue necessary to operate the
Facility and make the capital improvements projected in such budget. The
proposed annual budget shall be an estimate of revenues and costs, and Owner
and Operators acknowledge that (x) projected revenue may not be actually
received and (y) projected costs may be exceeded by actual expenses and
capital expenditures incurred in connection with the operation and
maintenance of the Facility. By submitting such a projected budget,
Operators will not be deemed to be providing a guarantee or warranty as to
the projected revenue, expenses or capital expenditures of the Facility.
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<PAGE>
(2) ADOPTION. The Facility budget for the period ending
December 31, 1996 referred to in the immediately preceding paragraph and each
annual budget as finally established in accordance with this paragraph (2)
(including as it may thereafter be revised from time to time during a
calendar year pursuant to the written agreement of Owner and Operators), as
the same may be modified by Owner and Operator, shall constitute an "Annual
Budget" for all purposes under this Agreement. Owner shall, within fifteen
(15) days following receipt of a proposed annual budget proposal, notify
Operators of either Owner's approval of such proposed annual budget or those
items of which Owner approves and those items of which Owner disapproves. In
the event that Owner does not either approve or disapprove of, in total or in
part, such proposed annual budget in writing within such 15 day period, then
such proposed annual budget shall be deemed approved by Owner and shall be
the Annual Budget for such calendar year. If Owner disapproves of the
proposed annual budget either in total or in part within such 15 day period,
then Owner and Operators shall have thirty (30) days from the date of Owner's
disapproval notice to formulate a mutually agreeable Annual Budget. If the
parties are unable to reach an agreement within said thirty (30) day period,
then the Annual Budget for the immediately preceding calendar year, including
any such prior Annual Budget determined in accordance with this sentence,
increased by the greater of 5% and the percentage increase in the Consumer
Price Index -- Urban Wage Earners (or, if such index is no longer published,
such other index as is determined by Operators in good faith to be
comparable) during the 12 month period ended on November 30th of such
preceeding year, shall constitute the Annual Budget pending the final
adoption of an Annual Budget in accordance with the next sentence; provided,
however, that the budgeted items for the categories of Heat, Light, Power,
Insurance and Real Estate Taxes shall be deemed increased as required to
reflect actual expenses for the succeeding calendar year). If Owner and
Operators cannot agree on an Annual Budget within an additional sixty (60)
days, Owner and Operators shall appoint _____ or such other "big six"
accounting firm as they may agree, and such accounting firm shall have a
period of thirty days to resolve the remaining disputes between Owner and
Operators and establish an Annual Budget for the Operation of the Facility in
accordance with applicable law and regulation, past practice and the terms of
this Agreement, and the Annual Budget as so established shall be final and
binding for all purposes of this Agreement.
(3) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Operators agree
to use their reasonable best efforts to operate the Facility in accordance
with the Annual Budgets. Subject to the foregoing limitation, Owner shall be
responsible on a periodic basis, as and when needed, for all expenses and
capital expenditures incurred in connection with the operation and
maintenance of the Facility, including, without limitation, Fees and cost
overruns which exceed the projections in the then current Annual Budget;
provided, however, that (except as provided in the next sentence) Owner shall
not be responsible for cost overruns which exceed the relevant amount
provided for in such Annual Budget by more than 10%, if the incurrence of
such overruns was subject to the reasonable control of the Operators.
Notwithstanding anything in this Agreement, if Operators determine in good
faith that the incurrence of any expenditure is required in order to comply
with applicable law or regulations or to provide services in accordance with
the adult-care facilities industry's then prevailing standards in the area in
which the Facility is located, then Operators shall be entitled to make such
expenditures, and all such expenditures shall be deemed, for all purposes of
this Agreement, to be in accordance with the then current Annual Budget.
xiii. COLLECTION OF ACCOUNTS. Operators shall issue bills and
collect accounts and monies owed for goods and services furnished by the
Facility, including, but not limited to, enforcing the rights of Owner and
the Facility as creditor under any contract or in
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<PAGE>
connection with the rendering of any services. Any actions taken by
Operators to collect said accounts receivable shall be in accordance with the
applicable laws, rules and regulations governing the collection of accounts
receivable.
xiv. CONTRACTS. Operators shall negotiate, enter into,
secure, cancel and/or terminate, such agreements and contracts which
Operators may deem necessary or advisable for the operation of the Facility,
including, without limitation, the furnishing of concessions, supplies,
utilities, extermination, refuse removal and other services. Where lawful,
said agreements and contracts will be entered into in the name of and on
behalf of Owner.
B. EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Operator shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities,
governmental agencies, employees, independent contractors, suppliers,
residents, sponsors, licensees, customers and guests of the Facility. Any
communications from Owner to such persons or entities or authorities shall be
directed through Operator. Owner currently maintains and will continue to
maintain contact relationships with the above-mentioned persons and entities.
2. INSURANCE: Operators shall arrange for and maintain all necessary
and proper hazard insurance covering the Facility, including the furniture,
fixtures and equipment situated thereon, all necessary and proper malpractice
and public liability insurance for Operators' and Owner's protection and for
the protection of Operators' and Owner's officers, partners, agents and the
Facility's personnel. Operators shall also arrange for and maintain all
employee health and worker's compensation insurance for the Facility's
personnel. Any insurance provided pursuant to this paragraph shall comply
with the requirements of any applicable Facility mortgage or lease and, with
the exception of the insurance maintained by Operators for their own
protection, shall be an expense of the Facility.
3. PROPRIETARY INTEREST: The systems, methods, procedures and
controls employed by Operators and any written materials or brochures
developed by Operators to document the same are to remain the property of
Operators and are not, at any time during or after the term of this
Agreement, to be utilized, distributed, copied or otherwise employed or
acquired by Owner, except as authorized by Operators.
4. TERM OF AGREEMENT; EFFECT OF TERMINATION: The term of this
Agreement shall commence on the date hereof and shall terminate on the
twenty-fifth anniversary of the date hereof, unless sooner terminated as
hereinafter provided in Section 5 or in this Section 4 or as otherwise
agreed in writing, unless extended by the mutual agreement of Owner and
Operators. This Agreement may be terminated (i) by Owner upon the death or
continuing disability of all of the Operators or (ii) by Operators upon
(A) 90 days prior written notice at any time after the fifth anniversary
of this Agreement or (B) the occurrance of a Change in Control
of the Owner; provided, however, that in the event of a termination by
Operators pursuant to clause (A), Operators shall cooperate with and assist
Owner in engaging a replacement licensed operator for the Facility. Upon
any termination of this Agreement pursuant to the immediately preceding
sentence, the parties hereto shall have no further obligations or liabilities
other than the right of Operators or their personal representatives or estates
to receive Fees through the date of termination, except that,
-6-
<PAGE>
upon the expiration or earlier termination of this Agreement for any reason,
the parties shall cooperate (at Owner's expense) to minimize the impact of
the change on the residents of the Facility, and during the period for which
Operators provide services or assist in the operation of the Facility in
connection therewith they shall be entitled to receive the Fees provided for
herein.
For purposes of this Agreement, "disability" shall mean the inability to
provide services hereunder due to illness, injury or other medical reasons
for a period of more than 180 consecutive days (except as provided in the
next sentence), and a "Change in Control" of the Owner shall be deemed to
have occurred if any person or group (within the meaning of Section 13(d)(3)
of the Securities Exchange Act of 1934 (the "Exchange Act") or any successor
provision) shall acquire beneficial ownership (determined in accordance with
Rule 13d-3 promulgated under the Exchange Act or any successor provision) of
securities of Owner representing both: (i) at least 30% of the total
outstanding voting power of securities of Owner entitled to vote for the
election of directors of Owner and (ii) a greater percentage of such voting
power than is owned at such time in the aggregate by Operators and their
affiliates and members of their immediate families. If two of the Operators
are disabled and, while such disabilities are continuing, the third Operator
becomes unable to provide services hereunder due to illness, injury or other
medical reasons for a period of 90 consecutive days, the third Operator shall
be deemed to be disabled for purposes of this Section 4.
5. EVENTS OF DEFAULT AND REMEDIES:
(a) DEFAULTS. Each of the following shall constitute an Event of
Default hereunder:
(1) If Owner shall fail to pay or allow payment of any installment
of the Fees due to Operators in accordance with Section 7 hereof for a period
of seven (7) days after written notice of such default from Operators.
(2) If either Owner, on the one hand, or the Operators,
collectively, on the other, fail to perform in any material respect any term,
provision, or covenant of this Agreement (other than as set forth in the
immediately preceding paragraph) and (i) such failure continues after written
notice from the other party or parties specifying such failure to perform,
unless such failure cannot reasonably be cured within such 30-day period, or
(ii) the defaulting party fails to endeavor vigorously and continuously to
cure such default as promptly as is practicable. It is understood and agreed
that Operators' obligations under this Agreement may be performed by one or
more of Glenn Kaplan, Wayne Kaplan and Evan Kaplan, and that performance of
such obligations by one or more of such individuals shall constitute
performance by the Operators.
(3) If an Event of Default (as defined therein) shall be committed
by Operators under the Management Services Agreement (the "Management
Services Agreement") of even date between Operators and a wholly-owned
subsidiary of Owner ("Subsidiary"), relating to the Facility.
(4) If an Event of Default (as defined therein) shall be committed
by Subsidiary under the Management Services Agreement.
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<PAGE>
(5) If Owner is dissolved or liquidated, 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 or
is the subject of an involuntary bankruptcy filing, makes a general
assignment for the benefit of creditors, or files a petition or an answer
seeking reorganization or arrangement with creditors or to take advantage of
any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating Owner bankrupt or insolvent or approving a petition seeking
reorganization of Owner or appointing a receiver, trustee or liquidator for
such party of all or a substantial part of its assets, and such order,
judgment or decree shall continue unstayed and in effect for any period of
sixty (60) consecutive days;
(b) REMEDIES. At any time after the occurrence and during the
continuance of an Event of Default, the party who has not committed or
suffered the Event of Default (with any Event of Default of Subsidiary being
deemed to be an Event of Default by Owner for this purpose) may, at its or
their option, terminate this Agreement by giving written notice to the other
party or parties and shall be entitled to exercise all rights and remedies
available under applicable law; provided, however, that Owner may cause the
effective date of any termination by Operators to be deferred for up to
ninety (90) days to afford Owner the opportunity to engage a replacement
operator. Without limiting the generality of the foregoing, if Owner is the
defaulting party, Operators shall be entitled to receive, within thirty (30)
days following the date of termination, the sum of: (x) all unpaid Fees
accrued through the date of termination and all unpaid amounts for which
Operators are then entitled to receive reimbursement under this Agreement,
and (y) as liquidated damages and not as a penalty, the product of an amount
equal to five (5%) percent of the average monthly gross revenues of the
Facility for the twelve months immediately preceding the date of termination
(less any amounts thereof that Operators would have been obligated to pay to
Manager under the Operating Agreement) and the lesser of (A) 24 and (B) the
number of months remaining in the term of this Agreement immediately prior to
such termination. If this Agreement is terminated by Operators pursuant to
Section 5 (a)(1) and Operators incur legal fees in connection with the
enforcement of their rights to such fees, Owner shall pay all reasonable
attornies' fees and other expenses incurred by Operators in connection with
such enforcement.
6. FACILITY OPERATIONS:
a. NO GUARANTEE OF PROFITABILITY. Operator does not guarantee
that operation of the Facility will be profitable, but Operator shall use its
best efforts to operate the Facility in as cost effective and profitable
manner as possible consistent with maintaining operations in accordance with
the adult care facilities industry's then prevailing standards in the area in
which the Facility is located.
b. STANDARD OF PERFORMANCE; ACTING WITHIN BUDGET. In performing
its obligations under this Agreement, Operators shall use their reasonable
best efforts and act in good faith and with professionalism in accordance
with the Annual Budgets and the prevailing standards of the adult-care
facilities industry in the area in which the Facility is located.
c. FORCE MAJEURE: The parties will not be deemed to be in
violation of this Agreement if they are prevented from performing any of
their respective obligations hereunder
-8-
<PAGE>
for any reason beyond its control, including, without limitation, strikes,
shortages, war, acts of God, or any statute, regulation or rule of federal,
state or local government or agency thereof.
7. WITHDRAWAL OF FUNDS BY OPERATORS:
Owner and Operators acknowledge and agree that the efficient
operation of the Facility requires that Operators have ready access to the
capital required therefor. Accordingly, unless otherwise agreed by Owner and
Operators, Owner agrees not to withdraw any funds from the Facility's bank
accounts reasonably believed by Operator to be required for the proper
operation of the Facility or maintenance of appropriate reserves with respect
thereto.
8. FEES:
During the term of this Agreement, Operators shall be entitled to
receive fees (the "Fees") equal to five (5%) percent of the gross revenues of
the Facility during each month or portion thereof occurring during such term.
Fees shall be paid on a monthly basis simultaneously with the delivery by
Operators to Owner of the monthly statements provided for in Section 1.A.vii
hereof.
9. ASSIGNMENT; DELEGATION:
a. OPERATING AGREEMENT: This Agreement shall not be assigned
(including by operation of law, whether by merger or consolidation (excluding
a merger effected solely for the purpose of changing Owner's jurisdiction of
incorporation that does not affect the stock ownership of Owner in any
material respect) or otherwise) by Owner, on the one hand, or any of the
Operators, on the other, without the prior written consent of the other party
or parties.
b. DELEGATION. Owner authorizes Operator to enter into the
Management Services Agreement and consents to the delegation of the
performance of certain services as contemplated thereby. In the event that
the Management Services Agreement shall terminate prior to the termination of
this Agreement other than as a result of the commission of any Event of
Default thereunder by Operators, Operators may enter into one or more
agreements with any other third party or parties providing for delegations of
the performance of Operators' duties hereunder, provided that Operators
determine in good faith that such third party or parties are qualified to
perform such services and provided further that Operators retain authority to
promulgate all policies and procedures regarding operation of the Facility
and the right to direct such third parties in the performance of their
responsibilities. Any agreement between Operators and any such third party
shall be on such terms and conditions as Operators may agree, provided that
such terms and conditions do not violate the terms and conditions of this
Agreement.
10. NOTICES: All notices required or permitted hereunder shall in
writing by hand delivery, by registered or certified mail, postage prepaid,
by overnight delivery or by facsimile transmission (with receipt confirmed
with the recipient). Notices given by Operators may be
-9-<PAGE>
signed by any of the Kaplans. Notices shall be delivered or mailed to the
parties at the following addresses or at such other places as either party
shall designate in writing.
To Owner: Servicer Corporation
Kaplan Senior Quarters Corp.
242 Crossways Park West
Woodbury, New York 11797
Phone:(516) 921-8900
Fax:
Attention:
To Operators: ___________________________
___________________________
___________________________
Phone:____________
Fax:____________
Attention:____________
11. RELATIONSHIP OF THE PARTIES: The relationship of Operators to
Owner in connection with this Agreement shall be that of independent
contractors and all acts performed by Operators during the term hereof shall
be deemed to be performed in their capacity as independent contractors, and,
to the fullest extent permitted under applicable law, the Operators shall not
be deemed to have any fiduciary duties to Owner or its stockholders in
connection with their provision of services hereunder or any matters arising
out of or related thereto. Nothing contained in this Agreement is intended
to or shall be construed to give rise to or create a partnership or joint
venture or lease between Owner, its successors and assigns on the one hand,
and Operators and their assigns on the other hand.
12. ENTIRE AGREEMENT: This Agreement and any documents executed in
connection herewith contain the entire agreement among the parties and shall
be binding upon their respective successors and assigns, and shall be
construed in accordance with the laws of the State of New York. This
Agreement may not be modified or amended except by written instrument signed
by the parties hereto.
13. CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL EVENTS:
In the event any state or federal laws or regulations, now
existing or enacted or promulgated after the effective date of this
Agreement, are interpreted by judicial decision, a regulatory agency or legal
counsel of both parties in such a manner as to indicated that the structure
of this Agreement may be in violation of such laws or regulations, Owner and
Operators agree to cooperate in restructuring their relationship and this
Agreement, provided that any such restructuring shall, to the maximum extent
possible, preserve the underlying economic and financial arrangements between
Owner and Operators. The parties agree that such amendment may require
reorganization of Owner, or Operators, or both, and may require either or
both parties to obtain appropriate regulatory licenses and approvals. In the
event that under New York law and regulations, it shall become permissible
for the Company to be and act as the licensed operator of the Facility, the
Company and Operators shall, during the ninety (90) days following the
occurrence of any such event, use their good faith efforts to negotiate with
regard to the establishment of a new management arrangement with respect to
the Facility, pursuant to which, among other things: (i) the Company shall
become the licensed operator of the Company; (ii) Operators shall continue to
receive the same compensation in return for substantially the same services
theretofore provided to the Facility; and (iii) Operators shall no longer
have personal liability for the operations of the Facility. The Company and
Operators agree that the foregoing is not a binding obligation to consummate
any transactions contemplated by, or discussed during negotiations conducted
under, this Section, it being understood any such transactions shall be
entered into at the sole and absolute discretion of the Company and Operators.
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<PAGE>
14. CAPTIONS: The captions used herein are for convenience of
reference only and shall not be construed in any manner to limit or modify
any of the terms hereof.
15. SEVERABILITY: In the event one or more of the provisions contained
in this Agreement is deemed to be invalid, illegal or unenforceable in any
respect under applicable law, the validity, legality and enforceability of
the remaining provisions hereof shall not in any way be impaired thereby.
16. CUMULATIVE: NO WAIVER: No right or remedy herein conferred upon
or reserved to any of the parties hereto is intended to be exclusive of any
other right or remedy, and each and every right and remedy shall be
cumulative and in addition to any other right or remedy given hereunder, or
now or hereafter legally existing upon the occurrence of an Event of Default
hereunder. The failure of any party hereto to insist at any time upon the
strict observance or performance of any of the provisions of this Agreement
or to exercise any right or remedy as provided in this Agreement shall not
impair any such right or remedy or be construed as a waiver or relinquishment
thereof with respect to subsequent defaults. Every right and remedy given by
this Agreement to the respective parties hereto may be exercised from time to
time and as often as may be deemed expedient by such parties.
17. AUTHORIZATION FOR AGREEMENT: The execution and performance of this
Agreement by Owner and Operators have been duly authorized by all necessary
laws, resolutions or corporate actions, and this Agreement constitutes the
valid and enforceable obligations of Owner and Operator in accordance with
its terms.
18. COUNTERPARTS: This Agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to be
duly executed, as of the day and year first above written.
Owner: KAPSON SENIOR QUARTERS CORP.
By:
------------------------
Name:
Title:
Operators:
------------------------
Glenn Kaplan
------------------------
Wayne Kaplan
------------------------
Evan Kaplan
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<PAGE>
SCHEDULE A
FACILITY
NAME:
ADDRESS:
TYPE:
-13-
<PAGE>
<PAGE>
EXHIBIT 10.2
MANAGEMENT SERVICES AGREEMENT
DATED ___________ ____, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
----
1. RESPONSIBILITIES OF OPERATORS . . . . . . . . . . . . . . . . . . . . . -1-
i. OPERATIONAL POLICIES AND FORMS . . . . . . . . . . . . . . . . . -1-
ii. CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
iii. INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
iv. REGULATORY COMPLIANCE. . . . . . . . . . . . . . . . . . . . . . -2-
v. EQUIPMENT AND IMPROVEMENTS . . . . . . . . . . . . . . . . . . . -2-
vi. ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
vii. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
viii. BANK ACCOUNTS. . . . . . . . . . . . . . . . . . . . . . . . . . -3-
ix. PERSONNEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
x. SUPPLIES AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . -4-
xi. LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . -4-
xii. ANNUAL BUDGETS . . . . . . . . . . . . . . . . . . . . . . . . . -4-
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
xiii. COLLECTION OF ACCOUNTS. . . . . . . . . . . . . . . . . . . . . -4-
xiv. CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
2. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -4-
3. TERM OF AGREEMENT; EFFECT OF TERMINATION: . . . . . . . . . . . . . . -5-
4. EVENTS OF DEFAULT AND REMEDIES. . . . . . . . . . . . . . . . . . . . . -5-
5. FACILITY OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
A. STANDARD OF PERFORMANCE; ACTING WITHIN BUDGET. . . . . . . . . . -6-
B. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . -6-
6. FEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
7. ASSIGNMENT; DELEGATION. . . . . . . . . . . . . . . . . . . . . . . . . -7-
A. MANAGEMENT SERVICES AGREEMENT. . . . . . . . . . . . . . . . . . -7-
B. DELEGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
8. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -7-
9. RELATIONSHIP OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . -8-
10. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
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11. CAPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
12. SEVERABILITY: . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
13. CUMULATIVE: NO WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . -8-
14. PROSPECTIVE LEGAL EVENTS CONTRACT MODIFICATIONS FOR PROSPECTIVE LEGAL
EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -8-
15. AUTHORIZATION FOR AGREEMENT . . . . . . . . . . . . . . . . . . . . . . -9-
16. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
-ii-
<PAGE>
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement is made as of the ____ day of
___________, 1996, between Glenn Kaplan, Wayne Kaplan and Evan Kaplan
(collectively, "Operators"), and ____________________, a Delaware corporation
("Manager").
WHEREAS, Operators are the licensed operators of the adult-care facility
described on SCHEDULE A hereto (the "Facility"), which is owned [managed] by
Kapson Senior Quarters Corp., a Delaware corporation ("Owner");
WHEREAS, Manager is qualified in the field of managing adult-care
facilities such as the Facility, and Operators desire to engage Manager to
provide services in connection with the operation of the Facility, pursuant to
Operators' supervision and direction, on the terms and subject to the conditions
set forth in this Agreement;
WHEREAS, Manager is willing to provide such services, on the terms and
subject to the conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the foregoing, the mutual covenants
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties do hereby agree as
follows:
1. RESPONSIBILITIES OF OPERATORS.
A. Operators hereby engage Manager to provide management and
consulting services to the Facility, and Manager hereby accepts such engagement
and agrees to provide such services at Owner's expense, upon the terms and
conditions set forth in this Agreement. During the term of this Agreement,
Manager shall provide the services set forth below, all of which shall be
subject to the supervision, review and approval of Operators, it being
understood and agreed, however, that notwithstanding any other provision of this
Agreement, Operators remain responsible for operation of the facility in
accordance with applicable law and regulations and shall retain the right, power
and authority to directly perform any such services, to issue directives to
Manager with respect to such services, and establish policies and procedures
with respect to any or all of the matters covered by this Agreement, and all
such directives and policies shall be binding upon, and complied with by,
Manager.
i. OPERATIONAL POLICIES AND FORMS. Subject to the Annual
Budgets (as defined in the Operating Agreement of even date between Owner and
Operators with respect to the Facility (as it may be extended or amended from
time to time, the "Operating Agreement") Manager shall recommend to Operators
and, upon Operators' approval, establish, implement such operational policies
and procedures as are approved by Operators, and develop such new policies and
procedures, as it may deem necessary to insure the establishment and maintenance
of operational standards appropriate for the nature of the Facility.
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<PAGE>
ii. CHARGES. Manager shall recommend to Operators schedules of
charges, including any and all special charges for services rendered at the
Facility.
iii. INFORMATION. Manager shall develop any informational
material, mass media releases, and other related publicity materials, that it
deems necessary for the operation of the Facility.
iv. REGULATORY COMPLIANCE. Manager shall use its reasonable best
efforts to assist Operators in maintaining all licenses, permits, qualifications
and approvals from any applicable governmental or regulatory authority required
for the operation of the Facility, to operate the Facility in compliance with
all applicable laws and regulations, and to comply with such laws and
regulations in performing Manager's obligations under this Agreement. In
addition, Manager shall provide all information required by applicable
governmental agencies, and shall cooperate with governmental inspection and
enforcement activities.
v. EQUIPMENT AND IMPROVEMENTS. Subject to the Annual Budgets,
Manager shall recommend, and, if approved by Operators, acquire or effect, on
behalf of Owner, the equipment and improvements that it determines are needed to
maintain or upgrade the quality, to replace obsolete or run-down equipment, or
to correct any other survey deficiencies which may be cited during the term of
this Agreement. Manager shall make all such repairs and maintenance approved by
Operators in a workmanlike and lien-free manner.
vi. ACCOUNTING. Managers shall arrange for and supervise
accounting support to the Facility, including the following:
a) A monthly balance sheet and statement of operations
for the Facility, to be submitted to Owner within thirty (30) days after the end
of each calendar month;
b) Resident billing records;
c) Accounts receivable and collection records;
d) Accounts payable records;
e) All payroll functions, including, preparation of
payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes, filing of payroll reports and the issuance of W-2 forms
to all employees;
f) A complete general ledger for the purposes of
recording and summarizing all transactions for the Facility;
g) The preparation and filing of all necessary reports as
required by applicable governmental authorities and simultaneously provide a
copy to the Operators.
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<PAGE>
All accounting procedures and systems utilized in providing said support shall
be in accordance with the operating capital and cash programs developed by
Operators, which programs shall conform to generally accepted accounting
principles and shall not materially distort income or loss. Nothing herein
shall preclude Operators from engaging a third party (in addition to Manager) to
assist it in the performance of the accounting duties provided for herein.
vii. REPORTS. Manager shall prepare and provide to Operators any
information that is required to be furnished by Operators to Owner under the
Operating Agreement and any other reasonable operational information which may
from time to time be specifically requested by Operators, including any
information needed to assist Operators in completing their tax returns and in
complying with any reporting obligations imposed by any regulatory agencies or
mortgagees or lessors of the Facility. In addition: (i) within thirty (30) days
after the end of each calendar month, Manager shall provide Operators and Owner
with an unaudited balance sheet of the Facility, dated the last day of such
month, and an unaudited statement of income and expenses for such month relating
to the operation of the Facility and (ii) within ninety (90) days after the end
of the fiscal year of the Facility, Manager shall provide Operators and Owner
with unaudited financial statements including a balance sheet of the Facility
dated the last day of said fiscal year and a statement of income and expense for
the year then ended relating to the operation of the Facility. In addition,
Manager shall prepare and send to Operators and Owner monthly occupancy reports
and related information with respect to the Facility. All books, records, forms
and reports in connection with operation of the Facility shall be Operators'
property.
viii. BANK ACCOUNTS. Manager shall establish accounts at such bank
as Operators may designate from time to time and shall deposit therein all money
received during the term of this Agreement in the course of the operation of the
Facility. Withdrawals and payments from this account shall be made only on
checks signed by one or more of the Operators. Manager shall be given notice as
to the identity of authorized signatories. All expenses incurred in the
operation of the Facility shall be paid in accordance with the Operating
Agreement.
ix. PERSONNEL. Manager shall recruit, hire, train, promote,
direct, discipline and fire all Facility personnel including the Administrator
of the Facility, establish salary levels, personnel policies and employee
benefits; and establish employee performance standards, all as Manager
determines to be necessary or desirable during the term of this Agreement to
ensure the efficient operation of all departments within, and all services
offered by, the Facility. All of the foregoing obligations shall be undertaken
in accordance with the Annual Budgets, Operators' authority and control, and
applicable law and regulations. All of the Facility personnel shall be the
employees of Owner, unless otherwise agreed by Owner and Operators (and Manager
if such personnel shall be employees of Manager), and all salary, bonuses,
fringe benefits, payroll taxes and related expenses payable to or in respect of
the Facility's personnel shall be expenses of the Facility.
x. SUPPLIES AND EQUIPMENT. Manager shall purchase supplies and
non-capital equipment needed to operate the Facility within the budgetary limits
set forth in the Annual
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<PAGE>
Budgets. In purchasing said supplies and equipment, if possible, Manager shall
take advantage of any national or group purchasing agreements to which Manager
or Operators or any of their affiliates may be a party.
xi. LEGAL PROCEEDINGS. Manager shall monitor and, pursuant to
Operator's direction, act with respect to, all legal matters and proceedings
that are within the scope of Manager's authority pursuant to this Agreement,
including without limitation, any necessary legal actions or proceedings to
collect obligations owing to the Facility, the cancellation or termination of
any contract or agreement for breach thereof or default thereunder, and other
actions necessary enforce the obligations of the residents, sponsors, licensees,
customers and other users of the Facility. Manager shall give notice promptly
to Operators of all demands, claims and all legal actions.
xii. ANNUAL BUDGETS. PREPARATION. Manager shall timely prepare
and deliver to Operators for their review and submission to Owner proposed
annual budgets for the Facilities. Such proposed annual budgets shall be
prepared in accordance with the Operating Agreement. Manager and Operators
acknowledge that (x) projected revenue may not be actually received and (y)
projected costs may be exceeded by actual expenses and capital expenditures
incurred in connection with the operation and maintenance of the Facility. By
submitting such a projected budget, Manager will not be deemed to be providing
a guarantee or warranty as to the projected revenue, expenses or capital
expenditures of the Facility.
xiii. COLLECTION OF ACCOUNTS. Manager shall issue bills and
collect account and monies for goods and services furnished by the Facility,
including, but not limited to, enforcing the rights of Operators, Owner and the
Facility as creditor under any contract or in connection with the rendering of
any services. Any actions taken by Manager to collect said accounts receivable
shall be in accordance with the applicable laws, rules and regulations governing
the collection of accounts receivable and shall require the specific consent of
Operators in each instance.
xiv. CONTRACTS. Manager shall negotiate, and prepare for
execution or cancellation and/or termination such agreements and contracts which
Operators may deem necessary or advisable for the operation of the Facility,
including, without limitation, the furnishing of concessions, supplies,
utilities, extermination, refuse removal and other services; provided, however,
that any such agreement or contract shall require the prior written consent of
the Operators. Manager shall be entitled to utilize any entities affiliated
with Manager to provide these services, provided that the rates and prices
therefor are competitive and Manager obtains the prior written consent of
Operators.
2. INSURANCE: Manager shall arrange for and maintain all necessary
and proper hazard insurance covering the Facility, including the furniture,
fixtures and equipment situated thereon, all necessary and proper malpractice
and public liability insurance for Manager's, Operators' and Owner's protection
and for the protection of Manager's, Operators' and Owner's officers, partners,
agents and the Facility's personnel. Subject to the prior written approval of
-4-
<PAGE>
Operators, Manager shall also arrange for and maintain all employee health and
worker's compensation insurance for the Facility's personnel. Any insurance
provided pursuant to this paragraph shall comply with the requirements of any
applicable Facility mortgage or lease and, with the exception of the insurance
maintained by Manager for its own protection, shall be an expense of the
Facility.
3. TERM OF AGREEMENT; EFFECT OF TERMINATION: The term of this
Agreement shall commence on the date hereof and shall terminate on the date of
termination of the Operating Agreement, as it may be extended from time to time
by Owner and Operators (other than as a result of an Event of Default, as
defined therein), unless sooner terminated as hereinafter provided in this
Section 3. This Agreement may be terminated: (i) in accordance with Section 4,
(ii) by Manager upon the death or continuing disability of all of Operators, or
(iii) by Operators by giving at least 30 days' prior written notice to Manager
at any time after the occurrence of a Change in Control of Owner. Upon any
termination of this Agreement other than pursuant to Section 4, the parties
hereto shall have no further obligations or liabilities hereunder except for the
respective right of Operators or their respective personal representatives,
estates, successors or assigns to receive fees through the date of termination,
except that upon the expiration or earlier termination of this Agreement for any
reason, the parties shall cooperate (at Owner's expense) to minimize the impact
of the change on the residents. To the extent that Manager provides
management services to Operators hereunder in connection therewith, Manager
should be entitled to receive fees in accordance with Section 6 hereof. For
purposes of this Agreement, "disability" shall mean the inability to provide
services hereunder due to illness, injury or other medical reasons for a period
of more than 180 consecutive days, and a "Change in Control" of the Owner shall
be deemed to have occurred if any person or group (within the meaning of Section
13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange Act") or any
successor provision) shall acquire beneficial ownership (determined in
accordance with Rule 13d-3 promulgated under the Exchange Act or any successor
provision) of securities of Owner representing both: (i) at least 30% of the
total outstanding voting power of securities of Owner entitled to vote for the
election of directors of Owner and (ii) a greater percentage of such voting
power than is owned at such time in the aggregate by Operators and their
affiliates and members of their immediate families.
4. EVENTS OF DEFAULT AND REMEDIES:
(a) DEFAULTS. Each of the following shall constitute an Event of
Default hereunder:
(1) If the Operating Agreement is terminated by Owner as a result
of an Event of Default (as defined therein) committed by Operators.
(2) If the Operating Agreement is terminated by Operators as a
result of an Event of Default (as defined therein) committed by Owner.
(3) If either Manager, on the one hand, or the Operators,
collectively, on the other, fail to perform in any material respect any term,
provision, or covenant of this Agreement and such failure (i) continues after
written notice from the other party or parties specifying such
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failure to perform for a period of thirty (30) days unless such failure cannot
reasonably be cured within such 30-day period, (ii) the defaulting party
fails to endeavor vigorously and continuously to cure such default as promptly
as is practicable; it being understood and agreed that Operators' obligations
under this Agreement may be performed by one or more of Glenn Kaplan, Wayne
Kaplan and Evan Kaplan, and that performance of such obligations by one or more
of such individuals shall constitute performance by the Operators.
(4) If an Event of Default (as defined therein) shall be
committed by Operators under any other agreement under which Manager provides
services to Operators with respect to any other adult-care facility for which
the Operators act as the licensed operators.
(5) If an Event of Default (as defined therein) shall be
committed or suffered (x) by Owner under any agreement other than the Operating
Agreement pursuant to which Operators act as the licensed operators of a
facility of the Owner or (y) by Manager under any other agreement pursuant to
which Manager provides management services for any adult-care facility (whether
or not owned by Owner) for which Operators act as the licensed operators.
(6) If Manager is dissolved or liquidated, 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 or is
the subject of an involuntary bankruptcy filing, makes a general assignment for
the benefit of creditors, or files a petition or an answer seeking
reorganization or arrangement with creditors or to take advantage of any
insolvency law, or if an order, judgment or decree shall be entered by any court
of competent jurisdiction, on the application of a creditor, adjudicating
Manager bankrupt or insolvent or approving a petition seeking reorganization of
Manager or appointing a receiver, trustee or liquidator for such party of all or
a substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of sixty (60) consecutive days.
(b) REMEDIES. At any time after the occurrence and during the
continuance of an Event of Default, the party who has not committed or suffered
the Event of Default (with any Event of Default of Owner being deemed to be an
Event of Default by Manager for this purpose) may, at its or their option,
terminate this Agreement by giving written notice to the other party or parties
and shall be entitled to exercise all rights and remedies available under
applicable law.
5. FACILITY OPERATIONS
A. STANDARD OF PERFORMANCE; ACTING WITHIN BUDGET. In performing
its obligations under this Agreement, Manager shall use its reasonable best
efforts and act in good faith and with professionalism in accordance with the
Annual Budgets and the prevailing standards of the adult-care facilities
industry in the area in which the Facility is located.
B. FORCE MAJEURE: The parties will not be deemed to be in
violation of this Agreement if they are prevented from performing any of their
respective obligations hereunder
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for any reason beyond its control, including, without limitation, strikes,
shortages, war, acts of God, or any statute, regulation or rule of federal,
state or local government or agency thereof.
6. FEES
During the term of this Agreement, Manager shall be entitled to
receive fees equal to (i) 30% of the fees paid to Operators under the
Operating Agreement and each other agreement pursuant to which the Manager
provides management services to Operators in connection with the operation of
adult-care facilities that are based on the gross revenues of such facilities
until the aggregate amount of such revenues with respect to which Operators
receive such fees equals $23,040,000, and thereafter 96% of such fees, and
(ii) 96% of all fees received by Operators in connection with the operation
of the facilities described in clause (i) that are not based on the gross
revenues of such facilities. For purposes of calculating the $23,040,000
provided for in clause (i) of the preceding sentence, to the extent that
Operators receive certain minimum fees in lieu of the fees that would
otherwise be payable in respect of such gross revenues, the facilities shall
be deemed to have had gross revenues in an amount sufficient to have
generated such minimum fees. Such portion of Operators' Fees shall be paid to
Manager contemporaneously with the payment of such fees to Operator.
7. ASSIGNMENT; DELEGATION
A. MANAGEMENT SERVICES AGREEMENT: This Agreement shall not be
assigned (including by operation of law, whether by merger or consolidation
(excluding a merger effected solely for the purpose of changing Manager's
jurisdiction of incorporation that does not affect the stock ownership of
Manager in any material respect) or otherwise) by Manager, on the one hand, or
any of the Operators, on the other, without the prior written consent of the
other party or parties.
B. DELEGATION. Notwithstanding any other provision of this
Agreement to the contrary, Operators hereby delegate to Manager only those
powers, duties or responsibilities set forth herein. All other powers and
duties remain with the Operators. The Manager shall not exercise any powers,
duties or responsibilities that it is prohibited by applicable law or
regulations from exercising.
8. NOTICES: All notices required or permitted hereunder shall in
writing by hand delivery, by registered or certified mail, postage prepaid, by
overnight delivery or by facsimile transmission (with receipt confirmed with the
recipient). Notices given by Operators may be signed by any of the Kaplans.
Notices shall be delivered or mailed to the parties at the following addresses
or at such other places as either party shall designate in writing.
To Manager: [ ]
c/o Kapson Senior Quarters Corp.
242 Crossways Park West
Woodbury, New York 11797
Phone:(516) 921-8900
Fax:
Attention:
To Operators: ___________________________
___________________________
___________________________
Phone:____________
Fax:____________
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Attention:____________
9. RELATIONSHIP OF THE PARTIES. The relationship of Manager to
Operators in connection with this Agreement shall be that of independent
contractors and all acts performed by Manager during the term hereof shall be
deemed to be performed in its capacity as independent contractors, and, to the
fullest extent permitted under applicable law, the Operators shall not be deemed
to have any fiduciary duties to Manager or its stockholders in connection with
Managers' provision of services hereunder or any matters arising out of or
related thereto. Nothing contained in this Agreement is intended to or shall be
construed to give rise to or create a partnership or joint venture or lease
between Manager, its successors and assigns on the one hand, and Operators and
their assigns on the other hand.
10. ENTIRE AGREEMENT: This Agreement and any documents executed in
connection herewith contain the entire agreement among the parties and shall be
binding upon their respective successors and assigns, and shall be construed in
accordance with the laws of the State of New York. This Agreement may not be
modified or amended except by written instrument signed by the parties hereto.
11. CAPTIONS: The captions used herein are for convenience of reference
only and shall not be construed in any manner to limit or modify any of the
terms hereof.
12. SEVERABILITY: In the event one or more of the provisions contained
in this Agreement is deemed to be invalid, illegal or unenforceable in any
respect under applicable law, the validity, legality and enforceability of the
remaining provisions hereof shall not in any way be impaired thereby.
13. CUMULATIVE: NO WAIVER: No right or remedy herein conferred upon or
reserved to any of the parties hereto is intended to be exclusive of any other
right or remedy, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy given hereunder, or now or hereafter
legally existing upon the occurrence of an Event of Default hereunder. The
failure of any party hereto to insist at any time upon the strict observance or
performance of any of the provisions of this Agreement or to exercise any right
or remedy as provided in this Agreement shall not impair any such right or
remedy or be construed as a waiver or relinquishment thereof with respect to
subsequent defaults. Every right and remedy given by this Agreement to the
respective parties hereto may be exercised from time to time and as often as may
be deemed expedient by such parties.
14. PROSPECTIVE LEGAL EVENTS. CONTRACT MODIFICATIONS FOR PROSPECTIVE
LEGAL EVENTS. In the event any state or federal laws or regulations, now
existing or enacted or promulgated after the effective date of this Agreement,
are interpreted by judicial decision, a regulatory agency or legal counsel of
both parties in such a manner as to indicate that the structure of this
Agreement may be in violation of such laws or regulations, Manager and Operators
shall amend this Agreement, to the maximum extent possible, to preserve the
underlying economic and financial arrangements between Manager and Operators.
The parties agree that such amendment may
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require reorganization of Manager or Operators, or both, and may require either
or both parties to obtain appropriate regulatory licenses and approvals. If an
amendment is not possible, either party shall have the right to terminate this
Agreement upon thirty (30) days' written notice to the other.
15. AUTHORIZATION FOR AGREEMENT: The execution and performance of this
Agreement by Manager and Operators have been duly authorized by all necessary
laws, resolutions or corporate actions, and this Agreement constitutes the valid
and enforceable obligations of Manager and Operators in accordance with its
terms.
16. COUNTERPARTS: This Agreement may be executed in any number of
counterparts, each of which shall be an original, and each such counterpart
shall together constitute but one and the same Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties have hereto caused this Agreement to be
duly executed, as of the day and year first above written.
Manager: [ ]
By:
------------------------
Name:
Title:
Operators:
------------------------
Glenn Kaplan
------------------------
Wayne Kaplan
------------------------
Evan Kaplan
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SCHEDULE A
FACILITY
NAME:
ADDRESS:
TYPE:
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<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the 27th day of
June, 1996 , by and between The Kapson Group ("Owner") with offices located
at 339 Crossways Park Drive, Woodbury, NY 11797, and Senior Quarters
Management Corp., a New York Corporation ("Manager") with offices located at
339 Crossways Park Drive, Woodbury, New York 11797.
Manager is in the business of owning and\or furnishing management services
to independent and assisted living residences for senior citizens. Owner leases
a 73 bed adult home located in Rochester, New York, known as Town Gate Manor
("Facility"). Owner and Manager desire that Owner retain Manager to manage the
Facility and provide certain services in connection therewith.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows:
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the exclusive
management agent for the Facility, subject to the terms of this Agreement.
Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and until
four (4) months prior to the projected completion date of the Facility (the
first day of the four (4) month period hereinafter referred to as the
"Commencement Date"), Manager agrees to provide assistance to Owner in the
planning of the Facility. Such assistance may include review of architectural
drawings and site plans; arranging for feasibility studies; licensure and
certification planning; support and assistance in filing for Certificate of Need
and other governmental requirements, if any; and financial analysis ("Initial
Services").
(b) GENERAL MANAGEMENT. Beginning on the Commencement Date (to
permit the completion of all start-up work, including pre-opening marketing,
staff recruitment, training, facility set-up, and licensing, if any) and
continuing until the expiration or earlier termination of this Agreement,
Manager shall manage and supervise the day-to-day operation of the Facility, in
the name of, on behalf of, and for the account of, Owner.
(c) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager shall provide or cause to be provided the
following specific services in the name of, on behalf of, and for the account
of, Owner.
<PAGE>
(i) FINANCIAL AND ACCOUNTING SERVICES.
Supervise and coordinate the preparation and\or
maintenance (as appropriate) of the following items:
A. A monthly balance sheet and statement of
operations for the Facility, to be submitted to Owner within thirty (30) days
after the end of each calendar month;
B. Resident billing records;
C. Accounts receivable and collection records;
D. Accounts payable records;
E. All payroll functions, including, preparation of
payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes (at Owner's sole expense), filing of payroll reports and
the issuance of W-2 forms to all employees; and
F. A complete general ledger for the purposes of
recording and summarizing all transactions for the Facility.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory.
(iii) LICENSURE. Obtain all licenses, permits and approvals
by applicable governmental authorities with respect to the operation of the
Facility, and maintain certification from public third party payment programs,
if any. All such licenses, permits, approvals and certifications shall be in
the name of Owner, or an individual partner of Owner, unless the governing
entities require otherwise. Manager will comply with all applicable provisions
of law and regulations, and will provide all information required by the New
York State Department of Social Services ("DSS") to DSS, and will cooperate with
DSS in carrying out inspection and enforcement activities. Any powers and
duties not delegated to Manager shall remain with Owner, and notwithstanding any
other provisions of this Agreement, Owner will remain responsible for the
operation of the Facility in compliance with applicable laws and regulations.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel
and/or terminate in the name of and on behalf of Owner, such agreements and
contracts which Manager may deem necessary or advisable for the operation of the
Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services
customarily provided to the Facility by independent contractors. Manager shall
be entitled to utilize any affiliated entities to provide these services,
provided the rates and prices therefor are competitive. All contracts are
subject to Owner's final approval.
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(v) SALES & MARKETING - Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff.
(d) LIABILITY OF MANAGER. Manager shall have no liability to
Owner as a result of any decision made with respect to or any actions taken or
not taken in connection with the Manager's discharge of its obligations under
Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith.
(e) EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Manager shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Any communications from Owner
to such persons or entities or authorities shall be directed through Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to each
fiscal year that commences during the term of this Agreement, Manager shall
submit to Owner a proposed budget projecting the revenue to be available and
funds to be required during such fiscal year in order to operate the Facility
and make capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The budget shall be
based upon data and information then available and shall include, without
limitation, estimated salaries and fringe benefits for all employee groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the budget. Owner shall,
within twenty (20) days following receipt of such annual budget, notify Manager
of either Owner's approval of the annual budget or those items of which Owner
approves and those items of which Owner disapproves. As soon as reasonably
practical thereafter, Owner and Manager shall attempt to establish a mutually
agreeable annual budget for the Facility. In the event Owner does not timely
either approve, or disapprove, in total or in part, of such annual budget, as
provided herein, then such annual budget as proposed by Manager shall be deemed
approved by Owner, and Manager shall be authorized to implement such program.
Each budget, as approved (and as revised from time to time during a fiscal year
with Owner's approval, as set forth in Section 3(b) hereof), is referred to
herein as the "Annual Budget." The projected budget submitted by Manager to
Owner shall be an estimate of revenue and costs, and Owner acknowledges that (i)
projected revenue may not be actually received and (ii) projected costs may be
exceeded by actual expenses and capital expenditures incurred in connection with
the operation and maintenance of the Facility. By submitting such a projected
budget, Manager will not be providing a guarantee or warranty as to the
projected revenue, expenses, or capital expenditures of the Facility.
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<PAGE>
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Subject to the foregoing, Owner shall be responsible on a periodic
basis, as and when needed, for all expenses and capital expenditures incurred in
connection with the operation and maintenance of the Facility, including,
without limitation, cost overruns which exceed the projections in the Annual
Budget, but not to exceed ten (10%) percent of the Annual Budget, unless
otherwise agreed.
(c) BANK ACCOUNTS AND WORKING CAPITAL. Manager shall establish
in a local bank an account or accounts for the operation of the Facility
("Operating Accounts"), in Owner's name and on behalf of Owner, and shall
thereafter deposit therein all funds received by Manager on Owner's behalf from
the operation of the Facility. Owner shall provide sufficient working capital
for the operation of the Facility (including, without limitation, the payment of
Manager's Management Fee under Section 6 hereof) and shall deposit such working
capital in the Operating Accounts from time to time upon the request of Manager.
All expenses incurred in connection with the operation of the Facility
(including, without limitation, Manager's Management Fee) shall be paid out of
the Operating Accounts. Manager may write checks and draw on the Operating
Accounts to pay for operation of the Facility to the extent required by Manager
in the discharge of its obligations hereunder. Owner shall also provide
sufficient funding to make the capital improvements projected in the Annual
Budget. Manager shall have no obligation to (1) provide or contribute working
capital required for the operation of the Facility, or (ii) fund capital
expenditures required to maintain the Facility in good condition and repair.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing basis,
provide the Facility with a qualified Administrator ("Facility Administrator").
The Facility Administrator shall be an employee of and compensated by Owner.
Manager shall be entitled to utilize the Facility Administrator, along with
employees and agents of Manager, in the discharge of Manager's obligations.
(b) OWNER'S EMPLOYEES. All employees working at or in
connection with the operation of the Facility shall be employees of Owner. All
salary, fringe benefits, bonuses and related expenses payable to such employees
shall be borne solely by Owner.
(c) MANAGER'S AUTHORITY. Manager shall elect, appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager choose or shall deem necessary for the proper operation of the Facility.
Manager's selection and appointment of the Administrator and such other
personnel and the terms of their employment, including compensation, shall be
final but are subject to final review by Owner; however, Owner retains the
authority to discharge any person working in the Facility.
5. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the twentieth (20th) anniversary of the Commencement
Date, with automatic
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renewal periods of five (5) years each thereafter, unless either party notifies
the other in writing within one-hundred twenty (120) days of the expiration of
the then current term, of its decision not to automatically exercise the
upcoming renewal option period.
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. Owner shall pay Manager a
management fee ("Management Fee"), commencing on the Commencement Date, equal to
the sum of five (5%) percent of total gross revenues, payable on the fifteenth
(15th) day of each month for the previous month's total gross revenues. During
the initial four (4) month start-up phase beginning with the Commencement Date,
and until the calculated Management Fee of five (5%) percent of gross revenues
exceeds $12,500 per month, a minimum monthly Management Fee of $12,500 ("Minimum
Fee") will be payable on the Commencement Date, and thereafter on the fifteenth
(15th) day of each month.
(b) INCENTIVE FEE. In addition to the above-mentioned
compensation, Manager shall also earn and will be paid an incentive fee
("Incentive Fee") equal to five (5%) percent of the "Net Operating Income" which
is defined as income before interest and income taxes produced by operations in
the Facility, exclusive of real estate taxes. Said Incentive Fee will be paid
on a semi-annual basis fifteen (15) days after the beginning of month one and
fifteen (15) days after the beginning of month seven of each calendar year.
(c) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by Owner or
recommended by Manager and approved by Owner are not included as part of the
Management Fee due to Manager hereunder and shall be subject to Manager being
entitled to additional compensation to be agreed upon between Manager and Owner.
7. LEGAL ACTIONS.
(a) Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility, all at Owner's expense.
(b) Manager is authorized to settle, on the Owner's behalf and in
Owner's name, on terms and conditions as Manager shall deem in the best interest
of the Facility, any and all claims or demands arising out of the operation of
the Facility, irrespective of whether or not legal action has been instituted,
provided such settlement does not exceed Ten Thousand ($10,000) Dollars for each
such claim or demand. Owner agrees that such sums shall be paid as an operating
expense of the Facility. Manager will consult Owner on all settlements and
legal actions.
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8. INFORMATION; COOPERATION. Owner shall provide Manager with any
information required by Manager for the performance of its obligations under
this Agreement, and Owner shall permit Manager to examine and copy any data in
the possession or control of Owner affecting the operation of the Facility,
including, without limitation, accounting and financial information. Owner
shall fully cooperate with Manager to permit Manager to discharge its
obligations hereunder. All such information in the possession or control of
Manager shall be provided to Owner upon request.
9. INSURANCE. Manager is authorized to secure, on the Owner's behalf
and in the Owner's name, on such terms and conditions as Manager shall deem in
the best interests of the Facility, insurance coverage in amounts sufficient to
protect the Facility, Manager, and Owner against claims of third parties,
property damage and such other risks as are prudent. The cost of insurance
shall be charged as an operating expense of the Facility. Manager shall be
named as an additional insured under all policies of insurance affecting the
Facility.
10. REPRESENTATIONS AND WARRANTIES. Owner makes the following
representations and warranties, which are material, and upon which Manager has
relied as an inducement to enter into this Agreement.
(a) STATUS OF OWNER. Owner is a general partnership duly
organized, validly existing and in good standing under the laws of the State
of New York; and is qualified to do business and is in good standing in the
State of New York; and has all necessary power to carry on its business as
now being or in the future will be conducted.
(b) AUTHORITY AND DUE EXECUTION. Owner has full power and
authority to execute and deliver this Agreement and all related documents and to
carry out the transactions contemplated hereby, which actions will not with the
passing of time, the giving of notice or both, result in the default under or
breach or violation of (A) the Owner's Partnership Agreement, as amended to
date, (B) any law, regulation, court order, injunction or decree of any court,
administrative agency or governmental body, or (C) any mortgage, note, bond,
indenture, agreement, lease, license, permit or other instrument or obligation
to which Owner, or the Facility, is now a party or by which Owner, or the
Facility, or any of its assets may be bound or affected. This Agreement
constitutes the valid and binding obligation of Owner enforceable in accordance
with its terms.
(c) LITIGATION. There is no litigation, claim, investigation,
challenge or other proceeding pending or, to the knowledge of Owner threatened
against Owner, or the Facility, which seeks to enjoin or prohibit Owner from
entering into this Agreement, or which in any way will adversely affect the
Facility.
(d) QUIET ENJOYMENT. Owner covenants that Manager shall quietly
hold, occupy and enjoy the Facility throughout the term of this Agreement free
from hindrance, ejection, termination, or molestation by Owner or any person or
entity claiming under, through or by right of Owner. Owner agrees to pay and
discharge any payments and charges at its
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expense, and to prosecute all appropriate actions, judicial or otherwise, that
may be required to assure such free and quiet occupation. All mortgages,
security instruments, or other instruments or encumbrances on the Facility
executed after this Agreement's execution shall provide that this Agreement and
Manager's rights hereunder shall not be terminated or adversely affected in case
of a foreclosure or the taking of a deed in lieu of foreclosure, of any such
instrument. Such instrument shall also provide that no foreclosure or similar
action shall be brought by the mortgagee and/or holder of any promissory notes
which such instrument secures in case of breach thereof, until Manager has
received thirty (30) days prior written notice from the holder of such
instrument of its intention to foreclose, giving Manager the right to correct
any default within said thirty (30) day period.
11. OWNER'S RESTRICTIVE COVENANTS. Owner covenants and agrees that
it will not, during the term of this Agreement and for a period of two (2) years
thereafter, without the prior written consent of Manager, hire or otherwise
engage or permit any of its affiliates to hire or otherwise engage any person
who is an employee of Manager or any affiliates of Manager at any time during
the term of this Agreement or the two year period thereafter, or any person who
was an employee of Manager or any affiliate of Manager during the six (6) months
preceding the Commencement Date, or induce or attempt to induce any such person
to terminate employment with Manager or any such affiliate. For purposes of
this Agreement, the term "affiliate", when used with reference to a specified
party, shall mean any person or entity which such party, directly or indirectly,
through one or more intermediaries, controls, is under control with, or is
controlled by.
12. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
(i) If Owner shall fail to pay any installment of the
Minimum Fee, Management Fee or Incentive Fee for a period of seven (7) days
after notice of such default from Manager;
(ii) If either Manager or Owner fails to perform any material
term, provision, or covenant of this Agreement (other than as set forth in
Section 12(a)(i) above), and such failure continues for a period of thirty (30)
days after written notice from the other party specifying such failure to
perform;
(iii) If Manager is dissolved or liquidated, 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, makes
a general assignment for the benefit of creditors, or files a petition or an
answer seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating Manager bankrupt or insolvent or approving a petition seeking
reorganization of such party or appointing a receiver,
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trustee or liquidator for such party of all or a substantial part of its assets,
and such order, judgment or decree shall continue unstayed and in effect for any
period of ninety (90) consecutive days.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may, at
its option, terminate this Agreement, and\or exercise all other rights and
remedies available to such party at law or in equity. In the event of any
termination of this Agreement, Manager shall be paid all Minimum Fees,
Management Fees or Incentive Fees and other fees due to the date of termination,
plus any other damages to which Manager is entitled. No delay or failure on the
part of either party hereunder to declare the other party in default or exercise
any remedies in respect of such default shall operate as a waiver of such right
to declare a default and exercise such remedies. If either party is forced to
engage counsel to enforce any of the default provisions of this Agreement, the
prevailing party shall also be entitled to reasonable attorneys fees and all
costs attendant to such action.
(c) LIQUIDATED DAMAGES. If this Agreement terminates by action
or default on the part of the Owner, Owner shall pay Manager, in addition to any
Minimum Fee, Management Fee or Incentive Fee due Manager, within thirty (30)
days following the date of such event, as "Liquidated Damages", because actual
damages incurred by Manager will be difficult or impossible to ascertain, and
not as a penalty, an amount equal to the sum of accrued Management Fees during
the immediately preceding twenty-four (24) full calendar months (or such shorter
period as equals the unexpired term of this Agreement or current option period,
at the date of termination); provided, however, if the Facility has not been
open for 24 months, then the average monthly Management Fee or Minimum Fee,
whichever is larger, since the Commencement Date multiplied by twenty-four (24),
plus any applicable Taxes assessed on such payment. Payment of Liquidated
Damages shall be in addition to Manager's other rights under this Agreement.
13. FACILITY'S NAME. Manager shall have the absolute right and
authority to name and rename the Facility and to use such name(s) in any
advertising or promotion for the Facility. If Manager chooses to use a name for
this Facility similar to one that it uses for any other facility which it owns
and\or manages, whether or not such name is registered with any federal or state
agency, then Manager hereby grants to Owner and Owner accepts, a non-exclusive
right to use Manager's chosen name at this Facility only. Upon the termination
of this Agreement for any reason whatsoever, Owner shall immediately cease all
use of Manager's chosen name for the Facility, including any items which carry
said name, such as menus, supplies, signage, stationery, etc. Owner shall
immediately direct all telephone companies and their Yellow Pages advertising
affiliates which identify Owner's Facility under Manager's chosen name, to
cease, effective with their next published edition, all references to the
Facility as such under Manager's chosen name and, at the request of Manager,
shall provide Manager with written confirmation from such third parties of
receipt of such direction. Any post-termination usage by Owner of Manager's
chosen name shall be a willful infringement of Manager's trademark and other
rights.
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14. RIGHT OF FIRST REFUSAL. Upon Owner's initiation of, solicitation
of or receipt of any bona fide "Third Party Offer" to consummate a sale or lease
transaction regarding this Facility, Owner shall advise Manager in writing
(including the terms and conditions of such Third Party Offer) within ten (10)
days of Owner's receipt of such Third Party offer. Manager (or any affiliate)
shall have the right and option, exercisable by sending written notice of such
exercise by the thirtieth (30th) business day following receipt of such notice,
to purchase the Facility (or leasehold, if applicable) on the same terms and
conditions as set forth in such notice provided that Manager shall not be
responsible for payment of any finder's or brokerage fees, or for any non-cash
or non-purchase price terms of such Third Party offer. Any change in such terms
or such purchaser, or any failure to complete such sale within six (6) months
after the date Owner gives such notice to Manager, shall be treated as a new
offer, entitling Manager to new first refusal rights.
15. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's approval, shall
combine any advertising, public relations, or other activities with similar
activities at other facilities owned or operated by Manager or its Affiliates,
the cost of such activities shall be shared proportionately by Owner and Manager
or its Affiliates, as the case may be. Manager shall exclusively handle all
public relations matters for the Facility either through available in-house
support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between Owner and Manager with respect to the Facility, it
being understood that Manager's status shall be that of an independent
contractor.
(c) COSTS AND EXPENSES OF FACILITY; INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the operation
of the Facility, shall be the sole responsibility of Owner. Manager, by reason
of the execution of this Agreement and the performance of its services
hereunder, shall not be liable for or deemed to have assumed any liability for
such fees, costs and expenses, or any other liability or debt of Owner
whatsoever, arising out of or relating to the Facility or incurred in its
operation. Owner agrees to indemnify, defend, pay on behalf of, and hold
Manager and its officers, directors, agents and employees harmless from and
against all losses, claims, damages and other liabilities arising out of or
relating to the ownership or operation of the Facility (except those resulting
from the willful misconduct or gross negligence of Manager), including, without
limitation, any liabilities asserted against Manager or any of its officers,
directors, employees or agents by reason of any action or inaction taken by any
of the foregoing while performing the duties of Manager hereunder on behalf of
Owner. Manager agrees to indemnify, defend, pay on behalf of, and hold Owner
and its officers, directors, agents and employees harmless from and against all
losses, claims, damages and other liabilities arising out of the gross
negligence or willful misconduct of Manager. The terms of this Section 15(c)
shall survive the expiration or earlier termination of this Agreement.
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(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are Owner's
property.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with Owner in
effecting an orderly transition to any new manager of the Facility in order to
avoid any interruption in the rendering of services to Owner and, in connection
therewith, shall surrender to Owner all contracts, documents, books, records,
forms and reports in the possession of Manager regarding the operation of the
Facility.
(f) FORCE MAJEURE. Manager's obligations under this Agreement
are subject to strikes, labor disturbances, casualty, arbitrary and capricious
action by third parties, Owner's compliance with and observance of the terms of
this Agreement (including, without limitation, Owner's obligation to provide
Management Fees and sufficient working capital for the operation of the Facility
and funding for the capital improvements projected in the Annual Budget),
changes in laws, statutes, ordinances, regulations or orders of governmental
authorities or tribunals, war or other state of national emergency, terrorism,
acts of God and other factors beyond the control of Manager collectively,
("Force Majeure"). Manager shall not be responsible or liable in any way for
its inability to discharge any of its obligations hereunder due to Force
Majeure.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Manager
may not assign this Agreement to any affiliated entity without Owner's consent.
The Owner's consent shall not be unreasonably withheld.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the beginning
of this Agreement.
All notices shall be deemed to be effective (i) upon receipt, if hand delivered,
(ii) three (3) days after mailing, if mailed by certified mail, or (iii) the
next business day after sending, if sent by overnight courier service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both Owner and Manager.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New York, and all the terms and provisions hereof and
the rights and obligations of the
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parties hereto shall be construed and enforced in accordance with the laws
thereof, and the Courts sitting in Suffolk or Nassau Counties therein.
(k) TIME OF THE ESSENCE. Time is of the essence throughout this
entire Agreement.
(l) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
(n) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further and continuing waiver of any
such term, provision or condition of this Agreement.
(o) All permanent interior and exterior decorations are subject to
the final approval of Owner.
(p) If Annual Budget cost and capital expenditures exceeds
projections for two consecutive years, then no incentive fee shall be
forthcoming in the second year. If the Annual Budget cost and capital
expenditures exceeds projections on an average of seven percent (7%) for four
years, then no incentive fee shall be received in the fourth year.
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IN WITNESS WHEREOF, the parties hereto have executed this
Management Agreement through their duly authorized representatives as of the day
and year first above written.
OWNER: THE KAPSON GROUP
BY: _____________________________
GLENN KAPLAN, President
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY: _______________________________
EVAN A. KAPLAN, President
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the 27th day of
June, 1996 by and between The Kapson Group ("Owner") with offices located at 339
Crossways Park Drive, Woodbury, NY 11797, and Senior Quarters Management
Corp., a New York Corporation ("Manager") with offices located at 339
Crossways Park Drive, Woodbury, New York 11797.
Manager is in the business of owning and\or furnishing management services
to independent and assisted living residences for senior citizens. Owner leases
a 73 bed adult home located in Rochester, New York, known as Town Gate East
("Facility"). Owner and Manager desire that Owner retain Manager to manage the
Facility and provide certain services in connection therewith.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows:
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the exclusive
management agent for the Facility, subject to the terms of this Agreement.
Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and until
four (4) months prior to the projected completion date of the Facility (the
first day of the four (4) month period hereinafter referred to as the
"Commencement Date"), Manager agrees to provide assistance to Owner in the
planning of the Facility. Such assistance may include review of architectural
drawings and site plans; arranging for feasibility studies; licensure and
certification planning; support and assistance in filing for Certificate of Need
and other governmental requirements, if any; and financial analysis ("Initial
Services").
3. GENERAL MANAGEMENT. Beginning on the Commencement Date (to
permit the completion of all start-up work, including pre-opening marketing,
staff recruitment, training, facility set-up, and licensing, if any) and
continuing until the expiration or earlier termination of this Agreement,
Manager shall manage and supervise the day-to-day operation of the Facility, in
the name of, on behalf of, and for the account of, Owner.
(a) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager shall provide or cause to be provided the
following specific services in the name of, on behalf of, and for the account
of, Owner.
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(i) FINANCIAL AND ACCOUNTING SERVICES.
Supervise and coordinate the preparation and\or
maintenance (as appropriate) of the following items:
A. A monthly balance sheet and statement of
operations for the Facility, to be submitted to Owner within thirty (30) days
after the end of each calendar month;
B. Resident billing records;
C. Accounts receivable and collection records;
D. Accounts payable records;
E. All payroll functions, including, preparation of
payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes (at Owner's sole expense), filing of payroll reports and
the issuance of W-2 forms to all employees; and
F. A complete general ledger for the purposes of
recording and summarizing all transactions for the Facility.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory.
(iii) LICENSURE. Obtain all licenses, permits and approvals
by applicable governmental authorities with respect to the operation of the
Facility, and maintain certification from public third party payment programs,
if any. All such licenses, permits, approvals and certifications shall be in
the name of Owner, or an individual partner of Owner, unless the governing
entities require otherwise. Manager will comply with all applicable provisions
of law and regulations, and will provide all information required by the New
York State Department of Social Services ("DSS") to DSS, and will cooperate with
DSS in carrying out inspection and enforcement activities. Any powers and
duties not delegated to Manager shall remain with Owner, and notwithstanding any
other provisions of this Agreement, Owner will remain responsible for the
operation of the Facility in compliance with applicable laws and regulations.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel
and/or terminate in the name of and on behalf of Owner, such agreements and
contracts which Manager may deem necessary or advisable for the operation of the
Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services
customarily provided to the Facility by independent contractors. Manager shall
be entitled to utilize any affiliated entities to provide these services,
provided the rates and prices therefor are competitive. All contracts are
subject to Owner's final approval.
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(v) SALES & MARKETING - Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff.
(b) LIABILITY OF MANAGER. Manager shall have no liability to
Owner as a result of any decision made with respect to or any actions taken or
not taken in connection with the Manager's discharge of its obligations under
Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith.
(c) EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Manager shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Any communications from Owner
to such persons or entities or authorities shall be directed through Manager.
4. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to each
fiscal year that commences during the term of this Agreement, Manager shall
submit to Owner a proposed budget projecting the revenue to be available and
funds to be required during such fiscal year in order to operate the Facility
and make capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The budget shall be
based upon data and information then available and shall include, without
limitation, estimated salaries and fringe benefits for all employee groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the budget. Owner shall,
within twenty (20) days following receipt of such annual budget, notify Manager
of either Owner's approval of the annual budget or those items of which Owner
approves and those items of which Owner disapproves. As soon as reasonably
practical thereafter, Owner and Manager shall attempt to establish a mutually
agreeable annual budget for the Facility. In the event Owner does not timely
either approve, or disapprove, in total or in part, of such annual budget, as
provided herein, then such annual budget as proposed by Manager shall be deemed
approved by Owner, and Manager shall be authorized to implement such program.
Each budget, as approved (and as revised from time to time during a fiscal year
with Owner's approval, as set forth in Section 3(b) hereof), is referred to
herein as the "Annual Budget." The projected budget submitted by Manager to
Owner shall be an estimate of revenue and costs, and Owner acknowledges that (i)
projected revenue may not be actually received and (ii) projected costs may be
exceeded by actual expenses and capital expenditures incurred in connection with
the operation and maintenance of the Facility. By submitting such a projected
budget, Manager will not be providing a guarantee or warranty as to the
projected revenue, expenses, or capital expenditures of the Facility.
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(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Subject to the foregoing, Owner shall be responsible on a periodic
basis, as and when needed, for all expenses and capital expenditures incurred in
connection with the operation and maintenance of the Facility, including,
without limitation, cost overruns which exceed the projections in the Annual
Budget, but not to exceed ten (10%) percent of the Annual Budget, unless
otherwise agreed.
(c) BANK ACCOUNTS AND WORKING CAPITAL. Manager shall establish
in a local bank an account or accounts for the operation of the Facility
("Operating Accounts"), in Owner's name and on behalf of Owner, and shall
thereafter deposit therein all funds received by Manager on Owner's behalf from
the operation of the Facility. Owner shall provide sufficient working capital
for the operation of the Facility (including, without limitation, the payment of
Manager's Management Fee under Section 6 hereof) and shall deposit such working
capital in the Operating Accounts from time to time upon the request of Manager.
All expenses incurred in connection with the operation of the Facility
(including, without limitation, Manager's Management Fee) shall be paid out of
the Operating Accounts. Manager may write checks and draw on the Operating
Accounts to pay for operation of the Facility to the extent required by Manager
in the discharge of its obligations hereunder. Owner shall also provide
sufficient funding to make the capital improvements projected in the Annual
Budget. Manager shall have no obligation to (1) provide or contribute working
capital required for the operation of the Facility, or (ii) fund capital
expenditures required to maintain the Facility in good condition and repair.
5. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing basis,
provide the Facility with a qualified Administrator ("Facility Administrator").
The Facility Administrator shall be an employee of and compensated by Owner.
Manager shall be entitled to utilize the Facility Administrator, along with
employees and agents of Manager, in the discharge of Manager's obligations.
(b) OWNER'S EMPLOYEES. All employees working at or in
connection with the operation of the Facility shall be employees of Owner. All
salary, fringe benefits, bonuses and related expenses payable to such employees
shall be borne solely by Owner.
(c) MANAGER'S AUTHORITY. Manager shall elect, appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager choose or shall deem necessary for the proper operation of the Facility.
Manager's selection and appointment of the Administrator and such other
personnel and the terms of their employment, including compensation, shall be
final but are subject to final review by Owner; however, Owner retains the
authority to discharge any person working in the Facility.
6. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the twentieth (20th) anniversary of the Commencement
Date, with automatic
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renewal periods of five (5) years each thereafter, unless either party notifies
the other in writing within one-hundred twenty (120) days of the expiration of
the then current term, of its decision not to automatically exercise the
upcoming renewal option period.
7. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. Owner shall pay Manager a
management fee ("Management Fee"), commencing on the Commencement Date, equal to
the sum of five (5%) percent of total gross revenues, payable on the fifteenth
(15th) day of each month for the previous month's total gross revenues. During
the initial four (4) month start-up phase beginning with the Commencement Date,
and until the calculated Management Fee of five (5%) percent of gross revenues
exceeds $12,500 per month, a minimum monthly Management Fee of $12,500 ("Minimum
Fee") will be payable on the Commencement Date, and thereafter on the fifteenth
(15th) day of each month.
(b) INCENTIVE FEE. In addition to the above-mentioned
compensation, Manager shall also earn and will be paid an incentive fee
("Incentive Fee") equal to five (5%) percent of the "Net Operating Income" which
is defined as income before interest and income taxes produced by operations in
the Facility, exclusive of real estate taxes. Said Incentive Fee will be paid
on a semi-annual basis fifteen (15) days after the beginning of month one and
fifteen (15) days after the beginning of month seven of each calendar year.
(c) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by Owner or
recommended by Manager and approved by Owner are not included as part of the
Management Fee due to Manager hereunder and shall be subject to Manager being
entitled to additional compensation to be agreed upon between Manager and Owner.
8. LEGAL ACTIONS.
(a) Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility, all at Owner's expense.
(b) Manager is authorized to settle, on the Owner's behalf and
in Owner's name, on terms and conditions as Manager shall deem in the best
interest of the Facility, any and all claims or demands arising out of the
operation of the Facility, irrespective of whether or not legal action has
been instituted, provided such settlement does not exceed Ten Thousand
($10,000) Dollars for each such claim or demand. Owner agrees that such sums
shall be paid as an operating expense of the Facility. Manager will consult
Owner on all settlements and legal actions.
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9. INFORMATION; COOPERATION. Owner shall provide Manager with any
information required by Manager for the performance of its obligations under
this Agreement, and Owner shall permit Manager to examine and copy any data in
the possession or control of Owner affecting the operation of the Facility,
including, without limitation, accounting and financial information. Owner
shall fully cooperate with Manager to permit Manager to discharge its
obligations hereunder. All such information in the possession or control of
Manager shall be provided to Owner upon request.
10. INSURANCE. Manager is authorized to secure, on the Owner's behalf
and in the Owner's name, on such terms and conditions as Manager shall deem in
the best interests of the Facility, insurance coverage in amounts sufficient
to protect the Facility, Manager, and Owner against claims of third parties,
property damage and such other risks as are prudent. The cost of insurance
shall be charged as an operating expense of the Facility. Manager shall be
named as an additional insured under all policies of insurance affecting the
Facility.
11. REPRESENTATIONS AND WARRANTIES. Owner makes the following
representations and warranties, which are material, and upon which Manager has
relied as an inducement to enter into this Agreement.
12. STATUS OF OWNER. Owner is a general partnership duly organized,
validly existing and in good standing under the laws of the State of New York;
and is qualified to do business and is in good standing in the State of New
York; and has all necessary power to carry on its business as now being or in
the future will be conducted.
(a) AUTHORITY AND DUE EXECUTION. Owner has full power and
authority to execute and deliver this Agreement and all related documents and
to carry out the transactions contemplated hereby, which actions will not with
the passing of time, the giving of notice or both, result in the default under
or breach or violation of (a) the Owner's Partnership Agreement, as amended to
date, (b) any law, regulation, court order, injunction or decree of any court,
administrative agency or governmental body, or (c) any mortgage, note, bond,
indenture, agreement, lease, license, permit or other instrument or obligation
to which Owner, or the Facility, is now a party or by which Owner, or the
Facility, or any of its assets may be bound or affected. This Agreement
constitutes the valid and binding obligation of Owner enforceable in
accordance with its terms.
(b) LITIGATION. There is no litigation, claim, investigation,
challenge or other proceeding pending or, to the knowledge of Owner threatened
against Owner, or the Facility, which seeks to enjoin or prohibit Owner from
entering into this Agreement, or which in any way will adversely affect the
Facility.
(c) QUIET ENJOYMENT. Owner covenants that Manager shall quietly
hold, occupy and enjoy the Facility throughout the term of this Agreement free
from hindrance, ejection, termination, or molestation by Owner or any person
or entity claiming under, through or by right of Owner. Owner agrees to pay
and discharge any payments and charges at its
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expense, and to prosecute all appropriate actions, judicial or otherwise, that
may be required to assure such free and quiet occupation. All mortgages,
security instruments, or other instruments or encumbrances on the Facility
executed after this Agreement's execution shall provide that this Agreement
and Manager's rights hereunder shall not be terminated or adversely affected
in case of a foreclosure or the taking of a deed in lieu of foreclosure, of
any such instrument. Such instrument shall also provide that no foreclosure
or similar action shall be brought by the mortgagee and/or holder of any
promissory notes which such instrument secures in case of breach thereof,
until Manager has received thirty (30) days prior written notice from the
holder of such instrument of its intention to foreclose, giving Manager the
right to correct any default within said thirty (30) day period.
13. OWNER'S RESTRICTIVE COVENANTS. Owner covenants and agrees that it
will not, during the term of this Agreement and for a period of two (2) years
thereafter, without the prior written consent of Manager, hire or otherwise
engage or permit any of its affiliates to hire or otherwise engage any person
who is an employee of Manager or any affiliates of Manager at any time during
the term of this Agreement or the two year period thereafter, or any person
who was an employee of Manager or any affiliate of Manager during the six (6)
months preceding the Commencement Date, or induce or attempt to induce any
such person to terminate employment with Manager or any such affiliate. For
purposes of this Agreement, the term "affiliate", when used with reference to
a specified party, shall mean any person or entity which such party, directly
or indirectly, through one or more intermediaries, controls, is under control
with, or is controlled by.
14. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
(i) If Owner shall fail to pay any installment of the
Minimum Fee, Management Fee or Incentive Fee for a period of seven (7) days
after notice of such default from Manager;
(ii) If either Manager or Owner fails to perform any material
term, provision, or covenant of this Agreement (other than as set forth in
Section 12(a)(i) above), and such failure continues for a period of thirty (30)
days after written notice from the other party specifying such failure to
perform;
(iii) If Manager is dissolved or liquidated, 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,
makes a general assignment for the benefit of creditors, or files a petition
or an answer seeking reorganization or arrangement with creditors or to take
advantage of any insolvency law, or if an order, judgment or decree shall be
entered by any court of competent jurisdiction, on the application of a
creditor, adjudicating Manager bankrupt or insolvent or approving a petition
seeking reorganization of such party or appointing a receiver,
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trustee or liquidator for such party of all or a substantial part of its
assets, and such order, judgment or decree shall continue unstayed and in
effect for any period of ninety (90) consecutive days.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may,
at its option, terminate this Agreement, and\or exercise all other rights and
remedies available to such party at law or in equity. In the event of any
termination of this Agreement, Manager shall be paid all Minimum Fees,
Management Fees or Incentive Fees and other fees due to the date of
termination, plus any other damages to which Manager is entitled. No delay or
failure on the part of either party hereunder to declare the other party in
default or exercise any remedies in respect of such default shall operate as a
waiver of such right to declare a default and exercise such remedies. If
either party is forced to engage counsel to enforce any of the default
provisions of this Agreement, the prevailing party shall also be entitled to
reasonable attorneys fees and all costs attendant to such action.
(c) LIQUIDATED DAMAGES. If this Agreement terminates by action
or default on the part of the Owner, Owner shall pay Manager, in addition to
any Minimum Fee, Management Fee or Incentive Fee due Manager, within thirty
(30) days following the date of such event, as "Liquidated Damages", because
actual damages incurred by Manager will be difficult or impossible to
ascertain, and not as a penalty, an amount equal to the sum of accrued
Management Fees during the immediately preceding twenty-four (24) full
calendar months (or such shorter period as equals the unexpired term of this
Agreement or current option period, at the date of termination); provided,
however, if the Facility has not been open for 24 months, then the average
monthly Management Fee or Minimum Fee, whichever is larger, since the
Commencement Date multiplied by twenty-four (24), plus any applicable Taxes
assessed on such payment. Payment of Liquidated Damages shall be in addition
to Manager's other rights under this Agreement.
15. FACILITY'S NAME. Manager shall have the absolute right and
authority to name and rename the Facility and to use such name(s) in any
advertising or promotion for the Facility. If Manager chooses to use a name
for this Facility similar to one that it uses for any other facility which it
owns and\or manages, whether or not such name is registered with any federal
or state agency, then Manager hereby grants to Owner and Owner accepts, a
non-exclusive right to use Manager's chosen name at this Facility only. Upon
the termination of this Agreement for any reason whatsoever, Owner shall
immediately cease all use of Manager's chosen name for the Facility, including
any items which carry said name, such as menus, supplies, signage, stationery,
etc. Owner shall immediately direct all telephone companies and their Yellow
Pages advertising affiliates which identify Owner's Facility under Manager's
chosen name, to cease, effective with their next published edition, all
references to the Facility as such under Manager's chosen name and, at the
request of Manager, shall provide Manager with written confirmation from such
third parties of receipt of such direction. Any post-termination usage by
Owner of Manager's chosen name shall be a willful infringement of Manager's
trademark and other rights.
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16. RIGHT OF FIRST REFUSAL. Upon Owner's initiation of, solicitation
of or receipt of any bona fide "Third Party Offer" to consummate a sale or
lease transaction regarding this Facility, Owner shall advise Manager in
writing (including the terms and conditions of such Third Party Offer) within
ten (10) days of Owner's receipt of such Third Party offer. Manager (or any
affiliate) shall have the right and option, exercisable by sending written
notice of such exercise by the thirtieth (30th) business day following receipt
of such notice, to purchase the Facility (or leasehold, if applicable) on the
same terms and conditions as set forth in such notice provided that Manager
shall not be responsible for payment of any finder's or brokerage fees, or for
any non-cash or non-purchase price terms of such Third Party offer. Any
change in such terms or such purchaser, or any failure to complete such sale
within six (6) months after the date Owner gives such notice to Manager, shall
be treated as a new offer, entitling Manager to new first refusal rights.
17. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's approval, shall
combine any advertising, public relations, or other activities with similar
activities at other facilities owned or operated by Manager or its Affiliates,
the cost of such activities shall be shared proportionately by Owner and
Manager or its Affiliates, as the case may be. Manager shall exclusively
handle all public relations matters for the Facility either through available
in-house support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership,
joint venture or lease between Owner and Manager with respect to the Facility,
it being understood that Manager's status shall be that of an independent
contractor.
(c) COSTS AND EXPENSES OF FACILITY; INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the
operation of the Facility, shall be the sole responsibility of Owner.
Manager, by reason of the execution of this Agreement and the performance of
its services hereunder, shall not be liable for or deemed to have assumed any
liability for such fees, costs and expenses, or any other liability or debt of
Owner whatsoever, arising out of or relating to the Facility or incurred in
its operation. Owner agrees to indemnify, defend, pay on behalf of, and hold
Manager and its officers, directors, agents and employees harmless from and
against all losses, claims, damages and other liabilities arising out of or
relating to the ownership or operation of the Facility (except those resulting
from the willful misconduct or gross negligence of Manager), including,
without limitation, any liabilities asserted against Manager or any of its
officers, directors, employees or agents by reason of any action or inaction
taken by any of the foregoing while performing the duties of Manager hereunder
on behalf of Owner. Manager agrees to indemnify, defend, pay on behalf of,
and hold Owner and its officers, directors, agents and employees harmless from
and against all losses, claims, damages and other liabilities arising out of
the gross negligence or willful misconduct of Manager. The terms of this
Section 15(c) shall survive the expiration or earlier termination of this
Agreement.
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(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are
Owner's property.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with Owner in
effecting an orderly transition to any new manager of the Facility in order to
avoid any interruption in the rendering of services to Owner and, in
connection therewith, shall surrender to Owner all contracts, documents,
books, records, forms and reports in the possession of Manager regarding the
operation of the Facility.
(f) FORCE MAJEURE. Manager's obligations under this Agreement
are subject to strikes, labor disturbances, casualty, arbitrary and capricious
action by third parties, Owner's compliance with and observance of the terms
of this Agreement (including, without limitation, Owner's obligation to
provide Management Fees and sufficient working capital for the operation of
the Facility and funding for the capital improvements projected in the Annual
Budget), changes in laws, statutes, ordinances, regulations or orders of
governmental authorities or tribunals, war or other state of national
emergency, terrorism, acts of God and other factors beyond the control of
Manager collectively, ("Force Majeure"). Manager shall not be responsible or
liable in any way for its inability to discharge any of its obligations
hereunder due to Force Majeure.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Manager
may not assign this Agreement to any affiliated entity without Owner's
consent. The Owner's consent shall not be unreasonably withheld.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the
beginning of this Agreement.
All notices shall be deemed to be effective (i) upon receipt, if hand
delivered, (ii) three (3) days after mailing, if mailed by certified mail, or
(iii) the next business day after sending, if sent by overnight courier
service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this Agreement shall be
of no force or effect unless in writing and signed by both Owner and Manager.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New York, and all the terms and provisions hereof
and the rights and obligations of the
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parties hereto shall be construed and enforced in accordance with the laws
thereof, and the Courts sitting in Suffolk or Nassau Counties therein.
(k) TIME OF THE ESSENCE. Time is of the essence throughout this
entire Agreement.
(l) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent,
be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other than
those to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
(n) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further and continuing waiver of any
such term, provision or condition of this Agreement.
(o) All permanent interior and exterior decorations are subject
to the final approval of Owner.
(p) If Annual Budget cost and capital expenditures exceeds
projections for two consecutive years, then no incentive fee shall be
forthcoming in the second year. If the Annual Budget cost and capital
expenditures exceeds projections on an average of seven percent (7%) for four
years, then no incentive fee shall be received in the fourth year.
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IN WITNESS WHEREOF, the parties hereto have executed this
Management Agreement through their duly authorized representatives as of the
day and year first above written.
OWNER: THE KAPSON GROUP
BY: _____________________________
GLENN KAPLAN, President
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY: _______________________________
EVAN A. KAPLAN, President
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the 15 day of
July, 1992, by and between Coachman Restaurant, Inc. ("Owner") with offices
located at c/o AVR Realty Company, One Executive Boulevard, Yonkers, New York,
10701, and Senior Quarters Management Corp., a New York Corporation ("Manager")
with offices located at 60 Vanderbilt Motor Parkway, Commack, New York 11725.
Manager is in the business of owning and\or furnishing management
services to independent and assisted living residences for senior citizens.
Owner intends to construct a 168 unit assisted living residence located in the
Cranford Days Inn Hotel, 10 Jackson Place, Cranford, New Jersey, to be known as
the SENIOR QUARTERS ASSISTED LIVING RESIDENCE of Cranford, New Jersey
("Facility"). Owner and Manager desire that Owner retain Manager to manage the
Facility and provide certain services in connection therewith.
Accordingly, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows:
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the
exclusive management agent for the Facility, subject to the terms of this
Agreement. Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and
until four (4) months prior to the projected completion date of the Facility
(the first day of the four (4) month period hereinafter referred to as the
"Commencement Date"), Manager agrees to provide assistance to Owner in the
planning of the Facility. Such assistance shall include but shall not be
limited to review of architectural drawings and site plans; arranging for
feasibility studies; licensure and certification planning; support and
assistance in filing for Certificate of Need and other governmental
requirements, if any; and financial analysis ("Initial Services").
(b) GENERAL MANAGEMENT. Beginning on the Commencement
Date (to permit the completion of all start-up work, including pre-opening
marketing, staff recruitment, training, facility set-up, and licensing, if any)
and continuing until the expiration or earlier termination of this Agreement,
Manager, acting as Owner's fiduciary shall manage and supervise the day-to-day
operation of the Facility, in the name of, on behalf of, and for the account of,
Owner.
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(c) SPECIFIC SERVICES. In connection with such management
and supervision of the Facility, Manager shall provide or cause to be provided
the following specific services in the name of, on behalf of, and for the
account of, Owner:
(i) FINANCIAL AND ACCOUNTING SERVICES.
A. Prepare a monthly balance sheet and
statement of operations for the Facility, to be submitted to Owner within thirty
(30) days after the end of each calendar month;
Supervise and coordinate the preparation and\or
maintenance (as appropriate) of the following items:
B. Resident billing records;
C. Accounts receivable and collection records;
D. Accounts payable records;
E. All payroll functions, including,
preparation of payroll checks, establishment of depository accounts for
withholding taxes, payment of such taxes (at Owner's sole expense), filing of
payroll reports and the issuance of W-2 forms to all employees;
F. A complete general ledger for the purposes
of recording and summarizing all transactions for the Facility; and
G. Owner is aware that the cost of a bookkeeper
to be located on the premises, performing Items B-F, as well as the cost of
outside auditors are provided for in the annual budget.
(ii)PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory.
(iii)LICENSURE. Assist Owner in: (1) obtaining all
licenses, permits and approvals by applicable governmental authorities with
respect to the operation of the Facility, and (2) in maintaining certification
from public third party payment programs, if any. All such licenses, permits,
approvals and certifications shall be in the name of Owner, or an individual
partner of Owner, unless the governing entities require otherwise.
(iv) CONTRACTS. Negotiate, enter into, secure,
cancel and/or terminate in the name of and on behalf of Owner, such agreements
and contracts which Manager may deem necessary or advisable for the operation of
the Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services
customarily provided to the Facility by independent contractors. Subject to
owner's
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approval not to be unreasonably withheld or delayed, Manager shall be entitled
to utilize any affiliated entities to provide these services, provided the rates
and prices therefor are competitive. All contracts requiring or likely to
require, an annual expenditure in excess of $20,000.00, or which have a term in
excess of twelve (12) months, including renewals shall require the approval of
Owner, which approval shall not be unreasonably withheld or delayed.
(v) SALES & MARKETING. Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff.
(d) LIABILITY OF MANAGER. Manager shall have no liability
to Owner as a result of any decision made with respect to or any actions taken
or not taken in connection with the Manager's discharge of its obligations under
Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith, except for gross negligence, malfeasance and
a breach of Manager's fiduciary duties.
(e) EXCLUSIVE REPRESENTATIVE. Solely with respect to the
Facility, it is understood and agreed that Manager shall be the exclusive
representative of Owner for purposes of communicating and dealing directly with
the regulatory authorities, governmental agencies, employees, independent
contractors, suppliers, residents, sponsors, licensees, customers and guests of
the Facility. Any communications from Owner to such persons or entities or
authorities shall be directed through Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to
Commencement Date and thereafter at least ninety (90) days prior to each
calendar year that commences during the term of this Agreement, Manager shall
submit to Owner a proposed annual budget projecting the revenue to be available
and funds to be required during such fiscal year in order to operate the
Facility and make capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The annual budget shall
be based upon data and information then available and shall include, without
limitation, estimated salaries and fringe benefits for all employee groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the annual budget. Each
annual budget as approved by Owner (and as revised from time to time during a
calendar year with Owner's approval, as set forth in this Paragraph 3), is
referred to herein as the "Annual Budget". Owner shall, within fifteen (15)
days following receipt of such annual budget, notify Manager of either Owner's
approval of the annual budget or those items of which Owner approves and those
items of which Owner disapproves. In the event Owner does not timely either
approve or disapprove, in total or in part, of such annual budget in writing, as
provided herein, then such annual budget as proposed by Manager shall be deemed
approved by Owner, and Manager shall be authorized to implement such program.
If Owner disapproves of the proposed annual budget either in total or in part,
then Owner and Manager shall have thirty (30) days from the date of Owner's
disapproval notice
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to formulate a mutually agreeable annual budget. If the parties are unable to
reach an agreement within said 30 day period, then Owner and Manager shall each
direct their respective accountants to pick and agree upon a neutral third party
accountant within fifteen (15) days of being directed to do so, to act as an
arbitrator in order to reach said annual budget. This neutral third-party
accountant will be directed to reach a decision within fifteen (15) days of
being chosen, and his/her decision shall be final and binding on both parties.
Until this agreed upon annual budget is reached, the annual budget for the
immediately preceding calendar year (excluding the budgeted items for the
categories of Heat, Light, Power, Insurance and Real Estate taxes, shall apply.
The projected budget submitted by Manager to Owner shall be an estimate of
revenue and costs, and Owner acknowledges that (i) projected revenue may not be
actually received and (ii) projected costs may be exceeded by actual expenses
and capital expenditures incurred in connection with the operation and
maintenance of the Facility. By submitting such a projected budget, Manager
will not be providing a guarantee or warranty as to the projected revenue,
expenses, or capital expenditures of the Facility.
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager
agrees to use its best efforts to operate the Facility in accordance with the
Annual Budget. Manager may not exceed any Annual Budget Expense Category
annually, as listed on the attached Schedule 1, which category is within
Manager's control, by more than ten (10%) percent without the approval of Owner,
which shall not be unreasonably withheld or delayed. Subject to the foregoing
limitation, Owner shall be responsible on a periodic basis, as and when needed,
for all expenses and capital expenditures incurred in connection with the
operation and maintenance of the Facility, including, without limitation, cost
overruns which exceed the projections in the Annual Budget.
(c) BANK ACCOUNTS AND WORKING CAPITAL. Manager shall
establish in a local bank an account or accounts for the operation of the
Facility ("Operating Accounts"), in Owner's name and on behalf of Owner, and
shall thereafter deposit therein all funds received by Manager on Owner's behalf
from the operation of the Facility. Owner shall provide sufficient working
capital for the operation of the Facility (including, without limitation, the
payment of Manager's Management Fee under Section 6 hereof) and shall deposit
such working capital in the Operating Accounts from time to time upon the
request of Manager. All expenses incurred in connection with the operation of
the Facility (including, without limitation, Manager's Management Fee) shall be
paid out of the Operating Accounts. Manager may write checks and draw on the
Operating Accounts to pay for operation of the Facility to the extent required
by Manager in the discharge of its obligations hereunder provided, however, that
with the exception of checks for the payment of food, all utilities, payroll and
payroll related expenses, any check written in an amount which is greater than
ten thousand ($10,000.00) dollars, must have two signatures; one by Owner, and
one by Manager. Therefore, any such check will be sent with a copy of the
invoice to Owner by Manager for a second signature by Owner. If said check is
not returned to Manager within five (5) days of its being sent to Owner, then
Manager has the authority to pay such invoice by paying the vendor with a new
check which will only require one signature by Manager, unless such invoice is
disputed by Owner in good faith. Owner shall sign all checks for Manager's
Minimum Fees, Management Fees, and Incentive Fees, and shall pay same to Manager
on the fifteenth day of each month. If Owner
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disputes any amount of any of said fees to be paid to Manager, Owner shall
nevertheless pay to Manager all amounts which are undisputed by the fifteenth
day of each month, and shall endeavor to reconcile any disputed amounts with
Manager within five (5) days thereafter. If Owner fails to attempt to reconcile
any disputed amount with Manager, then Manager may write a check and draw on the
Operating Accounts for the full amount it deems itself due and shall reconcile
any differences with Owner prior to the fifteenth of the next month. Manager
shall also provide Owner with a Fidelity Bond in an amount to be agreed upon,
however, said amount will not exceed $200,000.00. Owner shall also provide
sufficient funding to make the capital improvements projected in the Annual
Budget as approved by Owner. Manager shall have no obligation to (i) provide or
contribute working capital required for the operation of the Facility, or (ii)
fund capital expenditures required to maintain the Facility in good condition
and repair.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing
basis, provide the Facility with a qualified Administrator ("Facility
Administrator"). Subject to the approval of Owner, such approval not to be
unreasonably withheld or delayed, Owner reserves the right to approve of
Manager's choice of the Facility Administrator, unless said Facility
Administrator is currently or has been employed by Manager or any of Manager's
affiliated entities for at least three (3) months. If Owner's approval, or
disapproval if required, is not received by Manager within five (5) days of
Manager's submission of same to Owner, then such Facility Administrator as
proposed by Manager shall be deemed approved by Owner and Manager shall be
authorized to employ said Facility Administrator. The Facility Administrator
shall be an employee of and compensated by Owner. Manager shall be entitled to
utilize the Facility Administrator, along with employees and agents of Manager,
in the discharge of Manager's obligations.
(b) OWNER'S EMPLOYEES. All employees working at or in
connection with the operation of the Facility shall be employees of Owner. All
salary, fringe benefits, bonuses and related expenses payable to such employees
shall be borne solely by Owner.
(c) MANAGER'S AUTHORITY. Subject to paragraph 4(a) above,
Manager shall elect, appoint and from time to time, replace the Facility
Administrator and such other personnel as Manger chooses or shall deem necessary
for the proper operation of the Facility. Manager's selection and appointment
of the Administrator and such other personnel and the terms of their employment,
including compensation, shall be subject to review, in accordance with Section
4(a).
5. TERM OF AGREEMENT. This Agreement shall commence on the
date hereof and shall expire on the fifth (5th) anniversary of the Commencement
Date, with one automatic renewal period of five (5) years thereafter, provided
ninety (90%) percent of the average Net Operating Income ("N.O.I.") levels for
the 3rd and 4th years of the initial five (5) year term in accordance with the
attached Schedule 1, dated May 20, 1992, are achieved. In determining whether
90% of such N.O.I. levels are achieved, Real Estate Taxes, Utilities,and
Insurance, will be excluded from this performance calculation, provided,
however, that if after including said
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items, 80% of the average N.O.I. levels for the aforesaid years are not
achieved; the terms of this Agreement shall not be automatically renewed.
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. Owner shall pay Manager a
management fee ("Management Fee"), commencing on the Commencement Date, and
thereafter on the fifteenth (15th) day of each month for the previous month's
total gross revenues, a sum equal to five (5%) percent of total gross revenues.
During the initial four (4) month start-up phase and thereafter until the
calculated Management Fee of five (5%) percent of gross revenues exceeds
$12,500.00 per month, a minimum monthly Management Fee of $12,500.00 ("Minimum
Fee") will be payable on the Commencement Date and thereafter on the fifteenth
(15th) day of each month.
(b) INCENTIVE FEE. In addition to the above-mentioned
compensation, Manager shall also earn and will be paid an incentive fee
("Incentive Fee") equal to fifteen (15%) percent of all N.O.I. over and above
the N.O.I. projected in Schedule 1 attached. Said Incentive Fee will be paid on
a semi-annual basis forty-five (45) days after the beginning of month one and
forty-five (45) days after the beginning of month seven of each calendar year.
N.O.I. is defined as income before interest and income taxes produced by
operations in the Facility, exclusive of real estate taxes.
(c) ADDITIONAL SERVICES. Services that do not fall within
the scope of management and supervision of the day-to-day operation of the
Facility, or otherwise provided for herein, including, without limitation,
special projects requested by Owner or recommended by Manager and approved by
Owner are not included as part of the Management Fee due to Manager hereunder
and shall be subject to Manager being entitled to additional compensation to be
agreed upon between Manager and Owner. Manager shall not be entitled to
additional compensation with respect to home office personnel or for travel and
entertainment expenses.
7. LEGAL ACTIONS.
(a) Subject to Owner's approval, not to be unreasonably
withheld or delayed, Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility, all at Owner's expense.
(b) Manager is authorized to settle, on the Owner's behalf
and in Owner's name, on terms and conditions as Manager shall deem in the best
interest of the Facility, any and all claims or demands arising out of the
operation of the Facility, irrespective of whether or not legal action has been
instituted, provided such settlement does not exceed Twenty-five Thousand
($25,000) Dollars for each such claim or demand or the aggregation of such
claims or demands arising from the same party or occurrences. If such
settlement or
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proposed settlement or the aggregation of such claims or demands arising from
the same party or occurrences exceeds $25,000.00, it will be subject to Owner's
approval, such approval not to be unreasonably withheld or delayed. Owner
agrees that such sums shall be paid as an operating expense of the Facility.
8. INFORMATION; COOPERATION. Owner shall provide Manager with
any information required by Manager for the performance of its obligations under
this Agreement, and Owner shall permit Manager to examine and copy any data in
the possession or control of Owner affecting the operation of the Facility,
including, without limitation, accounting and financial information. Owner
shall fully cooperate with Manager to permit Manager to discharge its
obligations hereunder. Manager shall keep all the foregoing information
confidential and shall not disclose any such information without Owner's
approval.
9. INSURANCE. Subject to Owner's approval, such approval not
to be unreasonably withheld or delayed, Manager is authorized to secure, if
Owner has not already done so, either under a blanket insurance policy or
otherwise, on the Owner's behalf and in the Owner's name, on such terms and
conditions as Manager shall deem in the best interests of the Facility,
insurance coverage in amounts sufficient to protect the Facility, Manager and
Owner against claims of third parties, property damage and such other risks as
are prudent. The cost of insurance shall be charged as an operating expense of
the Facility. Manager shall be named as an additional insured as its interests
may appear under all policies of insurance affecting the Facility.
10. REPRESENTATIONS AND WARRANTIES. Owner and Manager each make
the following representations and warranties, which are material, and upon which
the other party has relied as an inducement to enter into this Agreement.
(a) STATUS OF OWNER. Owner is a for-profit corporation
duly organized, validly existing and in good standing under the laws of the
State of New Jersey; and is qualified to do business in the State of New Jersey;
and has all necessary power to carry on its business as now being or in the
future will be conducted. Manager is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York; and is
qualified to do business in the State of New York; and has all necessary power
to carry on its business as now being or in the future will be conducted.
(b) AUTHORITY AND DUE EXECUTION. Each party has full
power and authority to execute and deliver this Agreement and all related
documents and to carry out the transactions contemplated hereby, which actions
will not with the passing of time, the giving of notice or both, result in the
default under or breach or violation of (A) that party's Certificate of
Incorporation, other Charter or incorporation documents, and/or its By-Laws, as
amended to date, or (B) any mortgage, note, bond, indenture, agreement, lease,
license, permit or other instrument or obligation to which that party, or the
Facility, is now a party or by which that party, or the Facility, or any of its
assets may be bound or affected. This Agreement constitutes the valid and
binding obligation of each party enforceable in accordance with its terms.
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(c) LITIGATION. There is no litigation, claim,
investigation, challenge or other proceeding pending or, to the knowledge of
each party threatened against that party, or the Facility, which seeks to enjoin
or prohibit that party from entering into this Agreement, or which in any way
will adversely affect the Facility.
11. OWNER'S RESTRICTIVE COVENANTS. Owner covenants and agrees
that it will not knowingly and intentionally, during the term of this Agreement
and for a period of two (2) years thereafter, without the prior written consent
of Manager, hire or otherwise engage or permit any of its affiliates to hire or
otherwise engage any person who is an employee of Manager or any affiliates of
Manager at any time during the term of this Agreement or the two year period
thereafter, or any person who was an employee of Manager or any affiliate of
Manager during the six (6) months preceding the Commencement Date, or induce or
attempt to induce any such person to terminate employment with Manager or any
such affiliate, unless this agreement is terminated as a result of a default by
Manager whereupon this paragraph shall have no effect. For purposes of this
Agreement, the term "affiliate", when used with reference to a specified party,
shall mean any person or entity which such party, directly or indirectly,
through one or more intermediaries, controls, is under control with, or is
controlled by. In the event owner violates the provisions of this Paragraph 11,
Manager's sole remedy shall be to seek to enjoin Owner from engaging in such
employment practice.
12. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an
"Event of Default" hereunder:
(i) If Owner shall fail to pay any Minimum Fee,
Management Fee or Incentive Fee due Manager when due for a period of seven (7)
days after notice of such default from Manager;
(ii)If either Manager or Owner fails to perform any term,
provision, or covenant of this Agreement (other than as set forth in Section
12(a)(i) above), and such failure continues for a period of thirty (30) days
after written notice from the other party specifying such failure to perform;
(iii)If Manager is dissolved or liquidated, 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, or is
the subject of an involuntary bankruptcy filing, makes a general assignment for
the benefit of creditors, or files a petition or an answer seeking
reorganization or arrangement with creditors or to take advantage of any
insolvency law, or if an order, judgment or decree shall be entered by any court
of competent jurisdiction, on the application of a creditor, adjudicating
Manager bankrupt or insolvent or approving a petition seeking reorganization of
such party or appointing a receiver, trustee or liquidator for such party of all
or a substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of sixty (60) consecutive days.
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(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may, at
its option, terminate this Agreement, and if Owner is the defaulting party,
Manager shall be paid Liquidated Damages as provided below. In the event of any
termination of this Agreement, by reason of an Event of Default of Owner,
Manager, as its sole remedy, shall be paid all Management Fees and other fees
due as of the date of termination, plus Liquidated Damages to which Manager is
entitled. No delay or failure on the part of either party hereunder to declare
the other party in default or exercise any remedies in respect of such default
shall operate as a waiver of such right to declare a default and exercise such
remedies. If either party is forced to engage counsel to enforce any of the
default provisions of this Agreement, the prevailing party shall also be
entitled to reasonable attorneys fees and all costs attendant to such action,
upon obtaining a non-appealable final judgment.
(c) LIQUIDATED DAMAGES AND TERMINATION.
(1) Neither party may terminate the Agreement for two (2)
years, except upon an occurrence of an Event of Default and except as otherwise
set forth herein.
(2) Manager shall have the right to terminate the Agreement
at any time beginning in year 3 upon six (6) months prior written notice. If
Manager terminates the Agreement for reasons other than the occurrence of an
Event by Default by Owner, upon such termination, neither party shall have any
liability to the other.
(3) Owner shall have the right to terminate the Agreement at
any time beginning in year 3 upon six (6) months prior written notice. If Owner
terminates the Agreement without reasonable cause, Owner shall pay to Manager
Liquidated Damages as provided below. If Owner terminates the Agreement for
reasonable cause, the termination shall be effective immediately and Manager
shall not be entitled to any Termination Fee. "Reasonable cause" shall not
include an Event of Default by Manager.
(4) LIQUIDATED DAMAGES. If this Agreement terminates due
to the occurrence of an Event of Default by Owner, Owner shall pay Manager in
addition to any Minimum Fee, Management Fee or Incentive Fee due Manager, and as
Manager's sole remedy, within thirty (30) days following the date of such event,
as "Liquidated Damages", because actual damages incurred by Manager will be
difficult or impossible to ascertain, and not as a penalty, an amount equal to
the sum of accrued Management Fees during the during the immediately preceding
twenty-four (24) full calendar months (or such shorter period as equals the
unexpired initial term of this Agreement or current option period, if any, at
the date of termination); provided, however, if the Facility has not been open
for 24 months, then the average monthly Management Fee or Minimum Fee, whichever
is larger, multiplied by twenty-four (24).
13. FACILITY'S NAME. Manager shall have the absolute right and
authority to name and rename the Facility and to use such name(s) in any
advertising or promotion for the Facility, subject to Owner's approval not to be
unreasonably withheld or delayed. If Manager
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chooses to use a name for this Facility similar to one that it uses for any
other facility which it owns and/or manages, whether or not such name is
registered with any federal or state agency, then Manager hereby grants to Owner
and Owner accepts, a non-exclusive right to use Manager's chosen name at this
Facility only. Manager will indemnify, hold harmless and defend Owner against
any claims arising out of such common name. Upon the termination of this
Agreement for any reason whatsoever, Owner shall immediately cease all use of
Manager's chosen name for the Facility, including any items which carry said
name, such as menus, supplies, signage, stationery, etc. Owner shall
immediately direct all telephone companies and their Yellow Pages advertising
affiliates which identify Owner's Facility under Manager's chosen name, to
cease, effective with their next published edition, all references to the
Facility as such under Manager's chosen name and, at the request of Manager,
shall endeavor to provide Manager with written confirmation from such third
parties of receipt of such direction. Any post-termination usage by Owner of
Manager's chosen name shall be a willful infringement of Manager's trademark and
other rights, however, Manager's sole remedy shall be through injunctive relief.
14. RIGHT OF FIRST OFFER. If at anytime Owner decides to sell
or lease the Facility, Owner will offer same to Manager prior to any third
party, and will negotiate with Manager in good faith for thirty (30) days prior
to offering the Facility to any third party, the intent of this paragraph being
to give Manager the first opportunity to purchase or lease the Facility before
any third party, whether Owner decided to sell or lease the Facility. Upon the
expiration of said thirty (30) days, if a Contract is not signed, Owner shall be
free to negotiate, sell and/or lease the Facility to anyone, regardless of the
status of negotiations with Manager.
15. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's approval,
shall combine any advertising, public relations, or other activities with
similar activities at other facilities owned or operated by Manager or its
Affiliates, the cost of such activities shall be shared proportionately by each
Facility that participates, as the case may be. Manager shall exclusively
handle all public relations matters for the operation of the Facility either
through available in-house support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between Owner and Manager with respect to the Facility, it
being understood that Manager's status shall be that of an independent
contractor.
(c) INDEMNITY. Manager, by reason of the execution of
this Agreement and the performance of its services hereunder, shall not be
liable for or deemed to have assumed any liability or debt of Owner whatsoever,
arising out of or relating to the Facility or incurred in its operation, Owner
agrees to indemnify, defend, pay on behalf of, and hold Manager and its
officers, directors, agents and employees harmless from and against all losses,
claims, damages and other liabilities arising out of or relating to the gross
negligence or willful misconduct of Owner, including, without limitation, any
liabilities asserted against Manager or
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any of its officers, directors, employees, or agents arising out of or relating
to the gross negligence or willful misconduct of Owner. Manager agrees to
indemnify, defend, pay on behalf of, and hold Owner and its officers, directors,
agents and employees harmless from and against all losses, claims, damages and
other liabilities arising out of or relating to the gross negligence or willful
misconduct of Manager, including without limitation, any liabilities asserted
against Owner or any of its officers, directors, employees or agents arising out
of or relating to the gross negligence or willful misconduct of Manager.
Manager will attempt to collect any claims, damages and other liabilities as
aforesaid initially from either existing insurance policies or from the remedy
provisions in Paragraph 12 herein. The terms of this Section 15(c) shall
survive the expiration or earlier termination of this Agreement.
(d) BOOKS AND RECORDS. All books, records, forms and
reports prepared by Manger in connection with the operation of the Facility are
Owner's property and Manager shall not disclose any information contained in
same without Owner's consent.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with Owner in
effecting an orderly transition to any new manager of the Facility in order to
avoid any interruption in the rendering of services to Owner and, in connection
therewith, shall surrender to Owner all contracts, documents, books, records,
forms and reports in the possession of Manager regarding the operation of the
Facility.
(f) FORCE MAJEURE. Manager's and Owner's obligations
under this Agreement are subject to strikes, labor disturbances, casualty, war
or other state of national emergency, terrorism, acts of God and other factors
beyond the control of Manager or Owner respectively, ("Force Majeure").
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the parties hereto and their respective successors and assigns.
Manager may not assign this Agreement to a non-affiliate without Owner's
consent. Manager may assign this Agreement to any immediate family members or
to an affiliate, whereby the principals are the same as in Manager's original
entity, subject to Owner's consent, which will not be unreasonably withheld or
delayed. Owner may assign this Agreement to an affiliated entity, provided
Allan V. Rose remains liable as a Guarantor.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the beginning
of this Agreement.
All notices shall be deemed to be effective (i) upon receipt, if hand delivered,
(ii) three (3) days after mailing, if mailed by certified mail, or (iii) the
next business day after sending, if sent by overnight courier service.
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(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains
the entire agreement between the parties hereto with respect to the subject
matter hereof, and no prior oral or written representations, covenants or
agreements between the parties with respect to the subject matter hereof shall
be of any force or effect. Any amendments or modifications to this Agreement
shall be of no force or effect unless in writing and signed by both Owner and
Manger.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New York, and all the terms and provisions hereof and
the rights and obligations of the parties hereto shall be construed and enforced
in accordance with the laws thereof, and the Courts sitting therein.
(k) COMPLIANCE WITH LAWS. Manager and Owner agree to
comply with all laws, rules, codes, regulations, insurance requirements, etc.,
to the best of their respective knowledge and abilities.
(l) SECTION HEADINGS. The section headings throughout
this Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision of this
Agreement or the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other than
those to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
(n) WAIVERS. No waiver of any term, provision or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further and continuing waiver
of any such term, provision or condition of this Agreement.
(o) CASUALTY AND CONDEMNATION. If any portion of the
Facility is damaged or taken by condemnation or similar proceeding such that in
Owner's sole and absolute reasonable discretion, an assisted living residence is
no longer economically viable, Owner may on 60 days written notice to Manager,
terminate this Agreement, whereupon Owner and Manager shall have no further
obligations or liabilities hereunder.
(p) NON-COMPETITION. Manager, and the individuals
comprising Manager, and Owner, and the individuals comprising Owner, agree not
to directly or indirectly own, operate or otherwise act as a consultant, or
similar capacity, with respect to any existing or proposed facility within a ten
(10) mile radius of the Facility.
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(q) OWNER'S UNREASONABLE WITHHOLDING OR DELAYING CONSENT OR
Approval. In no event shall Manager be entitled to make, nor shall Manager
make any claim, and Manager hereby waives any claim, for money damages, nor
shall Manager claim any money damages by way of set-off, counterclaim or
defense, based upon any claim or assertion by Manager that Owner has
unreasonably withheld or unreasonably delayed any consent or approval to any
matter where such consent or approval is required pursuant to this Agreement,
but Manager's sole remedy shall be an action or proceeding to enforce any such
provision, or for specific performance, injunction or declaratory judgment.
(r) MANAGER'S REMEDIES. Manager shall look only to
Owner's estate and property in the Facility for the satisfaction of Manager's
remedies, for the collection of a judgment (or other judicial process) requiring
the payment of money by Owner in the event of any default by Owner hereunder,
and no other property or assets of Owner or its partners or principals,
disclosed or undisclosed, shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Manger's remedies under or with
respect to this Agreement, the relationship of Owner and Manager hereunder or
Manager's use or occupancy of the Premises. This paragraph is not intended to
lessen Owner's Guaranty as attached herewith.
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IN WITNESS WHEREOF, the parties hereto have executed this Management
Agreement through their duly authorized representatives as of the day and year
first above written.
OWNER: COACHMAN RESTAURANT, INC.
BY: /s/ ALLAN V. ROSE
--------------------------------
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY: /s/ EVAN A. KAPLAN
--------------------------------
EVAN A. KAPLAN, President
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O W N E R ' S G U A R A N T Y
Reference is made to a Management Agreement of even date between
Coachman Restaurant, Inc. ("Owner") and Senior Quarters Management Corp.
("Manager") regarding the conversion and operation of an assisted living
residence for senior citizens, which premises are currently known as the
Cranford (NJ) Days Inn Hotel (the "Facility"). In consideration of Manager's
execution of said Management Agreement at the request of Owner, and other
valuable consideration paid, the receipt of which is hereby acknowledged, the
undersigned Guarantor guarantees to Manger, the full performance and observance
of all the terms and conditions to be performed and observed by Owner under this
Management Agreement. Guarantor expressly waives any notice of non-payment to
Manager of any Minimum Fee, Management Fee, or Incentive Fee as defined in the
Management Agreement, or proof of notice of demand to hold the undersigned
responsible under this Guaranty. The Guarantor further agrees that this
Guaranty shall remain in full force and effect as to any renewal, change or
extension of the Management Agreement, and as to any forbearance, recasting or
assignment of the Facility.
Guarantor shall have the same defenses available to it that Owner
has under the Management Agreement. Guarantor covenants to pay all expenses,
including attorneys fees that may incurred by Manager or its heirs or assigns
while enforcing any terms of this Guaranty. This Guaranty shall bind the heirs,
successors, assigns, representatives and administrators of the Guarantor and
shall not be impaired or affected by the death of the Guarantor.
/s/ ALLAN V. ROSE
-------------------------
GUARANTOR - ALLAN V. ROSE
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M A N A G E R ' S G U A R A N T Y
Reference is made to a Management Agreement of even date between
Coachman Restaurant, Inc. ("Owner") and Senior Quarters Management Corp.
("Manager") regarding the conversion and operation of an assisted living
residence for senior citizens, which premises are currently known as the
Cranford (NJ) Days Inn Hotel (the "Facility"). In consideration of Manager's
execution of said Management Agreement at the request of Owner, and other
valuable consideration paid, the receipt of which is hereby acknowledged, the
undersigned Guarantor guarantees to Owner, the full performance and observance
of all the terms and conditions of paragraphs numbered "8" and "15(p)" to be
performed and observed by Manager under this Management Agreement. The
Guarantor further agrees that this Guaranty shall remain in full force and
effect as to any renewal, change or extension of the Management Agreement, and
as to any forbearance, recasting or assignment of the Facility.
Guarantor shall have the same defenses available to it that Manager
has under the Management Agreement. Guarantor covenants to pay all expenses,
including attorneys fees that may incurred by Owner or its heirs or assigns
while enforcing any terms of this Guaranty. This Guaranty shall bind the heirs,
successors, assigns, representatives and administrators of the Guarantor and
shall not be impaired or affected by the death of the Guarantor.
/s/ EVAN A. KAPLAN
--------------------------
GUARANTOR - EVAN A. KAPLAN
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of
the ____ day of ________________ 1993, by and between Larkfield
Gardens Associates, L.P. ("Owner") with offices located at 60
Vanderbilt Motor Parkway, Commack, New York 11725, and Senior
Quarters Management Corp., a New York Corporation ("Manager")
with offices located at 60 Vanderbilt Motor Parkway, Commack, New
York.
Manager is in the business of owning and/or
furnishing management services to independent and assisted living
residences for senior citizens. Owner intends to construct a 200
bed assisted living residence located in East Northport, New
York, to be known as Larkfield Gardens ("Facility"). Owner and
Manager desire that Owner retain Manager to manage the Facility
and provide certain services in connection therewith.
Accordingly, in consideration of the mutual covenants
and agreements set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which is
acknowledged, and intending to be legally bound, Owner and
Manager agree as follows, subject to this Facility being built as
an Adult Home senior citizen residence:
1. APPOINTMENT OF MANAGER. Owner appoints Manager
as the exclusive management agent for the Facility, subject to
the terms of this Agreement. Manager hereby accepts such
appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date
hereof, and until four (4) months prior to the projected
completion date of the Facility (the first day of the four (4)-
month period hereinafter referred to as the "Commencement Date"),
Manager agrees to provide assistance to Owner in the planning of
the Facility. Such assistance may include review of
architectural drawings and site plans; arranging for feasibility
studies; licensure and certification planning; support and
assistance in filing for Certification of Need and other
governmental requirements, if any; and financial
analysis ("Initial Services").
(b) GENERAL MANAGEMENT. Beginning on the
Commencement Date (to permit the completion of all start-up work,
including pre-opening marketing, staff recruitment, training,
facility set-up, and licensing, if any) and continuing until the
expiration or earlier termination of this Agreement, Manager
shall manage and supervise the day-to-day operation of the
Facility as a first class Adult Home as defined in Parts 485,
486, 487 and 490 of Sub-Chapter D of Chapter II of Title 18 of
the New York Code of Rules and Regulations, in the name of, on
behalf of, and for the account of, Owner.
(c) SPECIFIC SERVICES. In connection with
such management and supervision of the Facility, and without
limitation of the duties to be performed by Manager,
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Manager shall provide or cause to be provided the following
specific services in the name of, on behalf of, and for the
account of, Owner:
(i) FINANCIAL AND ACCOUNTING SERVICES.
Supervise and coordinate the preparation and/or
maintenance (as appropriate) of the following items:
A. Monthly, quarterly, semi-annual
and annual balance sheets and statements of profit and
loss for the Facility;
B. Resident rent roll (monthly)
and billing records;
C. Accounts receivable and
collection records;
D. Accounts payable records;
E. All payroll functions,
including preparation of payroll checks, establishment
of depository accounts for withholding taxes, payment
of such taxes (at Owner's sole expense), filing of
payroll reports and the issuance of Forms W-2 to all
employees;
F. A complete general ledger for
the purposes of recording and summarizing all
transactions for the Facility; and
G. Such other accounting and
bookkeeping services as Owner may reasonably request
from time to time.
(ii) PURCHASING. Purchase, at Owner's
expense, all items needed for the operation of the Facility,
including, without limitation, supplies, equipment and
inventory, but Manager shall not incur any expense not
provided for in an approved Annual Budget, as defined in
Section 3 hereof, without Owner's prior written consent.
(iii) LICENSURE. Assist Owner in: (1)
obtaining all licenses, permits and approvals by applicable
governmental authorities with respect to the operation of
the Facility, and (2) maintaining certification from public
third party payment programs, if any. All such
licenses, permits, approvals and certifications shall be in
the name of Owner, or an individual partner of Owner, unless
the governing entities require otherwise.
(iv) CONTRACTS. Negotiate, enter into,
secure, cancel and/or terminate in the name of and on behalf
of Owner, such agreements and contracts which Manager may
deem necessary or advisable for the day-to-day operation of
the Facility, including, without limitation, the furnishing
of concessions, supplies, utilities,
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extermination, refuse removal and other services
customarily provided to the Facility by independent
contractors, but Manager shall not incur any expense not
provided for in an approved Annual Budget, as defined in
Section 3 hereof, without Owner's prior written consent.
Manager shall be entitled to utilize any affiliated entities
to provide these services, provided Owner has approved same
in writing and the rates and prices therefor do not exceed
market rates.
(v) SALES & MARKETING - Manager will,
after approval by Owner, establish and implement a sales and
marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and
marketing staff.
(d) LIABILITY OF MANAGER. Manager shall have
no liability to Owner as a result of any decision made with
respect to or any actions taken or not taken in connection with
the Manager's discharge of its obligations under Sections 2(a),
(b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith, without gross negligence or
willful misconduct.
(e) EXCLUSIVE REPRESENTATIVE. It is
understood and agreed that Manager shall be the exclusive
representative of Owner for purposes of communicating and dealing
directly with the regulatory authorities, governmental agencies,
employees, independent contractors, suppliers, residents,
sponsors, licensees, customers and guests of the Facility.
(f) LIMITATIONS ON AUTHORITY. Manager shall
not, without Owner's prior written approval:
(i) Institute or defend legal
proceedings involving Owner or the Facility; or
(ii) Make any lease or other occupancy
agreement for all or any portion of the Facility other than
a lease or occupancy agreement for an Adult Home room or
apartment which is substantially the same in form and
content as Exhibit A attached hereto; or
(iii) Purchase goods, supplies and
services from itself or an Affiliate of Manager or any
Affiliate of an Affiliate of Manager; or
(iv) Enter into on behalf of itself or
Owner any collective bargaining agreement or labor contract
concerning any employees; or
(v) Undertake or incur any item of
expense in excess of amounts therefor set forth in the
Annual Budget; or
(vi) Enter into any contract (including
any vending contract) or other agreement which is not
terminable upon thirty (30) days' prior notice, or the cost
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of which exceeds expenses authorized in the Annual Budget
for such item; or
(vii) Pledge the credit of Owner; or
(viii) Undertake any structural repairs
to the Facility; or
(ix) Undertake any action or course of
conduct on behalf of Owner or with respect to the Facility
which Kapson Northport Development Corp. could not, as
managing partner of Owner, undertake without the approval of
the other partner(s) of Owner.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least sixty (60) days
prior to each fiscal year that commences during the term of this
Agreement, Manager shall submit to Owner a proposed budget
projecting the revenue to be available and funds to be required
during such fiscal year in order to operate the Facility and make
capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The
budget shall be based upon data and information then available
and shall include, without limitation, estimated salaries and
fringe benefits for all employee groups, projected staffing
patterns for the Facility, estimates of required purchases for
supplies, inventory, food and similar items, and an estimate of
the level of rates and charges sufficient to generate revenue
necessary to operate the Facility and make capital improvements
projected in the budget. Each budget, as approved by Owner (and
as revised from time to time during a fiscal year with Owner's
approval), is referred to herein as the "Annual Budget." The
Annual Budget submitted by Manager to Owner shall be an estimate
of revenue and costs, and Owner acknowledges that (i) projected
revenue may not be actually received and (ii) projected costs may
be exceeded by actual expenses and capital expenditures incurred
in connection with the operation and maintenance of the Facility.
By submitting such a projected budget, Manager will not be
providing a guarantee or warranty as to the projected revenue,
expenses, or capital expenditures of the Facility.
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET.
Manager agrees to use best efforts to operate the Facility in
accordance with the Annual Budget, but Manager shall not incur
any expense not provided for in an approved Annual Budget, as
defined in paragraph (a) of this Section 3, without Owner's prior
written consent.
(c) BANK ACCOUNTS AND WORKING CAPITAL.
Manager shall establish in a local bank an account or accounts
for the operation of the Facility ("Operating Accounts"), in
Owner's name and on behalf of Owner, and shall thereafter deposit
therein all funds received by Manager on Owner's behalf from the
operation of the Facility. Owner shall provide sufficient
working capital for the operation of the Facility (including,
without limitation, the payment of Manager's Management Fee as
provided under Section 6 hereof) and shall deposit such working
capital in the Operating Accounts from time to time upon the
request of Manager. All expenses incurred in connection with the
operation of the Facility (including, without
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limitation, Manager's Management Fee) shall be paid out of the
Operating Accounts. Manager may write checks and draw on the
Operating Accounts to pay for operation of the Facility to the
extent required by Manager in the discharge of its obligations
hereunder. Owner shall also provide sufficient funding to make
the capital improvements projected in the Annual Budget. Manager
shall have no obligation to (i) provide or contribute working
capital required for the operation of the Facility, or (ii) fund
capital expenditures required to maintain the Facility in good
condition and repair.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall,
on an ongoing basis, provide the Facility with a qualified
Administrator ("Facility Administrator"). The Facility
Administrator shall be an employee of and compensated by Owner.
(b) OWNER'S EMPLOYEES. All employees working
at or in connection with the operation of the Facility shall be
employees of Owner. All salary, fringe benefits, bonuses and
related expenses payable to such employees shall be borne solely
by Owner.
(c) MANAGER'S AUTHORITY. Manager shall
recommend, and Owner shall select, appoint and from time to time
replace, the Facility Administrator and such other personnel as
Owner chooses or shall deem necessary for the proper operation of
the Facility. Owner's selection and appointment of the
Administrator and such other personnel and the terms of their
employment, including compensation, shall be final and not
subject to review.
5. TERM OF AGREEMENT. This Agreement shall
commence on the date hereof and shall expire on the anniversary
of the date hereof with automatic renewal periods of one (1) year
each thereafter, unless either party notifies the other in
writing within one hundred twenty (120) days of the expiration of
the then current term, of the decision not to
automatically exercise the upcoming renewal option period.
Notwithstanding anything to the contrary contained in the
foregoing or elsewhere in this Agreement, this Agreement shall
automatically terminate and expire on the date that Kapson
Northport Development Corp. ceases to be a general partner in
Owner.
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for
the Initial Services. Owner shall pay Manager a management fee
("Management Fee") for each calendar quarter or portion thereof
from and after the Commencement Date, on the fifteenth (15th) day
of the first month after such calendar quarter. Such Management
Fee shall equal five (5%) percent of total gross revenues from
the Facility for such preceding calendar quarter.
Notwithstanding anything to the contrary contained in the
foregoing or elsewhere in this Agreement, Manager hereby agrees
that Manager shall be paid the Management Fee only out of Net
Cash from Operations, as defined in the partnership agreement
pursuant to which Owner is formed and operating (the "Partnership
Agreement"), and from Capital Transaction Proceeds, as defined in
the Partnership
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Agreement, and that Manager's right to be paid the Management Fee
shall be subject and subordinate to the rights of the partner's
comprising Owner to first receive and be paid in full from time
to time the Preferred Return owed to each such partner from time
to time, as defined in and in accordance with the Partnership
Agreement. To the extent that Owner does not receive, from time
to time, such Net Cash from Operations or Capital Transaction
Proceeds sufficient to pay such Preferred Returns and the
Management Fee in full, the Management Fee shall accrue, without
interest, and be paid from time to time as the Owner has received
Net Cash from Operations or Capital Transactions Proceeds
sufficient to make such payments after the Preferred Returns have
been paid in full. Such subordination shall include, without
limitation, subordination to the rights of the partners to
receive payments of Preferred Returns under Section 8.03(e) of
the Partnership Agreement, notwithstanding clauses 8.03(a) and
(c) of the Partnership Agreement.
7. LEGAL ACTIONS.
(a) Upon Owner's prior written approval,
Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to
cancel or terminate any contract for breach thereof or default
thereunder and otherwise enforce the obligations of the
residents, sponsors, licensees, customers and other users of the
Facility, all at Owner's expense.
(b) Upon Owner's prior written approval,
Manager is authorized to settle, on the Owner's behalf and in
Owner's name, on terms and conditions as Manager shall deem in
the best interest of Owner and the Facility, any and all claims
or demands arising out of the operation of the Facility,
irrespective of whether or not legal action has been instituted,
provided such settlement does not exceed Twenty-five Thousand
($25,000) Dollars for each such claim or demand or would
materially affect Owner or require the payment of more than
$10,000. Owner agrees that such sums shall be paid as an
operating expense of the Facility.
8. INFORMATION; COOPERATION. Owner and Manager
shall provide the other with any information required by each for
the performance of its obligations under this Agreement, and each
shall permit the other to examine and copy any data in the
possession or control of the other affecting the operation of the
Facility, including, without limitation, accounting and financial
information. Each of Owner and Manager shall fully cooperate
with the other to permit the other to discharge its obligations
hereunder.
9. REPRESENTATIONS AND WARRANTIES. Manager makes
the following representations and warranties, which are material,
and upon which Owner has relied as an inducement to enter into
this Agreement.
(a) STATUS OF OWNER. Manager is a
corporation duly organized, validly existing and in good standing
under the laws of the State of New York; and is qualified to do
business in the State of New York; and has all necessary power to
carry on its business as now being or in the future will be
conducted.
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(b) AUTHORITY AND DUE EXECUTION. Manager has
full power and authority to execute and deliver this Agreement
and all related documents and to carry out the transactions
contemplated hereby, which actions will not with the passing of
time, the giving of notice or both, result in the default under
or breach or violation of (A) the Manager's Certificate of
Incorporation, other Charter or incorporation documents, and/or
its By-Laws, as amended to date, (B) any law, regulation, court
order, injunction or decree of any court, administrative agency
or governmental body, or (C) any mortgage, note, bond, indenture,
agreement, lease, license, permit or other instrument or
obligation to which Manager, or the Facility, is now a party or
by which Manager, or the Facility, or any of its assets may be
bound or affected. This Agreement constitutes the valid and
binding obligation of Manager enforceable in accordance with its
terms.
(c) LITIGATION. There is no litigation,
claim, investigation, challenge or other proceeding pending or,
to the knowledge of Manager, threatened against Manager, or the
Facility, or which in any way will adversely affect the Facility.
10. OWNER'S RESTRICTIVE COVENANTS. Owner covenants
and agrees that it will not, during the term of this Agreement
and for a period of two (2) years thereafter, without the prior
written consent of Manager, hire or otherwise engage or permit
any of its affiliates to hire or otherwise engage any person who
is an employee of Manager or any affiliates of Manager at any
time during the term of this Agreement or the two-year period
thereafter, or any person who was an employee of Manager or any
affiliate of Manager during the six (6) months preceding the
Commencement Date, or induce or attempt to induce any such person
to terminate employment with Manager or any such affiliate. For
purpose of this Agreement, the term "affiliate," when used with
reference to a specified party, shall mean any person or entity
which such party, directly or indirectly, through one or more
intermediaries, controls, is under control with, or is controlled
by.
11. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF
TERMINATION.
(a) DEFAULTS. Each of the following shall
constitute an Event of Default hereunder:
(i) If Owner shall fail to pay any
installment of the Management Fee, for a period of seven (7)
days after written notice of such default from Manager;
(ii) If either Manager or Owner fails to
perform any material term, provision, or covenant of this
Agreement (other than as set forth in Section 11(a)(i)
above), and such failure continues for a period of thirty
(30) days after written notice from the other party
specifying such failure to perform;
(iii) If Manager is dissolved or
liquidated, 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,
makes a general assignment for the
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benefit of creditors, or files a petition or an answer
seeking reorganization or arrangement with creditors or to
take advantage of any insolvency law, or if an order,
judgment or decree shall be entered by any court of
competent jurisdiction, on the application of a creditor,
adjudicating Manager bankrupt or insolvent or approving a
petition seeking reorganization of such party or appointing
a receiver, trustee or liquidator for such party of all or a
substantial part of its assets, and such order, judgment or
decree shall continue unstayed and in effect for any period
of thirty (30) consecutive days.
(b) REMEDIES. Upon any Event of Default,
which is not timely cured, the party who has not committed or
suffered the Event of Default may, at its option, terminate this
Agreement, and/or exercise all other rights and remedies
available to such party at law or in equity. In the event of any
termination of this Agreement for reasons other than gross
negligence or willful misconduct, or breach of contract by
Manager, Manager shall be paid all Management Fees due to the
date of termination, plus any other damages to which Manager is
entitled. In the case of accrued and unpaid Management Fees
which remain owing to Manager at the time of such termination,
such Management Fees shall continue to be payable quarterly, but
only out of net revenues of each quarter remaining after the
payment of all other expenses of Owner and after subtracting from
such net revenues the amount which would have been the Preferred
Return of Hameem Associates, L.P. for such quarter under the
partnership agreement pursuant to which Owner is initially
formed. No delay or failure on the part of either party
hereunder to declare the other party in default or exercise any
remedies in respect of such default shall operate as a waiver of
such right to declare a default and exercise such remedies. If
either party is forced to engage counsel to enforce any of the
default provisions of this Agreement, the prevailing party shall
also be entitled to reasonable attorneys fees and all costs
attendant to such action.
12. FACILITY'S NAME. Owner shall have the absolute
right and authority to name and rename the Facility and Manager
shall use such name(s) in any advertising or promotion for the
Facility. Upon the termination of this Agreement for any reason
whatsoever, Manager shall immediately cease all use of Owner's
chosen name for the Facility, including any items which carry
said name, such as menus, supplies, signage, stationery, etc.
Any post-termination usage by Manager of Owner's chosen name
shall be a willful infringement of Owner's trademark and other
rights. In the event, however, that Owner and Manager agree to
use a trademark of Manager as the name of the Facility, ownership
of such trademark shall continue to belong to Manager and upon
termination of this Agreement for any reason whatsoever, Owner
shall promptly rename the Facility and cease all uses of
Manager's trademark name for the Facility, including any items
which carry said trademark, such as menus, supplies, signage,
stationery, etc. Any post-termination usage by Owner of
Manager's trademark name shall be a willful infringement of
Manager's trademark and other rights.
13. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's
approval, shall combine
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any advertising, public relations, or other activities with
similar activities at other facilities owned or operated by
Manager or its Affiliates, the cost of such activities shall be
shared proportionately by Owner and Manager or its Affiliates, as
the case may be. Manager shall exclusively handle all public
relations matters for the Facility either through available
in-house support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing
contained in this Agreement shall constitute or be construed to
be or create a partnership, joint venture or lease between Owner
and Manager with respect to the Facility, it being understood
that Manager's status shall be that of an independent contractor.
(c) COSTS AND EXPENSES OF FACILITY; INDEMNITY.
All fees, costs, expenses and purchases arising out of, relating
to, or incurred in the operation of the Facility shall be the
sole responsibility of Owner. Manager, by reason of the
execution of this Agreement and the performance of its services
hereunder, shall not be liable for or deemed to have assumed any
liability for such fees, costs and expenses, or any other
liability or debt of Owner whatsoever, arising out of or relating
to the Facility or incurred in its operation. Owner agrees to
indemnify, defend, pay on behalf of, and hold Manager and its
officers, directors, agents and employees harmless from
and against all losses, claims, damages and other liabilities
arising out of or relating to the ownership or operation of the
Facility (except those resulting from the willful misconduct or
gross negligence of Manager), including, without limitation, any
liabilities asserted against Manager or any of its officers,
directors, employees or agents by reason of any action or
inaction taken by any of the foregoing while performing the
duties of Manager hereunder on behalf of Owner, provided that
Owner shall not be required to indemnify, defend, pay on behalf
of or hold Manager or the others harmless due to acts or
omissions of Kapson Northport Development Corp. (unless the acts
or omission of Kapson Northport Development Corp. would not have
occurred but for the failure of Hameem Associates, L.P. to give
an approval or consent to a proposal by Kapson Northport
Development Corp. or to a reasonable alternative to such proposal
when such approval or consent is required to be obtained by
Kapson Northport Development Corp. under the partnership
agreement of Owner), and Manager agrees to indemnify, defend, pay
on behalf of and hold Owner and its officers, directors, agents
and employees harmless from and against all losses, claims, damages
and other liabilities arising out of the gross negligence or
willful misconduct of Manager. The terms of this Section 15(c)
shall survive the expiration or earlier termination of this
Agreement.
(d) BOOKS AND RECORDS. All books, records,
forms and reports prepared by Manager in connection with the
operation of the Facility are Owner's property.
(e) COOPERATION UPON TERMINATION. Upon the
expiration or earlier termination of this Agreement, Manager
shall cooperate with Owner in effecting an orderly transition to
any new manager of the Facility in order to avoid any
interruption in the rendering of services to Owner and,
in connection therewith, shall surrender to Owner all contracts,
documents, books, records, forms and reports in the possession of
Manager regarding the operation of the Facility.
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(f) FORCE MAJEURE. Manager's obligations under this
Agreement are subject to strikes, labor disturbances, casualty, arbitrary
and capricious action by third parties, Owner's compliance with and
observance of the terms of this Agreement (including, without limitation,
Owner's obligation to provide Management Fees and sufficient working capital
for the operation of the Facility and funding for the capital improvements
projected in the Annual Budget) other than failures of compliance due to acts
or omissions of Kapson Northport Development Corp. (unless the acts or
omissions of Kapson Northport Development Corp. would not have occurred but
for the failure of Hameem Associates, L.P. to give an approval or consent to
a proposal by Kapson Northport Development Corp. or to a reasonable
alternative to such proposal when such approval or consent is required to be
obtained by Kapson Northport Development Corp. under the partnership agreement
of Owner), changes in laws, statutes, ordinances, regulations or orders of
governmental authorities or tribunals, war or other state of national
emergency, terrorism, acts of God and other factors beyond the control of
Manager (collectively, "Force Majeure"). Manager shall not be responsible or
liable in any way for its inability to discharge any of its obligations
hereunder due to Force Majeure.
(g) SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon the parties hereto and their respective
successors and assigns. Manager may assign this Agreement to
any affiliated entity, but to no other person or entity.
(h) NOTICES. All notices, demands and
requests to be made hereunder by one party to other shall be in
writing, and shall be delivered by hand, mailed by certified
mail, return receipt requested, or sent by overnight courier
service, with postage prepaid, to the addresses listed at the
beginning of this Agreement.
All notices shall be deemed to be effective (i) upon receipt, if
hand delivered, (ii) three (3) days after mailing, if mailed by
certified mail, or (iii) the next business day after sending, if
sent by overnight courier service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This
Agreement contains the entire agreement between the parties
hereto with respect to the subject matter hereof, and no prior
oral or written representations, covenants or agreements between
the parties with respect to the subject matter hereof shall be of
any force or effect. Any amendments or modifications to this
Agreement shall be of no force or effect unless in writing and
signed by both Owner and Manager.
(j) GOVERNING LAW. This Agreement has been
executed and delivered in the State of New York, and all the
terms and provisions hereof and the rights and obligations of the
parties hereto shall be construed and enforced in accordance with
the laws thereof, and the Courts sitting in Suffolk or Nassau
Counties therein.
(k) TIME OF THE ESSENCE. Time is of the
essence throughout this entire Agreement.
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(l) SECTION HEADINGS. The section headings
throughout this Agreement are provided for convenience of
reference only, and the words contained therein shall not in any
way be held to explain, modify or otherwise affect the
interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision
of this Agreement or the application thereof to any person or
circumstances shall, to any extent, be invalid or unenforceable,
the remainder of this Agreement or the application of such term
or provision to persons or circumstances other than those to
which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law.
(n) WAIVERS. No waiver of any term,
provision or condition of this Agreement, whether by conduct or
otherwise, in any one or more instances, shall be deemed to be or
construed as a further and continuing waiver of any such term,
provision or condition of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed
this Management Agreement through their duly authorized
representatives as of the day and year first above written.
OWNER: LARKFIELD GARDENS ASSOCIATES, L.P.
By: Kapson Northport Development Corp.,
General Partner
By:
------------------------------------
GLENN KAPLAN, President
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
By:
------------------------------------
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MANAGEMENT AGREEMENT
This agreement is dated as of January 21, 1993, by and between UNITED
COMMUNITY AND HOUSING DEVELOPMENT CORPORATION, a California nonprofit public
benefit corporation ("Company") having an office at 5455 Wilshire Boulevard,
Suite 2100, Los Angeles, California 90036-4243 and SENIOR QUARTERS MANAGEMENT
CORP., a New York corporation ("Manager") having an office at 60 Vanderbilt
Motor Parkway, Commack, New York 11725.
A. Concurrently herewith the Glen Cove Industrial Development Agency
("Issuer") is entering into that certain Ground Lease, dated as of the date
hereof ("Ground Lease") by and between The Regency at Glen Cove, Inc. ("Land
Owner", as Land Owner, and Issuer as Tenant, pursuant to which Issuer is
leasing certain real property in Glen Cove, New York).
B. Concurrently herewith, Company and Issuer are entering into that
certain Installment Sale Agreement, dated as of January 1, 1992 (the "Sale
Agreement"), by and between Issuer and Company providing for, among other
things, the assignment of Issuer's rights and obligations under the Ground
Lease to Company.
C. In conjunction with the sale Agreement, Company is obtaining
financing for the construction of the "Project" (as hereinafter defined)
through the sale of Glen Cove Industrial Development Agency Civic Facility
Revenue Bonds (The Regency at Glen Cove) 1992 Series A, 1992 Series B and 1992
Taxable Series C (hereinafter collectively referred to as the "Bonds"). The
proceeds from the sale of the Bonds will be administered and disbursed
pursuant to that certain Trust Indenture, dated as of January 1, 1992 (the
"Indenture"), by and between Issuer and First Interstate Trust Company of New
York (Trustee").
D. Repayment of the Series A Bonds and Taxable Series C Bonds will be
secured by that certain First Mortgagee and Security Agreement dated as of
January 1, 1992 (the "First Mortgage"), made by Issuer in favor of Trustee.
Repayment of the Series B Bonds will be secured by that certain Second
Mortgage and Security Agreement dated as of January 15, 1992 (the "Second
Mortgage"), made by Issuer in favor of Trustee (the First Mortgage and Second
Mortgage together with any amendments, supplements, consolidations or
extensions thereof and any other deed of trust or mortgage securing any
Additional Bonds, Alternative Indebtedness or obligations issued or incurred
in accordance with the Indenture, on parity with or to refund such Bonds or
Additional Bonds are collectively referred to herein as the "Mortgages").
Issuer's interest in the Sale Agreement (other than certain rights to
indemnification, notices, fees and expenses) has been assigned to the Trustee
pursuant to the terms of the Sale Agreement and the Indenture.
E. The Indenture, Sale Agreement, Mortgages, Notes and all other
documents entered into in connection with the Bond as they may be amended from
time to time, are collectively referred to herein as the "Loan Documents".
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NOW THEREFORE, in consideration of the mutual promises and agreements
between the parties and other good and valuable consideration the receipt and
sufficiency of which is hereby a knowledged, Company and Manager do hereby
mutually agree as follows:
1. APPOINTMENT AND ACCEPTANCE. Company appoints Manager as exclusive
manager for the management of the Project described in Section 2 of
this Agreement, and Manager accepts the appointment, subject to the
terms and conditions set forth in this Agreement.
2. DESCRIPTION OF PROJECT AND PROJECT CONTROL. The Project to be
managed by Manager under this Agreement (the "Project") is comprised
of an adult home facility licensed by the New York State Department
of Social Services Bureau of Certification for Adult Services
("Adult Home Units") consisting of land, buildings and other
improvements. The Project is further described as follows:
Name: The Regency at Glen Cove
Location: Street Address: 94-96 School Street
City: Glen Cove
County: Nassau
State:New York
Number of units: 96 Adult Home Units.
Manager will be responsible to oversee, operate and manage all of
the Adult Home Units. It is Manager's responsibility to ensure that
the operation of the Project complies with all federal, New York
State and Glen Cove laws and regulations, including all applicable
Adult Care Facility laws.
Notwithstanding any authority granted to Manager herein, Company
shall, at all times, retain sole authority and control over the
operations of the Project (including compliance with all applicable
laws and regulations) and shall establish reasonable general
management policies from time to time to be adhered to by Manager in
the performance of Manager's services hereunder. All powers and
duties not specifically delegated to Manager herein shall remain the
sole responsibility of Company.
3. DEFINITIONS. As used in this Agreement:
a. "MORTGAGES" means the Mortgages and any "Fee Mortgage" or
"Leasehold Mortgage" (as such terms are defined in the Ground
Lease).
b. "MORTGAGEE" means any holder of the Mortgages including the
trustee and any "Fee Mortgagee" or "Leasehold Mortgagee" (as
such terms are defined in the Ground Lease).
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c. "PROJECT REVENUE" shall have the meaning as set forth in the
Indenture.
d. All other terms capitalized and not otherwise defined herein
shall have the meaning set forth for the same in the
Indenture.
4. MANAGEMENT PLAN.
Attached hereto as exhibit "A" and hereby incorporated herein, is a
copy of the management plan for the Project which provides a
comprehensive and detailed description of the policies and
procedures to be followed initially in the management of the Project
(the "Management Plan"). In many of its provisions, this Agreement
briefly defines the nature of the Manager's obligations, with the
intention that reference be made to the Management Plan for more
detailed policies and procedures.
Accordingly, Company and Manager shall comply with all applicable
provisions of the Management Plan, regardless of whether or not
specific reference is made thereto in any particular provision of
this Agreement.
5. MANAGEMENT INPUT DURING LOAN DOCUMENT PROCESSING.
Manager will advise and assist company with respect to management
input in connection with Company's compliance with the Loan
Documents and the Company's Tax Certificate during the term of this
Agreement. Manager's specific tasks will be as follows:
a. Preparation and submission to company of a recommended
operating budget for the initial operating year of the
Project.
b. Preparation and submission to Company of the monthly
statement of income and expenses throughout the term of this
Agreement.
c. Participating in the on-site inspection of the Project, if
required by the Issuer or Trustee, approximately ninety (90)
days prior to initial occupancy of the Project.
d. Obtain and maintain any and all licenses, certificates,
permits and approvals, as more fully described in Section 24
hereof.
e. Continuing review of the Management Plan, for the purpose of
keeping Company advised if necessary or desirable changes.
6. BASIC INFORMATION.
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Company will furnish Manager with a complete set of plans and
specification as finally approved and copies of all guarantees and
warranties pertinent to construction, fixtures, and equipment. With
the aid of this information and inspection by competent personnel,
manager will thoroughly familiarize itself with the character,
location, construction, layout, plan and operation of the Project
and especially of the electrical, heating, plumbing,
air-conditioning and ventilating systems, the elevators, and all
other mechanical equipment, as applicable. Manager shall maintain
direct liaison with Company's Design Architect and Contractor
following completion of construction.
7. ADMISSIONS AGREEMENT.
Manager will offer the Adult Home Units and the Administrator of the
Project will enter into Admission Agreements ("Admission
Agreements") as Company's representative with residents with respect
thereto. Company shall pass a board resolution specifically
authorizing the Administrator to so execute such Admission
Agreements. Incidental to such offerings, the following provisions
will apply:
a. Manager will make preparation for initial occupancy as
described in the Management Plan.
b. Manager will show the Project to prospective residents.
c. Manager will take and process applications for admission. If
an application is rejected, the applicant will be told the
reason for rejection, and the rejected application, with
reason for rejection noted thereon, will be kept on file for
such periods as may be necessary to comply with applicable
federal and New York State law. A current list of prospective
residents will be maintained.
d. Manager will prepare all Admission Agreements and parking
permits, and will execute the same in its name, identified
thereon as agent for Company. The terms of all Admission
Agreements will comply with all federal, state and local laws
and regulations. Admission Agreements will be in a form
approved by the New York State Department of Social Services
and by Company.
e. Company will furnish Manager with fee schedules describing the
basic monthly charges plus other optional service charges.
Company will update such schedules from time to time and
Manager will be responsible for the implementation of such
updates.
8. COLLECTION OF SERVICE FEES AND OTHER RECEIPTS.
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Manager will use its best efforts to collect when due all monthly
service fees, charges and other amounts receivable on Company's
account in connection with the management and operation of the
Project. Such receipts will be deposited (a) so long as the Loan
Documents are in force, in the Revenue Fund and in accordance with
the requirements of the Loan Documents and (b) thereafter, in
accounts insured by the United States Government. (These Accounts
are collectively referred to herein as the "Admission Account").
Manager will be a permitted signatory on the Admission Account.
9. RESIDENT COMPLIANCE. Manager will use its best efforts to secure
full compliance by each resident with the terms of his or her
Admission Agreement. Voluntary compliance will be emphasized and
Manager will counsel residents and make referrals to community
agencies in cases of financial hardship or under other circumstances
deemed appropriate by Manager, to the end that involuntary
termination of residencies may be avoided to the maximum extent
consistent with sound management of the Project and the charitable
purposes of Company. Nevertheless, and subject to the pertinent
procedures prescribed in the Management Plan, Manager may lawfully
terminate any Admission Agreement when, in Manager's judgment and in
compliance with the policies adopted by Company from time to time,
sufficient cause (including, but not limited to, the nonpayment of
the monthly service fee) for such termination occurs under the terms
of such resident's Admissions Agreement. In the event that Manager
determines there is cause for termination of an Admission Agreement,
Manager shall take such steps as prescribed by the New York State
Social Services Law. For these purposes, Manager is authorized to
consult with legal counsel of its choice, to be approved by Company,
to bring actions to terminate admission agreements and judicial
pleading incident to such actions; provided however that Manager
will keep Company informed of such actions and will follow State law
applicable to any such action. Attorney's fees and other necessary
costs incurred in connection with such actions will be paid out of
the Admission Account as operating expenses of the Project.
Manager shall undertake involuntary termination proceedings only
after receipt of Company's express written authorization and
instruction to do so.
Notwithstanding the authority granted to Manager herein, Manager
will comply with Company's reasonable policies of maintaining in
residence any residents who, subsequent to their initial acceptance
into the Project, become unable to pay the regular charges;
provided, however, that all residents must be able to pay the
monthly fees at the time being accepted into the Project and satisfy
reasonable requirements established by Company with respect to their
ability to pay future fees and charges.
Manager will further refrain from adopting any admission, collection
or termination policy that would jeopardize the status of Company
under Section 501
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(c) (3) of the Internal Revenue Code of 1986, and amended, or
violate any provision of New York Social Services Laws.
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APPROVAL CERTIFICATE
This is an Approval Certificate to the Management Agreement dated January 21,
1993, and amended July 11, 1994 by and between National Healthplex Inc.
(Company) and Senior Quarters Management Corp. (Manager).
PARAGRAPH 10(e): The Manager hereby seeks approval from the Company, and the
Company hereby grants its approval and consent, for the Manager to exceed a
$10,000 expenditure for labor and materials in connection of the completion of
the cancelled Lakeville Industries (Sirlin) capital improvement contract. It is
understood that the Company requested and the Manager accepted this undertaking.
PARAGRAPH 19(b): The Manager hereby seeks approval from the Company, and the
Company hereby grants its approval and consent, for the Manager to combine
health insurance and related benefits (including a possible 401k), advertising,
including public relations, and other marketing activities with other facilities
owned or operated by Manager or its Affiliates. The cost of these activities
will be prorated for each facility that participates in each program.
PARAGRAPH 19(b): The Manager hereby seeks approval from the Company, and the
Company hereby grants its approval and consent, for an exception from soliciting
written cost estimates from three suppliers in relation to the previously
referenced approval of paragraph 10(e) in relation only to the Lakeville
Industries contract for the fiscal year 7/94 to 6/95.
All other terms and conditions of the Management Agreement dated January 21,
1993 and amended July 11, 1994 shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Approval Certificate
through their duly authorized representatives as of the 17 day of July, 1995.
COMPANY NATIONAL HEALTHPLEX, INC.
By: /s/ ------------------------------
Larry Morehead, Executive Director
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
By: /s/ ------------------------------
Evan A. Kaplan, President
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the 5th day of May,
1995, by and between Clover Lake Homes, Inc. ("Owner") with offices located at
1799 New York Avenue, Huntington Station, NY 11746, and Senior Quarters
Management Corp., a New York Corporation ("Manager") with offices located at 339
Crossways Park Drive, Woodbury, New York 11797.
Manager is in the business of owning and\or furnishing management services
to independent and assisted living residences for senior citizens. Owner
intends to construct a 120 bed adult home located at Clover Lake in Patterson,
New York, to be known as SENIOR QUARTERS (service mark) ("Facility"). Owner and
Manager desire that Owner retain Manager to manage the Facility and provide
certain services in connection therewith.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows:
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the exclusive
management agent for the Facility, subject to the terms of this Agreement.
Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and until
four (4) months prior to the projected completion date of the Facility (the
first day of the four (4) month period hereinafter referred to as the
"Commencement Date"), Manager agrees to provide assistance to Owner in the
planning of the Facility. Such assistance may include review of architectural
drawings and site plans; arranging for feasibility studies; licensure and
certification planning; support and assistance in filing for Certificate of Need
and other governmental requirements, if any; and financial analysis ("Initial
Services").
(b) GENERAL MANAGEMENT. Beginning on the Commencement Date (to
permit the completion of all start-up work, including pre-opening marketing,
staff recruitment, training, facility setup, and licensing, if any) and
continuing until the expiration or earlier termination of this Agreement,
Manager shall manage and supervise the day-to-day operation of the Facility, in
the name of, on behalf of, and for the account of, Owner.
(c) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager shall provide or cause to be provided the
following specific services in the name of, on behalf of, and for the account
of, Owner.
<PAGE>
(i) FINANCIAL AND ACCOUNTING SERVICES.
Supervise and coordinate the preparation and\or maintenance
(as appropriate) of the following items:
A. A monthly balance sheet and statement of operations for
the Facility, to be submitted to Owner within thirty (30) days after the end of
each calendar month;
B. Resident billing records;
C. Accounts receivable and collection records;
D. Accounts payable records;
E. All payroll functions, including, preparation of
payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes (at Owner's sole expense), filing of payroll reports and
the issuance of W-2 forms to all employees; and
F. A complete general ledger for the purposes of recording
and summarizing all transactions for the Facility.
(ii) PURCHASING. Purchase all items needed for the operation
of the Facility, including without limitation, supplies, equipment and
inventory.
(iii) LICENSURE. Obtain all licenses, permits and approvals by
applicable governmental authorities with respect to the operation of the
Facility, and maintain certification from public third party payment programs,
if any. All such licenses, permits, approvals and certifications shall be in
the name of Owner, or an individual partner of Owner, unless the governing
entities require otherwise. Manager will comply with all applicable provisions
of law and regulations, and will provide all information required by the New
York State Department of Social Services ("DSS") to DSS, and will cooperate with
DSS in carrying out inspection and enforcement activities. Any powers and
duties not delegated to Manager shall remain with Owner, and notwithstanding any
other provisions of this Agreement, Owner will remain responsible for the
operation of the Facility in compliance with applicable laws and regulations.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel and/or
terminate in the name of and on behalf of Owner, such agreements and contracts
which Manager may deem necessary or advisable for the operation of the Facility,
including, without limitation, the furnishing of concessions, supplies,
utilities, extermination, refuse removal and other services customarily provided
to the Facility by independent contractors. Manager shall be entitled to
utilize any affiliated entities to provide these services, provided the rates
and prices therefor are competitive. All contracts are subject to Owner's final
approval.
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(v) SALES & MARKETING - Manager will establish and implement a
sales and marketing plan, oversee the design and placement of advertising, and
hire, train and supervise rental and marketing staff.
(d) LIABILITY OF MANAGER. Manager shall have no liability to
Owner as a result of any decision made with respect to or any actions taken or
not taken in connection with the Manager's discharge of its obligations under
Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith.
(e) EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Manager shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Any communications from Owner
to such persons or entities or authorities shall be directed through Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to each fiscal
year that commences during the term of this Agreement, Manager shall submit to
Owner a proposed budget projecting the revenue to be available and funds to be
required during such fiscal year in order to operate the Facility and make
capital improvements that may be required in order to keep the Facility's
physical plant in good condition and repair. The budget shall be based upon
data and information then available and shall include, without limitation,
estimated salaries and fringe benefits for all employee groups, projected
staffing patterns for the Facility, estimates of required purchases for
supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the budget. Owner shall,
within twenty (20) days following receipt of such annual budget, notify Manager
of either Owner's approval of the annual budget or those items of which Owner
approves and those items of which Owner disapproves. As soon as reasonably
practical thereafter, Owner and Manager shall attempt to establish a mutually
agreeable annual budget for the Facility. In the event Owner does not timely
either approve, or disapprove, in total or in part, of such annual budget, as
provided herein, then such annual budget as proposed by Manager shall be deemed
approved by Owner, and Manager shall be authorized to implement such program.
Each budget, as approved (and as revised from time to time during a fiscal year
with Owner's approval, as set forth in Section 3(b) hereof), is referred to
herein as the "Annual Budget." The projected budget submitted by Manager to
Owner shall be an estimate of revenue and costs, and Owner acknowledges that (i)
projected revenue may not be actually received and (ii) projected costs may be
exceeded by actual expenses and capital expenditures incurred in connection with
the operation and maintenance of the Facility. By submitting such a projected
budget, Manager will not be providing a guarantee or warranty as to the
projected revenue, expenses, or capital expenditures of the Facility.
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(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Subject to the foregoing, Owner shall be responsible on a periodic
basis, as and when needed, for all expenses and capital expenditures incurred in
connection with the operation and maintenance of the Facility, including,
without limitation, cost overruns which exceed the projections in the Annual
Budget, but not to exceed ten (10%) percent of the Annual Budget, unless
otherwise agreed.
(c) BANK ACCOUNTS AND WORKING CAPITAL. Manager shall establish in
a local bank an account or accounts for the operation of the Facility
("Operating Accounts"), in Owner's name and on behalf of Owner, and shall
thereafter deposit therein all funds received by Manager on Owner's behalf from
the operation of the Facility. Owner shall provide sufficient working capital
for the operation of the Facility (including, without limitation, the payment of
Manager's Management Fee under Section 6 hereof) and shall deposit such working
capital in the Operating Accounts from time to time upon the request of Manager.
All expenses incurred in connection with the operation of the Facility
(including, without limitation, Manager's Management Fee) shall be paid out of
the Operating Accounts. Manager may write checks and draw on the Operating
Accounts to pay for operation of the Facility to the extent required by Manager
in the discharge of its obligations hereunder. Owner shall also provide
sufficient funding to make the capital improvements projected in the Annual
Budget. Manager shall have no obligation to (i) provide or contribute working
capital required for the operation of the Facility, or (ii) fund capital
expenditures required to maintain the Facility in good condition and repair.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing basis,
provide the Facility with a qualified Administrator ("Facility Administrator").
The Facility Administrator shall be an employee of and compensated by Owner.
Manager shall be entitled to utilize the Facility Administrator, along with
employees and agents of Manager, in the discharge of Manager's obligations.
(b) OWNER'S EMPLOYEES. All employees working at or in connection
with the operation of the Facility shall be employees of Owner. All salary,
fringe benefits, bonuses and related expenses payable to such employees shall be
borne solely by Owner.
(c) MANAGER'S AUTHORITY. Manager shall elect, appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager choose or shall deem necessary for the proper operation of the Facility.
Manager's selection and appointment of the Administrator and such other
personnel and the terms of their employment, including compensation, shall be
final but are subject to final review by Owner; however, Owner retains the
authority to discharge any person working in the Facility.
5. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the fifth (5th) anniversary of the Commencement Date,
with automatic renewal periods of five (5) years each thereafter, unless either
party notifies the other in writing within one-
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hundred twenty (120) days of the expiration of the then current term, of its
decision not to automatically exercise the upcoming renewal option period.
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. Owner shall pay Manager a
management fee ("Management Fee"), commencing on the Commencement Date, equal to
the sum of five (5%) percent of total gross revenues, payable on the fifteenth
(15th) day of each month for the previous month's total gross revenues. During
the initial four (4) month start-up phase beginning with the Commencement Date,
and until the calculated Management Fee of five (5%) percent of gross revenues
exceeds $12,500 per month, a minimum monthly Management Fee of $12,500 ("Minimum
Fee") will be payable on the Commencement Date, and thereafter on the fifteenth
(15th) day of each month.
(b) INCENTIVE FEE. In addition to the above-mentioned
compensation, Manager shall also earn and will be paid an incentive fee
("Incentive Fee") equal to five (5%) percent of the "Net Operating Income" which
is defined as income before interest and income taxes produced by operations in
the Facility, exclusive of real estate taxes. Said Incentive Fee will be paid
on a semiannual basis fifteen (15) days after the beginning of month one and
fifteen (15) days after the beginning of month seven of each calendar year.
(c) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by Owner or
recommended by Manager and approved by Owner are not included as part of the
Management Fee due to Manager hereunder and shall be subject to Manager being
entitled to additional compensation to be agreed upon between Manager and Owner.
7. LEGAL ACTIONS.
(a) Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility all at Owner's expense.
(b) Manager is authorized to settle, on the Owner's behalf and in
Owner's name, on terms and conditions as Manager shall deem in the best interest
of the Facility, any and all claims or demands arising out of the operation of
the Facility, irrespective of whether or not legal action has been instituted,
provided such settlement does not exceed Ten Thousand ($10,000) Dollars for each
such claim or demand. Owner agrees that such sums shall be paid as an operating
expense of the Facility. Manager will consult Owner on all settlements and
legal actions.
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8. INFORMATION; COOPERATION. Owner shall provide Manager with any
information required by Manager for the performance of its obligations under
this Agreement, and Owner shall permit Manager to examine and copy any data in
the possession or control of Owner affecting the operation of the Facility,
including, without limitation, accounting and financial information. Owner
shall fully cooperate with Manager to permit Manager to discharge its
obligations hereunder. All such information in the possession or control of
Manager shall be provided to Owner upon request.
9. INSURANCE. Manager is authorized to secure, on the Owner's behalf
and in the Owner's name, on such terms and conditions as Manager shall deem in
the best interests of the Facility, insurance coverage in amounts sufficient to
protect the Facility, Manager, and Owner against claims of third parties,
property damage and such other risks as are prudent. The cost of insurance
shall be charged as an operating expense of the Facility. Manager shall be a
named insured under all policies of insurance affecting the Facility. Any
insurance coverage acquired for the Facility is subject to Owner's final
approval.
10. REPRESENTATIONS AND WARRANTIES. Owner makes the following
representations and warranties, which are material, and upon which Manager has
relied as an inducement to enter into this Agreement.
(a) STATUS OF OWNER. Owner is a for-profit corporation daily
organized, validly existing and in good standing under the laws of the State of
New York; and is qualified to do business in the State of New York; and has all
necessary power to carry on its business as now being or in the future will be
conducted.
(b) AUTHORITY AND DUE EXECUTION. Owner has full power and
authority to execute and deliver this Agreement and all related documents and to
carry out the transactions contemplated hereby, which actions will not with the
passing of time, the giving of notice or both, result in the default under or
breach or violation of (a) the Owner's Certificate of Incorporation, other
Charter or incorporation documents, and/or its By-Laws, is intended to date, (b)
any law, regulation, court order, injunction or decree of any court,
administrative agency or governmental body, or (c) any mortgage, note, bond,
indenture, agreement, lease, license, permit or other instrument or obligation
to which Owner, or the Facility, is now a party or by which Owner, or the
Facility, or any of its assets may be bound or affected. This Agreement
constitutes the valid and binding obligation of Owner enforceable in accordance
with its terms.
(c) LITIGATION. There is no litigation, claim, investigation,
Challenge or other proceeding pending or, to the knowledge of Owner threatened
against Owner, or the Facility, which seeks to enjoin or prohibit Owner from
entering into this Agreement, or which in any way will adversely affect the
Facility.
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(d) QUIET ENJOYMENT. Owner covenants that Manager shall quietly
hold, occupy and enjoy the Facility throughout the term of this Agreement free
from hindrance, ejection, termination, or molestation by Owner or any person or
entity claiming under, through or by right of Owner. Owner agrees to pay and
discharge any payments and charges at its expense, and to prosecute all
appropriate actions, judicial or otherwise, that may be required to assure such
free and quiet occupation. All mortgages, security instruments, or other
instruments or encumbrances on the Facility executed after this Agreement's
execution shall provide that this Agreement and Manager's rights hereunder shall
not be terminated or adversely affected in case of a foreclosure or the taking
of a deed in lieu of foreclosure, of any such instrument. Such instrument shall
also provide that no foreclosure or similar action shall be brought by the
mortgagee and/or holder of any promissory notes which such instrument secures in
case of breach thereof, until Manager has received thirty (30) days' prior
written notice from the holder of such instrument of its intention to foreclose,
giving Manager the right to correct any default within said thirty (30) day
period.
11. OWNER'S RESTRICTIVE COVENANTS. Owner covenants and agrees that it
will not, during the term of this Agreement and for a period of two (2) years
thereafter, without the prior written consent of Manager, hire or otherwise
engage or permit any of its affiliates to hire or otherwise engage any person
who is an employee of Manager or any affiliates of Manager at any time during
the term of this Agreement or the two year period thereafter, or any person who
was an employee of Manager or any affiliate of Manager during the six (6) months
preceding the Commencement Date, or induce or attempt to induce any such person
to terminate employment with Manager or any such affiliate. For purposes of
this Agreement, the term "affiliate", when used with reference to a specified
part), shall mean any person or entity which such party, directly or indirectly,
through one or more intermediaries, controls, is under control with, or is
controlled by.
12. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) Defaults. Each of the following shall constitute an Event of
Default hereunder:
(i) If Owner shall fail to pay any installment of the Minimum
Fee, Management Fee or Incentive Fee for a period of seven (7) days after notice
of such default from Manager;
(ii) If either Manager or Owner fails to perform any material
term, provision, or covenant of this Agreement (other than as set forth in
Section 12(a)(i) above), and such failure continues for a period of thirty (30)
days after written notice from the other party specifying such failure to
perform;
(iii) If Manager is dissolved or liquidated, 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, makes
a general assignment for the benefit of creditors, or files
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a petition or an answer seeking reorganization or arrangement with creditors or
to take advantage of any insolvency law, or if an order, judgment or decree
shall be entered by any court of competent jurisdiction, on the application of a
creditor, adjudicating Manager bankrupt or insolvent or approving a petition
seeking reorganization of such party or appointing a receiver, trustee or
liquidator for such party of all or a substantial part of its assets, and such
order, judgment or decree shall continue unstayed and in effect for any period
of ninety (90) consecutive days.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may, at
its option, terminate this Agreement, and\or exercise all other rights and
remedies available to such party at law or in equity. In the event of any
termination of this Agreement, Manager shall be paid all Minimum Fees,
Management Fees or Incentive Fees and other fees due to the date of termination,
plus any other damages to which Manager is entitled. No delay or failure on the
part of either party hereunder to declare the other party in default or exercise
any remedies in respect of such default shall operate as a waiver of such right
to declare a default and exercise such remedies. If either party is forced to
engage counsel to enforce any of the default provisions of this Agreement, the
prevailing party shall also be entitled to reasonable attorneys' fees and all
costs attendant to such action.
(c) LIQUIDATED DAMAGES. If this Agreement terminates by action or
default on the part of the Owner, Owner shall pay Manager, in addition to any
Minimum Fee, Management Fee or Incentive Fee due Manager, within thirty (30)
days following the date of such event, as "Liquidated Damages", because actual
damages incurred by Manager will be difficult or impossible to ascertain, and
not as a penalty, an amount equal to the sum of accrued Management Fees during
the immediately preceding twenty-four (24) full calendar months (or such shorter
period as equals the unexpired term of this Agreement or current option period,
at the date of termination); provided, however, if the Facility has not been
open for 24 months, then the average monthly Management Fee or Minimum Fee,
whichever is larger, since the Commencement Date multiplied by twenty-four (24),
plus any applicable Taxes assessed on such payment. Payment of Liquidated
Damages shall be in addition to Manager's other rights under this Agreement.
13. FACILITY'S NAME. Manager shall have the absolute right and
authority to name and rename the Facility and to use such name(s) in any
advertising or promotion for the Facility. If Manager chooses to use a name for
this Facility similar to one that it uses for any other facility which it owns
and\or manages, whether or not such name is registered with any federal or state
agency, then Manager hereby grants to Owner and Owner accepts, a non-exclusive
right to use Manager's chosen name at this Facility only. Upon the termination
of this Agreement for any reason whatsoever, Owner shall immediately cease all
use of Manager's chosen name for the Facility, including any items which carry
said name, such as menus, supplies, signage, stationery, etc. Owner shall
immediately direct all telephone companies and their Yellow Pages advertising
affiliates which identify Owner's Facility under Manager's chosen name, to
cease, effective with their next published edition, all references to the
Facility as such under Manager's
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chosen name and, at the request of Manager, shall provide Manager with written
confirmation from such third parties of receipt of such direction. Any
post-termination usage by Owner of Manager's chosen name shall be a willful
infringement of Manager's trademark and other rights.
14. RIGHT OF FIRST REFUSAL. Upon Owner's initiation of, solicitation
of or receipt of any bona fide "Third Party Offer" to consummate a sale or lease
transaction regarding this Facility, Owner shall advise Manager in writing
(including the terms and conditions of such Third Party Offer) within ten (10)
days of Owner's receipt of such Third Party offer. Manager (or any affiliate)
shall have the right and option, exercisable by sending written notice of such
exercise by the thirtieth (30th) business day following receipt of such notice,
to purchase the Facility (or leasehold, if applicable) on the same terms and
conditions as set forth in such notice provided that Manager shall not be
responsible for payment of any finder's or brokerage fees, or for any non-cash
or non-purchase price terms of such Third Party offer. Any change in such terms
or such purchaser, or any failure to complete such sale within six (6) months
after the date Owner gives such notice to Manager, shall be treated as a new
offer, entitling Manager to new first refusal rights.
15. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's approval, shall
combine any advertising, public relations, or other activities with similar
activities at other facilities owned or operated by Manager or its Affiliates,
the cost of such activities shall be shared proportionately by Owner and Manager
or its Affiliates, as the case may be. Manager shall exclusively handle all
public relations matters for the Facility either through available in-house
support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this Agreement
shall constitute or be construed to be or create a partnership, joint venture or
lease between Owner and Manager with respect to the Facility, it being
understood that Manager's status shall be that of an independent contractor.
(c) COSTS AND EXPENSES OF FACILITY; INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the operation
of the Facility, shall be the sole responsibility of Owner. Manager, by reason
of the execution of this Agreement and the performance of its services
hereunder, shall not be liable for or deemed to have assumed any liability for
such fees, costs and expenses, or any other liability or debt of Owner
whatsoever, arising out of or relating to the Facility or incurred in its
operation. Owner agrees to indemnify, defend, pay on behalf of, and hold
Manager and its officers, directors, agents and employees harmless from and
against all losses, claims, damages and other liabilities arising out of or
relating to the ownership or operation of the Facility (except those resulting
from the willful misconduct or gross negligence of Manager), including, without
limitation, any liabilities asserted against Manager or any of its officers,
directors, employees or agents by reason of any action or inaction taken by any
of the foregoing while performing the duties of Manager hereunder on behalf of
Owner. Manager agrees to indemnify, defend, pay on behalf of, and
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hold Owner and its officers, directors, agents and employees harmless from and
against all losses, claims, damages and other liabilities arising out of the
gross negligence or willful misconduct of Manager. The terms of this Section
15(c) shall survive the expiration or earlier termination of this Agreement.
(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are Owner's
property.
(e) COOPERATION UPON TERMINATION. Upon the expiration or earlier
termination of this Agreement, Manager shall cooperate with Owner in effecting
an orderly transition to any new manager of the Facility in order to avoid any
interruption in the rendering of services to Owner and, in connection therewith,
shall surrender to Owner all contracts, documents, books, records, forms and
reports in the possession of Manager regarding the operation of the Facility.
(f) FORCE MAJEURE. Manager's obligations under this Agreement are
subject to strikes, labor disturbances, casualty, arbitrary and capricious
action by third parties, Owner's compliance with and observance of the terms of
this Agreement (including, without limitation, Owner's obligation to provide
Management Fees and sufficient working capital for the operation of the Facility
and funding for the capital improvements projected in the Annual Budget),
changes in laws, statutes, ordinances, regulations or orders of governmental
authorities or tribunals, war or other state of national emergency, terrorism,
acts of God and other factors beyond the control of Manager collectively ("Force
Majeure"). Manager shall not be responsible or liable in any way for its
inability to discharge any of its obligations hereunder due to Force Majeure.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
the parties hereto and their respective successors and assigns. Manager may not
assign this Agreement to any affiliated entity without Owner's consent. The
Owner's consent shall not be unreasonably withheld.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the beginning
of this Agreement.
All notices shall be deemed to be effective (i) upon receipt, if hand delivered,
(ii) three (3) days after mailing, if mailed by certified mail, or (iii) the
next business day after sending, if sent by overnight courier service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this
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Agreement shall be of no force or effect unless in writing and signed by both
Owner and Manager.
(j) GOVERNING LAW. This Agreement has been executed and delivered
in the State of New York, and all the terms and provisions hereof and the rights
and obligations of the parties hereto shall be construed and enforced in
accordance with the laws thereof, and the Courts sitting in Suffolk or Nassau
Counties therein.
(k) TIME OF THE ESSENCE. Time is of the essence throughout this
entire Agreement.
(l) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
(n) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed or construed as a further and continuing waiver of any such
term, provision or condition of this Agreement.
(o) All permanent interior and exterior decorations are subject to
the final approval of Owner.
(p) If Annual Budget cost and capital expenditures exceed
projections for two consecutive years, then no incentive fee shall be
forthcoming in the second year. If the Annual
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Budget cost and capital expenditures exceed projections on an average of seven
percent (7%) for four years, then no incentive fee shall be received in the
fourth year.
IN WITNESS WHEREOF, the parties hereto have executed this
Management Agreement through their duly authorized representatives as of the day
and year first above written.
OWNER: CLOVER LAKE HOMES, INC.
BY:
------------------------------
MICHAEL WALLACE, President
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY:
------------------------------
EVAN A. KAPLAN, President
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the 8th day of June,
1995, by and between Senior Quarters at Forsgate, L.L.C. (the "Company") with
offices located at Jamesburg, New Jersey, and Senior Quarters Management Corp.,
a New York Corporation ("Manager") with offices located at 339 Crossways Park
Drive, Woodbury, New York.
Manager is in the business of owning and\or furnishing management services
to independent and assisted living residences for senior citizens. The Company
intends to construct a 125 unit assisted living residence located in Jamesburg,
New Jersey, to be known as "Senior Quarters at Forsgate" ("Facility"). The
Company and Manager desire that the Company retain Manager to manage the
Facility and provide certain services in connection therewith.
The New Jersey Economic Development Authority (the "Authority") has issued
its $13,630,000 aggregate principal amount of Elder Care Facility Revenue Bonds
(Senior Quarters at Forsgate, L.L.C., Project), Series of 1995 (the "Bonds")
pursuant to a Trust Indenture (the "Indenture") between the Authority and First
Fidelity Bank, National Association, as trustee (the "Trustee"), and has loaned
the proceeds of the Bonds to the Company to finance the construction and
equipping of the Facility pursuant to the Loan Agreement dated as of June 1,
1995 (the "Loan Agreement"), between the Authority and the Company. The
Company's obligations under the Loan Agreement are evidenced by the Promissory
Note dated June 1, 1995 (the "Note") from the Company to the Authority and
secured by the Mortgage and Security Agreement dated as of June 1, 1995 (the
"Mortgage"), from the Company to the Authority granting a mortgage lien on the
Facility and a security interest in the Gross Revenues of the Company (as
defined in the Mortgage). The Authority has assigned its rights under the Loan
Agreements, the Note and the Mortgage to the Trustee. The Indenture, Loan
Agreement, Note and Mortgage are hereinafter referred to collectively as the
"Bond Documents." The Company and the Manager acknowledge that the Bond
Documents require that the Company's payment obligations under this Agreement
must be subordinated to certain payment obligations under the Bond Documents
(including without limitation operating expenses of the Facility (not including
Management Fees payable under this Agreement), debt service on the Bonds, and
deposits into the Debt Service Reserve Fund and Capital and Maintenance Fund
established under the Indenture).
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, the
Company and Manager agree as follows:
1. APPOINTMENT OF MANAGER. The Company appoints Manager as the
exclusive management agent for the Facility, subject to the terms of this
Agreement. Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and until
four (4) months prior to the projected completion date of Phase I of the
Facility (the first day of the four (4) month period hereinafter referred to as
the "Commencement Date"), Manager agrees to provide assistance to the Company in
the planning of the Facility. Such assistance may include review of
architectural drawings and site plans; arranging for feasibility studies;
licensure and certification planning; support and assistance
<PAGE>
in filing for Certificate of Need and other governmental requirements, if any;
and financial analysis ("Initial Services").
(b) GENERAL MANAGEMENT. Beginning on the Commencement Date (to
permit the completion of all start-up work, including pre-opening marketing,
staff recruitment, training, facility set-up, and licensing, if any) and
continuing until the expiration or earlier termination of this Agreement,
Manager shall manage and supervise the day-to-day operation of the Facility, in
the name of, on behalf of, and for the account of, the Company.
(c) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager, in accordance with the Operating Budget,
shall provide or cause to be provided the following specific services in the
name of, on behalf of, and for the account of, the Company.
(i) FINANCIAL AND ACCOUNTING SERVICES.
Supervise and coordinate the preparation and\or
maintenance (as appropriate) of the following items:
A. A monthly balance sheet and statement of
operations for the Facility, to be submitted to the Company within thirty (30)
days after the end of each calendar month;
B. Resident billing records;
C. Accounts receivable and collection records;
D. Accounts payable records;
E. All payroll functions, including, preparation of
payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes (at the Company's sole expense), filing of payroll reports
and the issuance of W-2 forms to all employees; and
F. A complete general ledger for the purposes of
recording and summarizing all transactions for the Facility.
G. Copies of all reports submitted to
bondholders/lenders providing financing for the Company shall be sent to the
Company.
H. Manager must be responsible for preparation and
delivery of all reports required to be delivered to the Trustee and/or the
Bondholders under the Bond Documents, at the time and in the manner required
thereunder.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory.
(iii) LICENSURE. Obtain and maintain all licenses, permits
and approvals by applicable governmental authorities with respect to the
operation of the Facility, and maintain certification
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from public third party payment programs, if any. All such licenses, permits,
approvals and certifications shall be in the name of the Company, or an
individual partner of the Company, unless the governing entities require
otherwise.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel
and/or terminate in the name of and on behalf of the Company, such agreements
and contracts which Manager may deem necessary or advisable for the operation of
the Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services
customarily provided to the Facility by independent contractors. In addition,
notice will be given to the Owners of the Bonds if the Company enters into a
transaction with any affiliate of Manager, and such transactions will in all
instances be consistent with similar transactions by independent parties of
equal bargaining power in an arms-length transaction.
(v) SALES & MARKETING - Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff.
(d) LIABILITY OF MANAGER. Manager shall have no liability to
the Company as a result of any decision made with respect to or any actions
taken or not taken in connection with the Manager's discharge of its obligations
under Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith.
(e) EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Manager shall be the exclusive representative of the Company for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Any communications from the
Company to such persons or entities or authorities shall be directed through
Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to each
fiscal year that commences during the term of this Agreement, Manager shall
submit to the Company a proposed budget projecting the revenue to be available
and funds to be required during such fiscal year in order to operate the
Facility and make capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The budget shall be
based upon data and information then available and shall include, without
limitation, estimated salaries and fringe benefits for all employee groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the budget. The Company
shall, within twenty (20) days following receipt of such annual budget, notify
Manager of either the Company's approval of the annual budget or those items of
which the Company approves and those items of which the Company disapproves. As
soon as reasonably practical thereafter, the Company and Manager shall attempt
to establish a mutually agreeable annual budget for the Facility. In the event
the Company does not timely either approve, or disapprove, in total or in part,
of such annual budget, as provided herein, then until the Company and Manager
approve of said new annual budget, each line item of both revenues and expenses
of the most current approved annual budget shall be increased, commencing on the
first day of
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the new fiscal year, in accordance with the percentage increase, if any, in the
Consumer Price Index for the New York City - Northern New Jersey - Long Island,
New York - New Jersey - Connecticut area (All Urban Consumers, All Items)
(1982-1984=100) (the "Index") as published by the United States Department of
Labor, Bureau of Labor Statistics (the "Bureau"). The Index for January 1 of
the then current year during the term of this Agreement in which the annual
budget shall be increased shall be compared with the Index for January 1 of the
last year in which the annual budget was increased (or, in the event of the
first increase, the first year of the term of this Agreement) and the annual
budget then in effect shall be increased, in accordance with the percentage
increase, if any, between such Indexes. In no event shall the annual budget as
adjusted be less than the annual budget in effect immediately prior to the
adjustment. Should the Bureau discontinue the publication of the Index, or
publish the same less frequently, or alter the same in some other manner, the
Company shall adopt a reasonable substitute index or procedure that reasonably
reflects and monitors consumer prices as then customarily used in the Middlesex
County area. Each budget, as approved (and as revised from time to time during
a fiscal year with the Company's approval, as set forth in Section 3(b) hereof),
is referred to herein as the "Annual Budget." The projected budget submitted by
Manager to the Company shall be an estimate of revenue and costs, and the
Company acknowledges that (i) projected revenue may not be actually received and
(ii) projected costs may be exceeded by actual expenses and capital expenditures
incurred in connection with the operation and maintenance of the Facility. By
submitting such a projected budget, Manager will not be providing a guarantee or
warranty as to the projected revenue, expenses, or capital expenditures of the
Facility. Anything in this Section 3 to the contrary notwithstanding, as long
as any Bonds remain outstanding, the annual budget shall comply with the
requirements of Section 5.21 of the Loan Agreement.
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Subject to the foregoing, the Company shall be responsible on a
periodic basis, as and when needed, for all expenses and capital expenditures
incurred in connection with the operation and maintenance of the Facility,
including, without limitation, cost overruns which exceed the projections in the
Annual Budget.
(c) BANK ACCOUNTS AND WORKING CAPITAL. The Manager, in the
Facility's name and on behalf of the Company, shall transfer daily all Gross
Revenues (as defined in the Bond Documents) of the Facility (but excluding an
amount not to exceed $20,000 in the aggregate which the Manager may retain at
any one time in the Operating Accounts described below and excluding any amounts
transferred by the Trustee to the Manager pursuant to Section 7.17(a)(2) of the
Trust Indenture) to the Trustee for deposit in the Revenue Fund established
under the Indenture. Manager shall establish in a local bank an account or
accounts for the operation of the Facility ("Operating Accounts"), in the
Company's name and on behalf of the Company, and shall thereafter deposit
therein all funds received by Manager on the Company's behalf with respect to
the Facility. Subject to the provisions of the Indenture, the Company shall
provide sufficient working capital for the operation of the Facility (including,
without limitation, the payment of Manager's Management Fee under Section 6
hereof) and shall deposit such working capital in the Operating Accounts from
time to time upon the request of Manager, subject to the provisions of the Bond
Documents. All expenses incurred in connection with the operation of the
Facility shall be paid out of the Operating Accounts; provided, however, that as
long as any Bonds remain outstanding, the Manager's Management Fees shall only
be paid directly by the Trustee out of the Revenue Fund established under the
Indenture and as otherwise provided in the Bond Documents. Manager may write
checks and draw on the Operating Accounts to pay for operation of the Facility
to
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the extent required by Manager in the discharge of its obligations hereunder and
subject to the limitations set forth herein, the Company shall also provide
sufficient funding to make the capital improvements projected in the Annual
Budget, subject to the provisions of the Bond Documents. Manager shall have no
obligation to (1) provide or contribute working capital required for the
operation of the Facility, or (ii) fund capital expenditures required to
maintain the Facility in good condition and repair. Manager shall maintain
appropriate fidelity levels with respect to personnel authorized to make
withdrawals from accounts.
4. PERSONNEL.
(a) MANAGER'S EMPLOYEES. All employees working at or in
connection with the operation of the Facility shall be employees of the Manager.
All salary, fringe benefits, bonuses and related expenses payable to such
employees shall be borne solely by the Manager; however, said salaries, fringe
benefits, bonuses and related expenses shall be reimbursed to Manager by the
Company from the Operating Accounts.
(b) MANAGER'S AUTHORITY. Manager shall elect, appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager may choose or shall deem necessary for the proper operation of the
Facility. Manager's selection and appointment of the Administrator and such
other personnel and the terms of their employment, including compensation, shall
be final and not subject to review.
5. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the tenth (10th) anniversary of the Commencement
Date, with automatic renewal periods of five (5) years each thereafter, unless
either party notifies the other in writing within one hundred twenty (120) days
of the expiration of the then current term, of its decision not to automatically
exercise the upcoming renewal option period. Notwithstanding anything to the
contrary in the foregoing, this Management Agreement shall not be (i) terminated
or amended without first obtaining the prior written consent of a Majority of
Owners (as defined in the Bond Documents); or (ii) renewed (automatically or
otherwise) without first obtaining the prior written consent of a Majority of
Owners, for so long as an Event of Default shall have occurred and be continuing
under the Bond Documents.
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. The Company shall pay Manager a
management fee ("Management Fee"), commencing on the Commencement Date, equal to
the sum of five (5%) percent of total Gross Revenues, payable monthly, subject
to the following provisions: (a) During the initial four (4) month start-up
phase beginning on the Commencement Date and ending on the completion of
construction of Phase I of the proposed Facility, the minimum monthly Management
Fee of $12,500 ("Minimum Fee") will be payable to Manager on the first day of
each month; (b) from the month of completion of construction of Phase I of the
proposed Facility through September 1997, the monthly Management Fee shall
consist of (i) a base fee (the "Base Fee") equal to the greater of $8,000 per
month or 5 percent of the total Gross Revenues of the proposed Facility for such
month, which Base Fee shall be paid currently, and (ii) an additional fee (the
"Additional Fee") for such month equal to $12,500 minus the Base Fee for such
month, which Additional Fee shall accrue and be paid annually if sufficient
funds are available in the
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Operating Reserve Fund, pursuant to Section 7.17(a) of the Indenture; and (c)
after September 1997, a monthly Management Fee equal to 5 percent of the total
Gross Revenues of the proposed Facility for the month, which monthly fee shall
be paid currently. If any portion of the Management Fees are not paid when due
because of the unavailability of funds under the Indenture, said Management Fees
will not accrue interest, and Manager's remedy will be to terminate this
Agreement as provided in Section 12. As used in this Section 6, the term "Gross
Revenues" shall mean all revenue, whether in cash or credit, collected or
uncollected, from sources derived from the operation of the Facility, including,
without limitation, the aggregate of all rentals, sales and charges for services
rendered, ordered at, from or through the Facility, or performed in, upon or
about the Facility and all of its departments, including the gross consideration
or compensation received or receivable for services rendered to residents of the
Facility in the conduct of business on the premises, whether similar or
dissimilar to those hereinabove enumerated.
(b) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by the Company or
recommended by Manager and approved by the Company are not included as part of
the Management Fee due to Manager hereunder and shall be subject to Manager
being entitled to additional compensation to be agreed upon between Manager and
the Company.
(c) SUBORDINATION. Anything herein to the contrary
notwithstanding, the Manager and the Owner agree that, as long as any Bonds
remain outstanding, any Management Fees payable hereunder to the Manager shall
be paid only as provided in Sections 6.4(d) and 7.17 of the Trust Indenture
(which requires among other things the prior payment each month of operating
expenses (other than Management Fees), debt service on the Bonds, and deposits
into certain funds held by the Trustee under the Indenture).
7. LEGAL ACTIONS.
(a) Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility, all at the Company's expense.
(b) Manager is authorized to settle, on the Company's behalf and
in the Company's name, on terms and conditions as Manager shall deem in the best
interest of the Facility, any and all claims or demands arising out of the
operation of the Facility, irrespective of whether or not legal action has been
instituted, provided such settlement does not exceed Ten Thousand ($10,000)
Dollars for each such claim or demand. The Company agrees that such sums shall
be paid as an operating expense of the Facility.
8. INFORMATION; COOPERATION. The Company shall provide Manager with
any information reasonably required by Manager for the performance of its
obligations under this Agreement, and the Company shall permit Manager to
examine and copy any data in the possession or control of the Company affecting
the operation of the Facility, including, without limitation, accounting and
financial information. The Company shall fully cooperate with Manager to permit
Manager to discharge its obligations hereunder.
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9. INSURANCE. Manager is authorized to secure, on the Company's
behalf and in the Company's name, on such terms and conditions as Manager shall
deem in the best interests of the Facility, insurance coverage in amounts
sufficient to protect the Facility, Manager, and the Company against claims of
third parties, property damage and such other risks as are prudent; provided,
however, as long as any Bonds remain outstanding, such insurance shall comply
with the provisions of the Bond Documents. The cost of insurance shall be
charged as an operating expense of the Facility. Manager shall be a named
insured under all policies of insurance affecting the Facility.
10. REPRESENTATIONS AND WARRANTIES. The Company makes the following
representations and warranties, which are material, and upon which Manager has
relied as an inducement to enter into this Agreement.
(a) STATUS OF THE COMPANY. The Company is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of New Jersey; and is qualified to do business and is in good standing
in the State of New Jersey; and has all necessary power to carry on its business
as now being or in the future will be conducted.
(b) AUTHORITY AND DUE EXECUTION. The Company has full power and
authority to execute and deliver this Agreement and all related documents and to
carry out the transactions contemplated hereby, which actions will not with the
passing of time, the giving of notice or both, result in the default under or
breach or violation of (A) the Company's Limited Liability Company Agreement as
amended to date, (B) any law, regulation, court order, injunction or decree of
any court, administrative agency or governmental body, or (C) any mortgage,
note, bond, indenture, agreement, lease, license, permit or other instrument or
obligation to which the Company, or the Facility, is now a party or by which the
Company, or the Facility, or any of its assets may be bound or affected. This
Agreement constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms.
(c) LITIGATION. There is no litigation, claim, investigation,
challenge or other proceeding pending or, to the knowledge of the Company
threatened against the Company, or the Facility, which seeks to enjoin or
prohibit the Company from entering into this Agreement, or which in any way will
adversely affect the Facility.
11. INTENTIONALLY DELETED.
12. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
(i) If the Company shall fail to pay any installment of the
Management Fee for a period of fifteen (15) days after notice of such default
from Manager;
(ii) If either Manager or the Company fails to perform any
material term, provision, or covenant of this Agreement (other than as set forth
in Section 12(a)(i) above), and such failure continues for a period of thirty
(30) days after written notice from the other party specifying such failure to
perform;
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(iii) If Manager is dissolved or liquidated, 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, makes
a general assignment for the benefit of creditors, or files a petition or an
answer seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating Manager bankrupt or insolvent or approving a petition seeking
reorganization of such party or appointing a receiver, trustee or liquidator for
such party of all or a substantial part of its assets, and such order, judgment
or decree shall continue unstayed and in effect for any period of ninety (90)
consecutive days.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may,
subject to Section 5.23 of the Loan Agreement, at its option, terminate this
Agreement, and\or exercise all other rights and remedies available to such party
at law or in equity. In the event of any termination of this Agreement based
upon a breach of the Company, or for any other reason except a breach by Manager
due to bad faith, willful malfeasance or gross negligence, Manager shall be paid
all Management Fees and other fees due to the date of termination, plus any
other damages to which Manager is entitled subject to Section 7.17 of the
Indenture. No delay or failure on the part of either party hereunder to declare
the other party in default or exercise any remedies in respect of such default
shall operate as a waiver of such right to declare a default and exercise such
remedies. If either party is forced to engage counsel to enforce any of the
default provisions of this Agreement, the prevailing party shall also be
entitled to reasonable attorneys fees and all costs attendant to such action.
(c) LIQUIDATED DAMAGES. If this Agreement terminates by default
on the part of the Company, which does not include a termination of the
Management Agreement by the Company pursuant to the following paragraph, the
Company shall pay Manager within thirty (30) days following the date of such
event, as "Liquidated Damages", because actual damages incurred by Manager will
be difficult or impossible to ascertain, and not as a penalty, an amount equal
to the sum of accrued Management Fees during the immediately preceding
twenty-four (24) full calendar months (or such shorter period as equals the
unexpired term of this Agreement or current option period, at the date of
termination); provided, however, if the Facility has not been open for 24
months, then the average monthly Management Fee or Minimum Fee, whichever is
larger, since the Commencement Date multiplied by twenty-four (24), plus any
applicable Taxes assessed on such payment. Notwithstanding the foregoing, in no
event shall the amount payable pursuant to this Section be less than the product
of $1,500.00 multiplied by the number of resident units the Facility is licensed
for or has applied to be licensed for, provided, however, if the current term
will expire in less than twenty-four (24) months, then such amount shall be
reduced by multiplying it by a fraction, the numerator of which is the number of
months remaining in the current term and the denominator of which is twenty-four
(24). If the Management Agreement terminates prior to the Commencement Date,
the Company shall pay Manager within thirty (30) days following the date of
termination, Liquidated Damages in an amount equal to the product of $500.00
multiplied by the number of units the Facility will be licensed for, plus any
applicable taxes. Payment of Liquidated Damages shall be in addition to
Manager's other rights under this Agreement. Anything in this Agreement to the
contrary notwithstanding, as long as any of the Bonds remain Outstanding (as
defined in the Bond Documents), the company shall be required to pay any
Liquidated Damages only from the moneys paid over to the Company by the Trustee
from the Operating Reserve Fund pursuant to Section 7.17(a)(9)(C) of the Trust
Indenture.
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(d) Anything in this Agreement to the contrary notwithstanding,
the Company may terminate this Agreement, and this Agreement shall be terminated
if requested in writing by a Majority of Owners (as defined in the Trust
Indenture), without penalty (including the payment of Liquidated Damages
pursuant to Section 12(c) hereof) if (a) the Company fails to achieve the
Liquidity Covenant, the Debt Service Coverage Ratio, Occupancy Covenant, or the
Trades Payable Covenant (as defined in the Loan Agreement) for any two
consecutive Quarterly Evaluation Dates (as defined in the Bond Documents) or,
the Debt Service Coverage Ratio, the Ratio Requirements based on Actual Debt
Service Requirements, or Liquidity Covenants on any Annual Evaluation Date, (b)
the Management Consultant engaged pursuant to the provisions of the Bond
Documents recommends such termination, or (c) the Manager is grossly negligent
in the discharge of its duties under this Agreement. The determination of gross
negligence by the majority of Owners shall be deemed conclusive for purposes of
terminating the Management Agreement.
13. FACILITY'S NAME. Manager shall have the absolute right and
authority to name and rename the Facility and to use such name(s) in any
advertising or promotion for the Facility. If Manager, with the Company's
approval, chooses to use a name for this Facility similar to one that it uses
for any other facility which it owns and\or manages, whether or not such name is
registered with any federal or state agency, then Manager hereby grants to the
Company and the Company accepts, a non-exclusive right to use Manager's chosen
name at this Facility only. Upon the termination of this Agreement for any
reason whatsoever, the Company shall immediately cease all use of Manager's
chosen name for the Facility, including any items which carry said name, such as
menus, supplies, signage, stationery, etc. The Company shall immediately direct
all telephone companies and their Yellow Pages advertising affiliates which
identify the Company's Facility under Manager's chosen name, to cease, effective
with their next published edition, all references to the Facility as such under
Manager's chosen name and, at the request of Manager, shall provide Manager with
written confirmation from such third parties of receipt of such direction. Any
post-termination usage by the Company of Manager's chosen name shall be a
willful infringement of Manager's trademark and other rights.
14. RIGHT OF FIRST REFUSAL. Upon the Company's receipt of any bona
fide "Third Party Offer" to consummate a sale or lease transaction regarding
this Facility, and provided such transaction has been approved by a Majority of
the Bondholders, the Company shall advise Manager in writing (including the
terms and conditions of such Third Party Offer) within ten (10) days of the
Company's receipt of such Third Party offer. Manager (or any affiliate) shall
have the right and option, exercisable by sending written notice of such
exercise by the thirtieth (30th) business day following receipt of such notice,
to purchase the Facility (or leasehold, if applicable) on the same terms and
conditions as set forth in such notice provided that Manager shall not be
responsible for payment of any finder's or brokerage fees, or for any non-cash
or non-purchase price terms of such Third Party offer. Any change in such terms
or such purchaser, or any failure to complete such sale within six (6) months
after the date the Company gives such notice to Manager, shall be treated as a
new offer, entitling Manager to new first refusal rights. This Section 14 shall
not apply to a conveyance of the Facility pursuant to a foreclosure under the
Bond Documents or a deed in lieu of foreclosure thereunder.
15. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with the Company's approval,
shall combine any advertising, public relations, or other activities with
similar activities at other facilities owned or operated
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by Manager or its Affiliates, the cost of such activities shall be shared
proportionately by the Company and Manager or its Affiliates, as the case may
be. Manager shall exclusively handle all public relations matters for the
Facility either through available in-house support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between the Company and Manager with respect to the Facility,
it being understood that Manager's status shall be that of an independent
contractor.
(c) COSTS AND EXPENSES OF FACILITY; INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the operation
of the Facility, shall be the sole responsibility of the Company. Manager, by
reason of the execution of this Agreement and the performance of its services
hereunder, shall not be liable for or deemed to have assumed any liability for
such fees, costs and expenses, or any other liability or debt of the Company
whatsoever, arising out of or relating to the Facility or incurred in its
operation. The Company agrees to indemnify, defend, pay on behalf of, and hold
Manager and its officers, directors, agents and employees harmless from and
against all losses, claims, damages and other liabilities arising out of or
relating to the ownership or operation of the Facility (except those resulting
from the willful misconduct or gross negligence of Manager), including, without
limitation, any liabilities asserted against Manager or any of its officers,
directors, employees or agents by reason of any action or inaction taken by any
of the foregoing while performing the duties of Manager hereunder on behalf of
the Company or any of its officers, directors, employees or agents. Manager
agrees to indemnify, defend, pay on behalf of, and hold the Company and its
officers, directors, agents and employees harmless from and against all losses,
claims, damages and other liabilities arising out of the gross negligence or
willful misconduct of Manager or any of its officers, directors, employees or
agents. The terms of this Section 15(c) shall survive the expiration or earlier
termination of this Agreement.
(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are the
Company's property.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with the Company
in effecting an orderly transition to any new manager of the Facility in order
to avoid any interruption in the rendering of services to the Company and, in
connection therewith, shall surrender to the Company all contracts, documents,
books, records, forms and reports in the possession of Manager regarding the
operation of the Facility.
(f) FORCE MAJEURE. Manager's obligations under this Agreement
are subject to strikes, labor disturbances, casualty, arbitrary and capricious
action by third parties, the Company's compliance with and observance of the
terms of this Agreement (including, without limitation, the Company's obligation
to provide Management Fees and sufficient working capital for the operation of
the Facility and funding for the capital improvements projected in the Annual
Budget), changes in laws, statutes, ordinances, regulations or orders of
governmental authorities or tribunals, war or other state of national emergency,
terrorism, acts of God and other factors beyond the control of Manager
collectively, ("Force Majeure"). Manager shall not be responsible or liable in
any way for its inability to discharge any of its obligations hereunder due to
Force Majeure.
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(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Manager
may not assign this Agreement without the consent of the Company and the
Majority of Owners; provided, however, if the proposed assignee is an Affiliate
of Manager, such consent shall not be unreasonably withheld. For the purpose of
this Agreement, the term "Affiliate" shall mean any other entity in which a
principal or principals of Manager own at least 51 percent of said entity.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the beginning
of this Agreement. All notices shall be deemed to be effective (i) upon
receipt, if hand delivered, (ii) three (3) days after mailing, if mailed by
certified mail, or (iii) the next business day after sending, if sent by
overnight courier service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both the Company and Manager.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New Jersey, and all the terms and provisions hereof
and the rights and obligations of the parties hereto shall be construed and
enforced in accordance with the laws thereof, and the Courts sitting therein.
(k) TIME OF THE ESSENCE. Time is of the essence throughout this
entire Agreement.
(l) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
(n) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further and continuing waiver of any
such term, provision or condition of this Agreement.
(o) COVENANT NOT TO COMPETE. Neither the Company nor any
affiliate thereof, nor the Manager or any affiliate thereof, shall build,
operate or acquire any facility providing services substantially similar to the
services provided by the Facility within a 20 mile radius of the Facility.
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IN WITNESS WHEREOF, the parties hereto have executed this
Management Areement through their duly authorized representatives as of the day
and year first above written.
COMPANY: Senior Quarters at Forsgate, L.L.C.
BY:
-----------------------------------
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY:
-----------------------------------
EVAN A. KAPLAN, President
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the day of
August, 1995, by and between Montville Development, L.L.C. ("Owner") with
offices located at c/o AVR Realty Company, One Executive Boulevard, Yonkers, NY
10701, and Senior Quarters Management Corp., a New York Corporation ("Manager")
with offices located at 339 Crossways Park Drive, Woodbury, New York.
Manager is in the business of owning and\or furnishing management services
to independent and assisted living residences for senior citizens. Owner is
about to acquire a 112 bed Residential Health Care Facility for the elderly,
located at 165 Changebridge Road, Montville, NJ 07045, known as Change Bridge
Inn ("Facility"). Manager has acted as a consultant to Owner in connection with
Owner's acquisition of the Facility. In such capacity, Manager's duties
included, but were not limited to, due diligence relating to operational
matters, review of occupancy agreements, financials, service contracts,
licensing and certification and other government requirements. Owner and
Manager desire that Owner retain Manager to manage the Facility and provide
certain services in connection therewith.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows:
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the exclusive
management agent for the Facility, subject to the terms of this Agreement.
Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) GENERAL MANAGEMENT. Beginning on the date hereof, and
continuing until the expiration or earlier termination of this Agreement,
Manager, acting as Owner's fiduciary, shall manage and supervise the day-to-day
operation of the Facility, in the name of, on behalf of, and for the account of,
Owner.
(b) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager shall provide or cause to be provided the
following specific services in the name of, on behalf of, and for the account
of, Owner.
(i) FINANCIAL AND ACCOUNTING SERVICES.
A. Manager shall prepare a monthly balance sheet and
statement of operations for the Facility, to be submitted to Owner within thirty
(30) days after the end of each calendar month;
B. Manager shall supervise and coordinate the
preparation and\or maintenance (as appropriate) of the following items:
(1) Resident billing records;
(2) Accounts receivable and collection records;
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(3) Accounts payable records;
(4) All payroll functions, including,
preparation of payroll checks, establishment of depository accounts for
withholding taxes, payment of such taxes (at Owner's sole expense), filing of
payroll reports and the issuance of W-2 forms to all employees;
(5) A complete general ledger for the purposes
of recording and summarizing all transactions for the Facility; and
(6) Owner acknowledges that the cost of a
bookkeeper to be located on the premises, performing Items 1 through 5, as well
as the cost of outside auditors are provided for in the annual budget.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory.
(iii) LICENSURE. Assist Owner in: (1) obtaining all
licenses, permits and approvals by applicable governmental authorities with
respect to the operation of the Facility, and (2) maintaining certification from
public third party payment programs, if any. All such licenses, permits,
approvals and certifications shall be in the name of Owner, or an individual
partner of Owner, unless the governing entities require otherwise. Manager has
initially obtained all necessary licenses, permits and approvals which are
currently available in connection with Owner's acquisition of the Facility, all
in conformance with the immediately preceding sentence.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel
and/or terminate in the name of and on behalf of Owner, such agreements and
contracts which Manager may deem necessary or advisable for the operation of the
Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services
customarily provided to the Facility by independent contractors. Subject to
Owner's approval not to be unreasonably withheld or delayed, Manager shall be
entitled to utilize any affiliated entities to provide these services, provided
the rates and prices therefor are competitive. All contracts requiring or
likely to require, an annual expenditure in excess of $20,000, or which have a
term in excess of twelve (12) months, including renewals shall require the
approval of Owner, which approval shall not be unreasonably withheld or delayed.
(v) SALES & MARKETING - Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff.
(c) LIABILITY OF MANAGER. Manager shall have no liability to
Owner as a result of any decision made with respect to or any actions taken or
not taken in connection with the Manager's discharge of its obligations under
Sections 2(a) and (b) above, so long as such decisions, actions or omissions
were taken in good faith, except for gross negligence, malfeasance and/or a
breach of Manager's fiduciary duties.
(d) EXCLUSIVE REPRESENTATIVE. Solely with respect to the
Facility, it is understood and agreed that Manager shall be the exclusive
representative of Owner for purposes of communicating and
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dealing directly with the regulatory authorities, governmental agencies,
employees, independent contractors, suppliers, residents, sponsors, licensees,
customers and guests of the Facility. Any communications from Owner to such
persons or entities or authorities shall be directed through Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to
Commencement Date and thereafter at least ninety (90) days prior to each
calendar year that commences during the term of this Agreement, Manager shall
submit to Owner a proposed Annual Budget projecting the revenue to be available
and funds to be required during such fiscal year in order to operate the
Facility and make capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The Annual Budget shall
be based upon data and information then available and shall include, without
limitation, estimated salaries and fringe benefits for all employee groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the Annual Budget. Each
Annual Budget as approved by Owner (and as revised from time to time during a
calendar year with Owner's approval, as set forth in this Paragraph 3), is
referred to herein as the "Annual Budget." Owner shall, within fifteen (15)
days following receipt of such Annual Budget, notify Manager of either Owner's
approval of the Annual Budget or those items of which Owner approves and those
items of which Owner disapproves. In the event that Owner does not timely
either approve or disapprove, in total or in part, of such Annual Budget in
writing, as provided herein, then such Annual Budget as proposed by Manager
shall be deemed approved by Owner, and Manager shall be authorized to implement
such program. If Owner disapproves of the proposed Annual Budget either in
total or in part, then Owner and Manager shall have thirty (30) days from the
date of Owner's disapproval notice to formulate a mutually agreeable Annual
Budget. If the parties are unable to reach an agreement within said 30 day
period, then Owner and Manager shall each direct their respective accountants to
pick and agree upon a neutral third party accountant within fifteen (15) days of
being directed to do so, to act as an arbitrator in order to reach said Annual
Budget. This neutral third party accountant will be directed to reach a
decision within fifteen (15) days of being chosen, and his/her decision shall be
final and binding on both parties. Until this agreed upon Annual Budget is
reached, the Annual Budget for the immediately preceding calendar year
(excluding the budgeted items for the categories of Heat, Light, Power,
Insurance and Real Estate Taxes), shall apply. The projected Annual Budget
submitted by Manager to Owner shall be an estimate of revenue and costs, and
Owner acknowledges that (1) projected revenue may not be actually received and
(2) projected costs may be exceeded by actual expenses and capital expenditures
incurred in connection with the operation and maintenance of the Facility. By
submitting such a projected budget, Manager will not be providing a guarantee or
warranty as to the projected revenue, expenses or capital expenditures of the
Facility.
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Manager may not exceed any Annual Budget Expense Category annually, as
listed on the attached Schedule 1, which category is within Manager's control,
by more than ten (10%) percent without the approval of Owner, which shall not be
unreasonably withheld or delayed. Subject to the foregoing limitation, Owner
shall be responsible on a periodic basis, as and when needed, for all expenses
and capital expenditures incurred in connection with the operation and
maintenance of the Facility, including, without limitation, cost overruns which
exceed the projections in the Annual Budget.
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(c) BANK ACCOUNTS AND WORKING CAPITAL. Manager shall establish
in a local bank an account or accounts for the operation of the Facility
("Operating Accounts"), in Owner's name and on behalf of Owner, and shall
thereafter deposit therein all funds received by Manager on Owner's behalf from
the operation of the Facility. Owner shall provide sufficient working capital
for the operation of the Facility (including, without limitation, the payment of
Manager's Management Fee under Section 6 hereof) and shall deposit such working
capital in the Operating Accounts from time to time upon the reasonable request
of Manager. All expenses incurred in connection with the operation of the
Facility (including, without limitation, Manager's Management Fee) shall be paid
out of the Operating Accounts. Manager may write checks and draw on the
Operating Accounts to pay for operation of the Facility to the extent required
by Manager in the discharge of its obligations hereunder provided, however, that
with the exception of checks for the payment of food, all utilities, payroll and
payroll related expenses, any check written in an amount which is greater than
ten thousand ($10,000) dollars must have two signatures: one by Owner; and one
by Manager. Therefore, any such check will be sent with a copy of the invoice
to Owner by Manager for a second signature by Owner. If said check is not
returned to Manager within five (5) days of its being sent to Owner, then
Manager has the authority to pay such invoice by paying the vendor with a new
check which will only require one signature by Manager, unless such invoice is
disputed by Owner in good faith. Owner shall sign all checks for Managers'
Minimum Fees, Management Fees and Incentive Fees, and shall pay same to Manager
on the fifteenth day of each month. If Owner disputes any amount of any of said
fees to be paid to Manager, Owner shall nevertheless pay to Manager all amounts
which are undisputed by the fifteenth day of each month, and shall endeavor to
reconcile any disputed amounts with Manager within five (5) days thereafter. If
Owner fails to make a good faith attempt to reconcile any disputed amount with
Manager, then Manager may write a check and draw on the Operating Accounts for
the full amount it deems itself due and shall reconcile any differences with
Owner prior to the fifteenth of the next month. Manager shall also provide
Owner with a Fidelity Bond in an amount to be agreed upon; however, said amount
will not exceed $200,000. Owner shall also provide sufficient funding to make
the capital improvements projected in the Annual Budget as approved by Owner in
obligation to (1) provide or contribute working capital required for the
operation of the Facility, or (2) fund capital expenditures required to maintain
the Facility in good condition and repair.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing basis,
provide the Facility with a qualified Administrator ("Facility Administrator").
Subject to the approval of Owner, such approval not to be unreasonably withheld
or delayed, Owner reserves the right to approve of Manager's choice of the
Facility Administrator, unless said Facility Administrator is currently or has
been employed by Manager or any of Manager's affiliated entities for at least
three (3) months. If Owner's approval, or disapproval, if required, is not
received by Manager within five (5) days of Manager's submission of same to
Owner, then such facility Administrator as proposed by Manager shall be deemed
approved by Owner, and Manager shall be authorized to employ said Facility
Administrator. The Facility Administrator shall be an employee of and
compensated by Owner. Manager shall be entitled to utilize the Facility
Administrator, along with employees and agents of Manager, in the discharge of
Manager's obligations.
(b) OWNER'S EMPLOYEES. All employees working at or in
connection with the operation of the Facility shall be employees of the Owner.
All salary, fringe benefits, bonuses and related expenses payable to such
employees shall be borne solely by the Owner.
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(c) MANAGER'S AUTHORITY. Manager shall elect, appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager chooses or shall deem necessary for the proper operation of the
Facility. Manager's selection, appointment and replacement of the Administrator
and such other personnel and the terms of their employment, including
compensation, shall be subject to review of Owner, in accordance with the
procedure described in Section 4(a) above.
5. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the fifth (5th) anniversary of said date, and if
there is no Event of Default at the time, willl have one automatic renewal for a
period of 5 years at Manager's option.
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. Owner shall pay Manager a management fee
("Management Fee"), commencing on the thirtieth (30th) day from the date hereof,
and thereafter on the fifteenth (15th) day of each month for the previous
month's total gross revenues, a sum equal to five (5%) percent of total gross
revenues. If the calculated Management Fee of five (5%) percent of gross
revenues does not exceed $12,500 per month, a minimum monthly Management Fee of
$12,500 ("Minimum Fee") will be payable on the date hereof, and thereafter on
the fifteenth day of each month.
(b) INCENTIVE FEE. In addition to the above-mentioned
compensation, Manager shall also earn and will be paid an incentive fee
("Incentive Fee") equal to fifteen (15%) percent of all N.O.I. over and above
the N.O.I. for the applicable period. Said Incentive Fee will be paid on a
semi-annual basis forty five (45) days after the beginning of month one and
forty five (45) days after the beginning of month seven of each calendar year.
N.O.I. is defined as income produced by operations of the Facility, before
interest and income taxes, but after deducting real estate taxes and other
"fixed expenses." If the Manager purchases an interest in the Facility or the
Owner, then upon that event, the Manager shall no longer be entitled to an
Incentive Fee. The fiscal year shall be the same as the calendar year.
(c) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
or otherwise provided for herein, including, without limitation, special
projects requested by Owner or recommended by Manager and approved by Owner, are
not included as part of the Management Fee due to Manager hereunder and shall be
subject to Manager being entitled to additional compensation to be agreed upon
between Manager and Owner. Manager shall not be entitled to additional
compensation with respect to home office personnel, or for travel and
entertainment expenses.
7. LEGAL ACTIONS.
(a) Subject to Owner's approval, not to be unreasonably withheld
or delayed, Manager shall institute any necessary legal actions or proceedings
to collect obligations owing to the Facility or to cancel or terminate any
contract for breach thereof or default thereunder and otherwise enforce the
obligations of the residents, sponsors, licensees, customers and other users of
the Facility, all at Owner's expense.
(b) Manager is authorized to settle, on Owner's behalf and in
Owner's name, on terms and conditions as Manager shall deem in the best interest
of the Facility, any and all claims or demands arising out of the operation of
the Facility, irrespective of whether or not legal action has been
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instituted, provided such settlement does not exceed Twenty Five Thousand
($25,000) Dollars for each such claim or demand or the aggregation of such
claims or demands arising from the same party or occurrences. If such
settlement or proposed settlement or the aggregation of such claims or demands
arising from the same party or occurrences exceeds $25,000, it will be subject
to Owner's approval, such approval not to be unreasonably withheld or delayed.
Owner agrees that such sums shall be paid as an operating expense of the
Facility.
8. INFORMATION; COOPERATION. Owner shall provide Manager with any
information relating to the Facility in Owner's possession, required by Manager
for the performance of its obligations under this Agreement, and Owner shall
permit Manager to examine and copy any data in the possession or control of
Owner affecting the operation of the Facility, including, without limitation,
accounting and financial information. Owner shall fully cooperate with Manager
to permit Manager to discharge its obligations hereunder. Manager shall keep
all the foregoing information confidential and shall not disclose any such
information without Owner's approval.
9. INSURANCE. Subject to Owner's approval, such approval not to be
unreasonably withheld or delayed, Manager is authorized to secure, if Owner has
not already done so, either under a blanket insurance policy or otherwise, on
Owner's behalf and in Owner's name, on such terms and conditions as Manager
shall deem in the best interests of the Facility, insurance coverage in amounts
sufficient to protect the Facility, Manager, and Owner against claims of third
parties, property damage and such other risks as are prudent. The cost of
insurance shall be charged as an operating expense of the Facility. Manager
shall be a named insured as its interests may appear under all policies of
insurance affecting the Facility.
10. REPRESENTATIONS AND WARRANTIES. Owner and Manager each make the
following representations and warranties, which are material, and upon which the
other party has relied as an inducement to enter into this Agreement.
(a) STATUS OF OWNER AND MANAGER. Owner is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of New York; and is qualified to do business and is in good standing
in the State of New Jersey; and has all necessary power to carry on its business
as now being or in the future will be conducted. Manager is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York; and is qualified to do business in the State of New Jersey; and has
all necessary power to carry on its business as now being or in the future will
be conducted.
(b) AUTHORITY AND DUE EXECUTION. Each party has full power and
authority to execute and deliver this Agreement and all related documents and to
carry out the transactions contemplated hereby, which actions will not with the
passing of time, the giving of notice or both, result in the default under or
breach or violation of (A) that party's Certificate of Incorporation, other
Charter, limited liability company agreement or incorporation documents and/or
its By-Laws, as amended to date, or , (B) any mortgage, note, bond, indenture,
agreement, lease, license, permit or other instrument or obligation to which
that party, or the Facility, or any of its assets may be bound or affected.
This Agreement constitutes the valid and binding obligation of each party
enforceable in accordance with its terms.
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(c) LITIGATION. To their knowledge, there is no litigation,
claim, investigation, challenge or other proceeding pending, or to the knowledge
of each party, threatened against that party, or the Facility, which seeks to
enjoin or prohibit that party from entering into this Agreement, or which in any
way will adversely affect the Facility, except as disclosed in the contract of
sale for the purchase of the Facility.
11. OWNER'S RESTRICTIVE COVENANTS. Owner covenants and agrees that
it will not knowingly and intentionally, during the term of this Agreement and
for a period of two (2) years thereafter, without the prior written consent of
Manager, hire or otherwise engage or permit any of its affiliates to hire or
otherwise engage any person who is an employee of Manager or any affiliates of
Manager at any time during the term of this Agreement or the two year period
thereafter, or any person who was an employee of Manager or any affiliate of
Manager during the six (6) months preceding the date of this agreement, or
induce or attempt to induce any such person to terminate employment with Manager
or any such affiliate, unless this Agreement is terminated as a result of a
default by Manager whereupon this paragraph shall have no effect. For purposes
of this Agreement, the term "affiliate," when used with reference to a specified
party, shall mean any person or entity which such party, directly or indirectly,
through one or more intermediaries, controls, is under control with, or is
controlled by. In the event Owner violates the provisions of this Paragraph 11,
Manager's sole remedy shall be to seek to enjoin Owner from engaging in such
employment practice.
12. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
(i) If Owner shall fail to pay or allow payment of any
installment of the Minimum Fee, Management Fee or Incentive Fee due Manager for
a period of seven (7) days after written notice of such default from Manager;
(ii) If either Manager or Owner fails to perform any term,
provision, or covenant of this Agreement (other than as set forth in Section
12(a)(I) above), and such failure continues for a period of thirty (30) days
after written notice from the other party specifying such failure to perform;
(iii) If Manager is dissolved or liquidated, 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 or is
the subject of an involuntary bankruptcy filing, makes a general assignment for
the benefit of creditors, or files a petition or an answer seeking
reorganization or arrangement with creditors or to take advantage of any
insolvency law, or if an order, judgment or decree shall be entered by any court
of competent jurisdiction, on the application of a creditor, adjudicating
Manager bankrupt or insolvent or approving a petition seeking reorganization of
such party or appointing a receiver, trustee or liquidator for such party of all
or a substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of sixty (60) consecutive days.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may, at
its option, terminate this Agreement, and if the Owner is the defaulting party,
Manager shall be paid Liquidated Damages as provided below. In the event of any
termination of this Agreement, by reason of an Event of Default by Owner,
Manager, as
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its sole remedy, shall be paid all Management Fees and other fees due to the
date of termination, plus Liquidated Damages to which Manager is entitled. No
delay or failure on the part of either party hereunder to declare the other
party in default or exercise any remedies in respect of such default shall
operate as a waiver of such right to declare a default and exercise such
remedies. If either party is forced to engage counsel to enforce any of the
default provisions of this Agreement, the prevailing party shall also be
entitled to reasonable attorneys fees and all costs attendant to such action,
upon obtaining a non-appealable final judgment.
(c) TERMINATION.
(i) Neither party may terminate the Agreement for two (2)
years, except upon an occurrence of an Event of Default and except as otherwise
set forth herein.
(ii) Manager shall have the right to terminate the Agreement
at any time beginning in year three upon six (6) months prior written notice.
If Manager terminates the Agreement for reasons other than the occurrence of an
Event by Default by Owner, upon such termination, neither party shall have any
liability to the other.
(iii) Owner shall have the right to terminate this Agreement
for any rason at any time beginning in year 3 upon six (6) months prior written
notice. If Owner terminates the Agreement without reasonable cause, Owner shall
pay to Manager Liquidated Damages as provided below. If Owner terminates the
Agreement for reasonable cause, the termination shall be effective immediately
and Manager shall not be entitled to any Termination Fee. "Reasonable cause"
shall mean an uncured Event of Default by Manager and/or failure to deliver at
least 90 percent of the N.O.I. per Schedule I attached.
(d) LIQUIDATED DAMAGES. If this Agreement terminates due to the
occurrence of an Event of Default by Owner, Owner shall pay Manager in addition
to any Minimum Fee, Management Fee or Incentive Fee due Manager up to the date
of termination, and as Manager's sole remedy, within thirty (30) days following
the date of such event, as "Liquidated Damages," because actual damages incurred
by Manager will be difficult or impossible to ascertain, and not as a penalty,
an amount equal to the sum of accrued Management Fees during the immediately
preceding twenty four (24) full calendar months (or such shorter period as
equals the unexpired initial term of this Agreement or current option period, if
any, at the date of termination); provided, however, if Manager has not managed
the Facility for twenty four (24) months, then the average monthly Management
Fee, Minimum Fee plus Incentive Fee of the total number of months that Manager
has managed the Facility, whichever is greater, multiplied by twenty four (24).
13. FACILITY'S NAME. Manager shall have the absolute right and
authority to name and rename the Facility and to use such name(s) in any
advertising or promotion for the Facility, all of the foregoing being subject to
Owner's approval, which approval shall not be unreasonably withheld or delayed.
If Manager chooses to use a name for this Facility similar to one that it uses
for any other facility which it owns and\or manages, whether or not such name is
registered with any federal or state agency, then Manager hereby grants to Owner
and Owner accepts, a non-exclusive right to use Manager's chosen name at this
Facility only. Manager will indemnify, hold harmless and defend Owner against
any claims arising out of Manager's usage of a similar or common name. Upon the
termination of this Agreement for any reason whatsoever, Owner shall immediately
cease all use of Manager's chosen name for the
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Facility, including any items which carry said name, such as menus, supplies,
signage, stationery, etc. Owner shall immediately direct all telephone
companies and their Yellow Pages advertising affiliates which identify Owner's
Facility under Manager's chosen name, to cease, effective with their next
published edition, all references to the Facility as such under Manager's chosen
name and, at the request of Manager, shall provide Manager with written
confirmation from such third parties of receipt of such direction. Any
post-termination usage by Owner of Manager's chosen name shall be a willful
infringement of Manager's trademark and other rights; however, Manager's sole
remedy shall be through injunctive relief. Manager will indemnify and hold
harmless and defend Owner against any claims arising from its usage of Manager's
chosen name.
14. RIGHT OF FIRST OFFER. If at anytime Owner decides to sell or
lease its interest in the Facility, Owner will offer same to Manager prior to
any third party, and will negotiate with Manager in good faith for thirty (30)
days prior to offering the Facility to any third party, the intent of this
paragraph being to give Manager the first opportunity to purchase or lease the
entire Facility before any third party, whether Owner decides to sell or lease
its interest in the Facility. Upon the expiration of said thirty (30) days, if
a Contract is not signed, Owner shall be free to negotiate, sell and/or lease
its interest in the Facility to anyone, regardless of the status of negotiations
with Manager.
15. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's approval, shall
combine any advertising, public relations, or other activities with similar
activities at other facilities owned or operated by Manager or its Affiliates,
the cost and expenses involved in such shared advertising will be equitably
prorated among the participating facilities, based on the time or space involved
in the particular medium being used for such shared advertising, and all of said
facilities will be treated equitably regarding such shared expenses. Manager
shall exclusively handle all public relations matters for the Facility either
through available in-house support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between Owner and Manager with respect to the Facility, it
being understood that Manager's status shall be that of an independent
contractor.
(c) INDEMNITY. Manager, by reason of the execution of this
Agreement and the performance of its services hereunder, shall not be liable for
or deemed to have assumed any liability or debt of Owner whatsoever, arising out
of or relating to the Facility or incurred in its operation. Owner agrees to
indemnify, defend, pay on behalf of, and hold Manager and its officers,
directors, agents and employees harmless from and against all losses, claims,
damages and other liabilities arising out of or relating to the gross negligence
or willful misconduct of Owner, including, without limitation, any liabilities
asserted against Manager or any of its officers, directors, employees, or agents
arising out of or relating to the gross negligence or willful misconduct of
Owner. Manager agrees to indemnify, defend, pay on behalf of, and hold Owner
and its officers, directors, agents and employees harmless from and against all
losses, claims, damages and other liabilities arising out of or relating to the
gross negligence or willful misconduct of Manager, including without limitation,
any liabilities asserted against Owner or any of its officers, directors,
employees or agents arising out of or relating to the gross negligence or
willful misconduct of Manager. Manager will attempt to collect any claims,
damages and other liabilities as aforesaid initially from either existing
insurance policies or from the remedy provisions
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in Paragraph 12 herein. The terms of this Section 15(c) shall survive the
expiration or earlier termination of this Agreement.
(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are Owner's
property and Manager shall not disclose any information contained in same
without Owner's consent.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with Owner in
effecting an orderly transition to any new Manager of the Facility in order to
avoid any interruption in the rendering of services to Owner and, in connection
therewith, shall surrender to Owner all contracts, documents, books, records,
forms and reports in the possession of Manager regarding the operation of the
Facility.
(f) FORCE MAJEURE. Manager's and Owner's obligations under this
Agreement are subject to strikes, labor disturbances, casualty, war or other
state of national emergency, terrorism, acts of God and other factors beyond the
control of Manager or Owner respectively ("Force Majeure").
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Manager
may not assign this Agreement to a non-affiliate without Owner's consent;
however, Manager may assign this Agreement to any immediate family members or to
an affiliate whereby the principals are the same as in Manager's original
entity, subject to Owner's consent, which will not be unreasonably withheld or
delayed. Owner, as used herein, shall only mean the then current Owner of the
Facility.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the beginning
of this Agreement. All notices shall be deemed to be effective (i) upon
receipt, if hand delivered, (ii) three (3) days after mailing, if mailed by
certified mail, or (iii) the next business day after sending, if sent by
overnight courier service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both Owner and Manager.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New York and all the terms and provisions hereof and
the rights and obligations of the parties hereto shall be construed and enforced
in accordance with the laws thereof, and the Courts sitting therein.
(k) COMPLIANCE WITH LAWS. Manager and Owner agree to comply
with all laws, rules, codes, regulations, insurance, requirements, etc., to the
best of their respective knowledge and abilities.
(l) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to
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explain, modify or otherwise affect the interpretation, construction or meaning
of the provisions of this Agreement.
(m) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
(n) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further and continuing waiver of any
such term, provision or condition of this Agreement.
(o) CASUALTY AND CONDEMNATION. If any material portion of the
Facility is damaged or taken by condemnation or similar proceeding such that in
Owner's sole and absolute reasonable discretion, operating a residential health
care facility is no longer economically viable, Owner may on 60 days written
notice to Manager, terminate this Agreement, whereupon, with the exception of
any monies due Manager, Owner and Manager shall have no further obligations or
liabilities hereunder, including liquidated damages.
(p) NON-COMPETITION. So long as this Management Agreement is in
effect, neither Manager nor any of its affiliates or principals, nor Owner or
any of its affiliates or principals, shall own, manage or operate a Residential
Health Care Facility that is located within 10 miles of the Facility.
(q) OWNER'S UNREASONABLE WITHHOLDING OR DELAYING CONSENT OR
APPROVAL. In no event shall Manager be entitled to make, nor shall Manager
make any claim, and Manager hereby waives any claim, for money damages, nor
shall Manager claim any money damages by way of set off, counterclaim or
defense, based upon any claim or assertion by Manager that Owner has
unreasonably withheld or unreasonably delayed any consent or approval to any
matter where such consent or approval is required pursuant to this Agreement,
but Manager's sole remedy shall be an action or proceeding to enforce any such
provision, or for specific performance, injunction or declaratory judgment.
(r) MANAGER'S REMEDIES. Manager shall look only to Owner's
estate and property in the Facility for the satisfaction of Manager's remedies,
for the collection of a judgement (or other judicial process) requiring the
payment of money by Owner in the event of any default by Owner hereunder, and no
other property or assets of Owner or its members, partners or principals,
disclosed or undisclosed, shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Manager's remedies under or with
respect to this Agreement, the relationship of Owner and Manager hereunder or
Manager's use or occupancy of the Premises.
(s) MANAGER'S COOPERATION. Manager will provide an estoppel
certificate setting forth all matters reasonably requested by Owner's Lender,
designee or prospective purchaser and other reasonable documents and will
cooperate in all reasonable respects with Owner's lender or other designee.
Manager agrees to subordinate this Agreement and attorn to Owner's Lender or
other designee.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Management Agreement through their duly authorized representatives as of the day
and year first above written.
OWNER: MONTVILLE DEVELOPMENT, L.L.C.
BY:
--------------------------------
ALLAN V. ROSE, Member
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY:
--------------------------------
EVAN A. KAPLAN, President
12
<PAGE>
OWNER'S GUARANTY
Reference is made to a Management Agreement of even date between Montville
Development, L.L.C. ("Owner") and Senior Quarters Management Corp. ("Manager"),
regarding the acquisition and operation of a residential health care facility,
which premises are currently known as Change Bridge Inn (the "Facility"). In
consideration of Manager's execution of said Management Agreement at the request
of Owner, and other valuable consideration paid, the receipt of which is hereby
acknowledged, the undersigned Guarantor guarantees to Manager, the full
performance and observance of all the terms and conditions to be performed and
observed by Owner under this Management Agreement. Guarantor expressly waives
any notice of non-payment to Manager of a Minimum Fee, Management Fee, or
Incentive Fee as defined in the Management Agreement, or proof of notice of
demand to hold the undersigned responsible under this Guaranty. The Guarantor
further agrees that this Guaranty shall remain in full force and effect as to
any renewal, change or extension of the Management Agreement, and as to any
forbearance, recasting or assignment of the Facility.
Guarantor shall have the same defenses available to it that Owner has under the
Management Agreement. Guarantor covenants to pay all expenses, including
attorneys fees that may be incurred by Manager or its heirs or assigns while
enforcing any terms of this Guaranty. This Guaranty shall bind the heirs,
successors, assigns, representatives and administrators of the Guarantor and
shall not be impaired or affected by the death of the Guarantor.
Date: ______________________ __________________________________________________
Guarantor - Allan V. Rose
13
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MANAGER'S GUARANTY
Reference is made to a Management Agreement of even date between Montville
Development, L.L.C. ("Owner") and Senior Quarters Management Corp. ("Manager"),
regarding the acquisition and operation of a residential health care facility,
which premises are currently known as Change Bridge Inn (the "Facility"). In
consideration of Manager's execution of said Management Agreement at the request
of Owner, and other valuable consideration paid, the receipt of which is hereby
acknowledged, the undersigned Guarantor guarantees to Owner, the full
performance and observance of all the terms and conditions of paragraphs
numbered "8" and "15(p)" to be performed and observed by Manager under this
Management Agreement. Guarantor further agrees that this Guaranty shall remain
in full force and effect as to any renewal, change or extension of the
Management Agreement, and as to any forbearance, recasting or assignment of the
Facility.
Guarantor shall have the same defenses available to it that Manager has under
the Management Agreement. Guarantor covenants to pay all expenses, including
attorneys fees that may be incurred by manager or its heirs or assigns while
enforcing any terms of this Guaranty. This Guaranty shall bind the heirs,
successors, assigns, representatives and administrators of the Guarantor and
shall not be impaired or affected by the death of the Guarantor.
Date: ______________________ __________________________________________________
Guarantor - Evan A. Kaplan
14
<PAGE>
SECOND MODIFICATION TO MANAGEMENT AGREEMENT
This is the Second Modification to the Management Agreement dated
September 8, 1995, as amended by First Modification to Management dated
September 28, 1995, collectively (the "Management Agreement") by and between
Montville Development L.L.C. (the "Owner") and Senior Quarters Management Corp.
(the "Manager").
The following sub-paragraph (s) is hereby added to Paragraph 15 of the
Management Agreement:
(s) "MANAGER'S COOPERATION. Manager will provide an estoppel
certificate and other reasonable documents and will cooperate in all
reasonable respects with Owner's present, future, or prospective lender(s)
or purchaser(s)."
All other terms and conditions of the Management Agreement shall remain in
full force and effect.
In Witness Whereof, the parties hereto have executed this Second
Modification to Management Agreement through their duly authorized
representatives as of the 29th day of February, 1996.
OWNER:
MONTVILLE DEVELOPMENT L.L.C
BY:
------------------------------
Allan V. Rose, President
MANAGER:
SENIOR QUARTERS MANAGEMENT CORP.
BY:
------------------------------
Evan A. Kaplan, President
15
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the day of
September, 1995, by and between Senior Quarters at Glen Riddle, L.P. (the
"Company") with offices located at Glen Riddle, Pennsylvania, and Senior
Quarters Management Corp., a New York Corporation ("Manager") with offices
located at 339 Crossways Park Drive, Woodbury, New York.
Manager is in the business of owning and\or furnishing management services
to independent and assisted living residences for senior citizens. The Company
intends to construct a 120 unit assisted living residence located in Glen
Riddle, Pennsylvania, to be known as "Senior Quarters at Glen Riddle"
("Facility"). The Company and Manager desire that the Company retain Manager to
manage the Facility and provide certain services in connection therewith.
The Delaware County Industrial Development Authority (the "Authority") has
issued its $12,830,000 aggregate principal amount of Elder Care Facility Revenue
Bonds (Senior Quarters at Glen Riddle, L.P., Project), Series of 1995 (the
"Bonds") pursuant to a Trust Indenture (the "Indenture") between the Authority
and First Fidelity Bank, National Association, as trustee (the "Trustee"), and
has loaned the proceeds of the Bonds to the Company to finance the construction
and equipping of the Facility pursuant to the Loan Agreement dated as
of , 1995 (the "Loan Agreement"), between the Authority and the Company. The
Company's obligations under the Loan Agreement are evidenced by the Promissory
Note dated , 1995 (the "Note") from the Company to the Authority
and secured by the Mortgage and Security Agreement dated as of ,
1995 (the "Mortgage"), from the Company to the Trustee granting a mortgage lien
on the Facility and a security interest in the Gross Revenues of the Company (as
defined in the Mortgage). The Authority has assigned its rights under the Loan
Agreements and the Note to the Trustee. The Indenture, Loan Agreement, Note and
Mortgage are hereinafter referred to collectively as the "Bond Documents." The
Company and the Manager acknowledge that the Bond Documents require that the
Company's payment obligations under this Agreement must be subordinated to
certain payment obligations under the Bond Documents (including without
limitation operating expenses of the Facility (not including Management Fees
payable under this Agreement), debt service on the Bonds, and deposits into the
Debt Service Reserve Fund and Capital and Maintenance Fund established under the
Indenture).
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, the
Company and Manager agree as follows:
1. APPOINTMENT OF MANAGER. The Company appoints Manager as the
exclusive management agent for the Facility, subject to the terms of this
Agreement. Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and until
four (4) months prior to the projected completion date of Phase I of the
Facility (the first day of the four (4) month period hereinafter referred to as
the "Commencement Date"), Manager agrees to provide assistance to the Company in
the planning of the Facility. Such assistance may include review of
architectural drawings and site plans; arranging for feasibility studies;
licensure and certification planning; support and assistance
<PAGE>
in filing for Certificate of Need and other governmental requirements, if any;
and financial analysis ("Initial Services").
(b) GENERAL MANAGEMENT. Beginning on the Commencement Date (to
permit the completion of all start-up work, including pre-opening marketing,
staff recruitment, training, facility set-up, and licensing, if any) and
continuing until the expiration or earlier termination of this Agreement,
Manager shall manage and supervise the day-to-day operation of the Facility, in
the name of, on behalf of, and for the account of, the Company.
(c) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager, in accordance with the Operating Budget,
shall provide or cause to be provided the following specific services in the
name of, on behalf of, and for the account of, the Company.
(i) FINANCIAL AND ACCOUNTING SERVICES.
Supervise and coordinate the preparation and\or
maintenance (as appropriate) of the following items:
A. A monthly balance sheet and statement of
operations for the Facility, to be submitted to the Company within thirty (30)
days after the end of each calendar month;
B. Resident billing records;
C. Accounts receivable and collection records;
D. Accounts payable records;
E. All payroll functions, including, preparation of
payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes (at the Company's sole expense), filing of payroll reports
and the issuance of W-2 forms to all employees; and
F. A complete general ledger for the purposes of
recording and summarizing all transactions for the Facility.
G. Copies of all reports submitted to
bondholders/lenders providing financing for the Company shall be sent to the
Company.
H. Manager must be responsible for preparation and
delivery of all reports required to be delivered to the Trustee and/or the
Bondholders under the Bond Documents, at the time and in the manner required
thereunder.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory.
(iii) LICENSURE. Obtain and maintain all licenses, permits
and approvals by applicable governmental authorities with respect to the
operation of the Facility, and maintain certification
2
<PAGE>
from public third party payment programs, if any. All such licenses, permits,
approvals and certifications shall be in the name of the Company, or an
individual partner of the Company, unless the governing entities require
otherwise.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel
and/or terminate in the name of and on behalf of the Company, such agreements
and contracts which Manager may deem necessary or advisable for the operation of
the Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services
customarily provided to the Facility by independent contractors. With the
Company's consent, Manager shall be entitled to utilize any affiliated entities
to provide these services. In addition, notice will be given to the Owners of
the Bonds if the Company enters into a transaction with any affiliate of
Manager, and such transactions will in all instances be consistent with similar
transactions by independent parties of equal bargaining power in an arms-length
transaction.
(v) SALES & MARKETING. Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff.
(d) LIABILITY OF MANAGER. Manager shall have no liability to
the Company as a result of any decision made with respect to or any actions
taken or not taken in connection with the Manager's discharge of its obligations
under Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith.
(e) EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Manager shall be the exclusive representative of the Company for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Any communications from the
Company to such persons or entities or authorities shall be directed through
Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to each
fiscal year that commences during the term of this Agreement, Manager shall
submit to the Company a proposed budget projecting the revenue to be available
and funds to be required during such fiscal year in order to operate the
Facility and make capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The budget shall be
based upon data and information then available and shall include, without
limitation, estimated salaries and fringe benefits for all employee groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the budget. The Company
shall, within twenty (20) days following receipt of such annual budget, notify
Manager of either the Company's approval of the annual budget or those items of
which the Company approves and those items of which the Company disapproves. As
soon as reasonably practical thereafter, the Company and Manager shall attempt
to establish a mutually agreeable annual budget for the Facility. In the event
the Company does not timely either approve, or disapprove, in total or in part,
of such annual budget, as provided herein, then until the Company and Manager
approve of said new annual budget, each line item of both revenues and
3
<PAGE>
expenses of the most current approved annual budget shall be increased,
commencing on the first day of the new fiscal year, in accordance with the
percentage increase, if any, in the Consumer Price Index for the Philadelphia
area (All Urban Consumers, All Items) (1982-1984=100) (the "Index") as published
by the United States Department of Labor, Bureau of Labor Statistics (the
"Bureau"). The Index for January 1 of the then current year during the term of
this Agreement in which the annual budget shall be increased shall be compared
with the Index for January 1 of the last year in which the annual budget was
increased (or, in the event of the first increase, the first year of the term of
this Agreement) and the annual budget then in effect shall be increased, in
accordance with the percentage increase, if any, between such Indexes. In no
event shall the annual budget as adjusted be less than the annual budget in
effect immediately prior to the adjustment. Should the Bureau discontinue the
publication of the Index, or publish the same less frequently, or alter the same
in some other manner, the Company shall adopt a reasonable substitute index or
procedure that reasonably reflects and monitors consumer prices as then
customarily used in the Delaware County area. Each budget, as approved (and as
revised from time to time during a fiscal year with the Company's approval, as
set forth in Section 3(b) hereof), is referred to herein as the "Annual Budget."
The projected budget submitted by Manager to the Company shall be an estimate of
revenue and costs, and the Company acknowledges that (i) projected revenue may
not be actually received and (ii) projected costs may be exceeded by actual
expenses and capital expenditures incurred in connection with the operation and
maintenance of the Facility. By submitting such a projected budget, Manager
will not be providing a guarantee or warranty as to the projected revenue,
expenses, or capital expenditures of the Facility. Anything in this Section 3
to the contrary notwithstanding, as long as any Bonds remain outstanding, the
annual budget shall comply with the requirements of Section 5.21 of the Loan
Agreement.
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Subject to the foregoing, the Company shall be responsible on a
periodic basis, as and when needed, for all expenses and capital expenditures
incurred in connection with the operation and maintenance of the Facility,
including, without limitation, cost overruns which exceed the projections in the
Annual Budget.
(c) BANK ACCOUNTS AND WORKING CAPITAL. The Manager, in the
Facility's name and on behalf of the Company, shall transfer daily all Gross
Revenues (as defined in the Bond Documents) of the Facility (but excluding an
amount not to exceed $20,000 in the aggregate which the Manager may retain at
any one time in the Operating Accounts described below and excluding any amounts
transferred by the Trustee to the Manager pursuant to Section 7.17(a)(2) of the
Trust Indenture) to the Trustee for deposit in the Revenue Fund established
under the Indenture. Manager shall establish in a local bank an account or
accounts for the operation of the Facility ("Operating Accounts"), in the
Company's name and on behalf of the Company, and shall thereafter deposit
therein all funds received by Manager on the Company's behalf with respect to
the Facility. Subject to the provisions of the Indenture, the Company shall
provide sufficient working capital for the operation of the Facility (including,
without limitation, the payment of Manager's Management Fee under Section 6
hereof) and shall deposit such working capital in the Operating Accounts from
time to time upon the request of Manager, subject to the provisions of the Bond
Documents. All expenses incurred in connection with the operation of the
Facility shall be paid out of the Operating Accounts; provided, however, that as
long as any Bonds remain outstanding, the Manager's Management Fees shall only
be paid directly by the Trustee out of the Revenue Fund established under the
Indenture and as otherwise provided in the Bond Documents. Manager may write
checks and draw on the Operating Accounts to pay for operation of the Facility
to
4
<PAGE>
the extent required by Manager in the discharge of its obligations hereunder and
subject to the limitations set forth herein, the Company shall also provide
sufficient funding to make the capital improvements projected in the Annual
Budget, subject to the provisions of the Bond Documents. Manager shall have no
obligation to (i) provide or contribute working capital required for the
operation of the Facility, or (ii) fund capital expenditures required to
maintain the Facility in good condition and repair. Manager shall maintain
appropriate fidelity levels with respect to personnel authorized to make
withdrawals from accounts.
4. PERSONNEL.
(a) MANAGER'S EMPLOYEES. All employees working at or in
connection with the operation of the Facility shall be employees of the Manager.
All salary, fringe benefits, bonuses and related expenses payable to such
employees shall be borne solely by the Manager; however, said salaries, fringe
benefits, bonuses and related expenses shall be reimbursed to Manager by the
Company from the Operating Accounts.
(b) MANAGER'S AUTHORITY. Manager shall elect, appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager may choose or shall deem necessary for the proper operation of the
Facility. Manager's selection and appointment of the Administrator and such
other personnel and the terms of their employment, including compensation, shall
be final and not subject to review.
5. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the tenth (10th) anniversary of the Commencement
Date, with automatic renewal periods of five (5) years each thereafter, unless
either party notifies the other in writing within one hundred twenty (120) days
of the expiration of the then current term, of its decision not to automatically
exercise the upcoming renewal option period. Notwithstanding anything to the
contrary in the foregoing, this Management Agreement shall not be (i) terminated
or amended without first obtaining the prior written consent of a Majority of
Owners (as defined in the Bond Documents); or (ii) renewed (automatically or
otherwise) without first obtaining the prior written consent of a Majority of
Owners, for so long as an Event of Default shall have occurred and be continuing
under the Bond Documents.
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. The Company shall pay Manager a
management fee ("Management Fee"), commencing on the Commencement Date, equal to
the sum of five (5%) percent of total Gross Revenues, payable monthly, subject
to the following provisions: (a) During the initial four (4) month start-up
phase beginning on the Commencement Date and ending on the completion of
construction of Phase I of the proposed Facility, the minimum monthly Management
Fee of $12,500 ("Minimum Fee") will be payable to Manager on the first day of
each month; (b) from the month of completion of construction of Phase I of the
proposed Facility through January 1998, the monthly Management Fee shall consist
of (i) a base fee (the "Base Fee") equal to the greater of $8,000 per month or 5
percent of the total Gross Revenues of the proposed Facility for such month,
which Base Fee shall be paid currently, and (ii) an additional fee (the
"Additional Fee") for such month equal to $12,500 minus the Base Fee for such
month, which Additional Fee shall accrue and be paid annually if sufficient
funds are available in the Operating Reserve
5
<PAGE>
Fund, pursuant to Section 7.17(a) of the Indenture; and (c) after January 1998,
a monthly Management Fee equal to 5 percent of the total Gross Revenues of the
proposed Facility for the month, which monthly fee shall be paid currently. If
any portion of the Management Fees are not paid when due because of the
unavailability of funds under the Indenture, said Management Fees will not
accrue interest, and Manager's remedy will be to terminate this Agreement as
provided in Section 12. As used in this Section 6, the term "Gross Revenues"
shall mean all revenue, whether in cash or credit, collected or uncollected,
from sources derived from the operation of the Facility, including, without
limitation, the aggregate of all rentals, sales and charges for services
rendered, ordered at, from or through the Facility, or performed in, upon or
about the Facility and all of its departments, including the gross consideration
or compensation received or receivable for services rendered to residents of the
Facility in the conduct of business on the premises, whether similar or
dissimilar to those hereinabove enumerated.
(b) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by the Company or
recommended by Manager and approved by the Company are not included as part of
the Management Fee due to Manager hereunder and shall be subject to Manager
being entitled to additional compensation to be agreed upon between Manager and
the Company.
(c) SUBORDINATION. Anything herein to the contrary
notwithstanding, the Manager and the Owner agree that, as long as any Bonds
remain outstanding, any Management Fees payable hereunder to the Manager shall
be paid only as provided in Sections 6.4(d) and 7.17 of the Trust Indenture
(which requires among other things the prior payment each month of operating
expenses (other than Management Fees), debt service on the Bonds, and deposits
into certain funds held by the Trustee under the Indenture).
7. LEGAL ACTIONS.
(a) Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility, all at the Company's expense.
(b) Manager is authorized to settle, on the Company's behalf and
in the Company's name, on terms and conditions as Manager shall deem in the best
interest of the Facility, any and all claims or demands arising out of the
operation of the Facility, irrespective of whether or not legal action has been
instituted, provided such settlement does not exceed Ten Thousand ($10,000)
Dollars for each such claim or demand. The Company agrees that such sums shall
be paid as an operating expense of the Facility.
8. INFORMATION; COOPERATION. The Company shall provide Manager with
any information reasonably required by Manager for the performance of its
obligations under this Agreement, and the Company shall permit Manager to
examine and copy any data in the possession or control of the Company affecting
the operation of the Facility, including, without limitation, accounting and
financial information. The Company shall fully cooperate with Manager to permit
Manager to discharge its obligations hereunder.
6
<PAGE>
9. INSURANCE. Manager is authorized to secure, on the Company's
behalf and in the Company's name, on such terms and conditions as Manager shall
deem in the best interests of the Facility, insurance coverage in amounts
sufficient to protect the Facility, Manager, and the Company against claims of
third parties, property damage and such other risks as are prudent; provided,
however, as long as any Bonds remain outstanding, such insurance shall comply
with the provisions of the Bond Documents. The cost of insurance shall be
charged as an operating expense of the Facility. Manager shall be a named
insured under all policies of insurance affecting the Facility.
10. REPRESENTATIONS AND WARRANTIES. The Company makes the following
representations and warranties, which are material, and upon which Manager has
relied as an inducement to enter into this Agreement.
(a) STATUS OF THE COMPANY. The Company is a limited partnership
duly organized, validly existing and in good standing under the laws of the
State of Pennsylvania; and is qualified to do business and is in good standing
in the State of Pennsylvania; and has all necessary power to carry on its
business as now being or in the future will be conducted.
(b) AUTHORITY AND DUE EXECUTION. The Company has full power and
authority to execute and deliver this Agreement and all related documents and to
carry out the transactions contemplated hereby, which actions will not with the
passing of time, the giving of notice or both, result in the default under or
breach or violation of (A) the Company's Limited Partnership Agreement as
amended to date, (B) any law, regulation, court order, injunction or decree of
any court, administrative agency or governmental body, or (C) any mortgage,
note, bond, indenture, agreement, lease, license, permit or other instrument or
obligation to which the Company, or the Facility, is now a party or by which the
Company, or the Facility, or any of its assets may be bound or affected. This
Agreement constitutes the valid and binding obligation of the Company
enforceable in accordance with its terms.
(c) LITIGATION. There is no litigation, claim, investigation,
challenge or other proceeding pending or, to the knowledge of the Company
threatened against the Company, or the Facility, which seeks to enjoin or
prohibit the Company from entering into this Agreement, or which in any way will
adversely affect the Facility.
11. INTENTIONALLY DELETED.
12. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
(i) If the Company shall fail to pay any installment of the
Management Fee for a period of fifteen (15) days after notice of such default
from Manager;
(ii) If either Manager or the Company fails to perform any
material term, provision, or covenant of this Agreement (other than as set forth
in Section 12(a)(i) above), and such failure continues for a period of thirty
(30) days after written notice from the other party specifying such failure to
perform;
7
<PAGE>
(iii) If Manager is dissolved or liquidated, 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, makes
a general assignment for the benefit of creditors, or files a petition or an
answer seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating Manager bankrupt or insolvent or approving a petition seeking
reorganization of such party or appointing a receiver, trustee or liquidator for
such party of all or a substantial part of its assets, and such order, judgment
or decree shall continue unstayed and in effect for any period of ninety (90)
consecutive days.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may,
subject to Section 5.23 of the Loan Agreement, at its option, terminate this
Agreement, and\or exercise all other rights and remedies available to such party
at law or in equity. In the event of any termination of this Agreement based
upon a breach of the Company, or for any other reason except a breach by Manager
due to bad faith, willful malfeasance or gross negligence, Manager shall be paid
all Management Fees and other fees due to the date of termination, plus any
other damages to which Manager is entitled subject to Section 7.17 of the
Indenture. No delay or failure on the part of either party hereunder to declare
the other party in default or exercise any remedies in respect of such default
shall operate as a waiver of such right to declare a default and exercise such
remedies. If either party is forced to engage counsel to enforce any of the
default provisions of this Agreement, the prevailing party shall also be
entitled to reasonable attorneys fees and all costs attendant to such action.
(c) LIQUIDATED DAMAGES. If this Agreement terminates by default
on the part of the Company, which does not include a termination of the
Management Agreement by the Company pursuant to the following paragraph, the
Company shall pay Manager within thirty (30) days following the date of such
event, as "Liquidated Damages", because actual damages incurred by Manager will
be difficult or impossible to ascertain, and not as a penalty, an amount equal
to the sum of accrued Management Fees during the immediately preceding
twenty-four (24) full calendar months (or such shorter period as equals the
unexpired term of this Agreement or current option period, at the date of
termination); provided, however, if the Facility has not been open for 24
months, then the average monthly Management Fee or Minimum Fee, whichever is
larger, since the Commencement Date multiplied by twenty-four (24), plus any
applicable Taxes assessed on such payment. Notwithstanding the foregoing, in no
event shall the amount payable pursuant to this Section be less than the product
of $1,500.00 multiplied by the number of resident units the Facility is licensed
for or has applied to be licensed for, provided, however, if the current term
will expire in less than twenty-four (24) months, then such amount shall be
reduced by multiplying it by a fraction, the numerator of which is the number of
months remaining in the current term and the denominator of which is twenty-four
(24). If the Management Agreement terminates prior to the Commencement Date,
the Company shall pay Manager within thirty (30) days following the date of
termination, Liquidated Damages in an amount equal to the product of $500.00
multiplied by the number of units the Facility will be licensed for, plus any
applicable taxes. Payment of Liquidated Damages shall be in addition to
Manager's other rights under this Agreement. Anything in this Agreement to the
contrary notwithstanding, as long as any of the Bonds remain Outstanding (as
defined in the Bond Documents), the company shall be required to pay any
Liquidated Damages only from the moneys paid over to the Company by the Trustee
from the Operating Reserve Fund pursuant to Section 7.17(a)(9)(C) of the Trust
Indenture.
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(d) Anything in this Agreement to the contrary notwithstanding,
the Company may terminate this Agreement, and this Agreement shall be terminated
if requested in writing by a Majority of Owners (as defined in the Trust
Indenture), without penalty (including the payment of Liquidated Damages
pursuant to Section 12(c) hereof) if (a) the Company fails to achieve the
Liquidity Covenant, the Debt Service Coverage Ratio, Occupancy Covenant, or the
Trades Payable Covenant (as defined in the Loan Agreement) for any two
consecutive Quarterly Evaluation Dates (as defined in the Bond Documents) or,
the Debt Service Coverage Ratio, the Ratio Requirements based on Actual Debt
Service Requirements, or Liquidity Covenants on any Annual Evaluation Date, (b)
the Management Consultant engaged pursuant to the provisions of the Bond
Documents recommends such termination, or (c) the Manager is grossly negligent
in the discharge of its duties under this Agreement. The determination of gross
negligence by the majority of Owners shall be deemed conclusive for purposes of
terminating the Management Agreement
13. FACILITY'S NAME. Manager shall have the absolute right and
authority to name and rename the Facility and to use such name(s) in any
advertising or promotion for the Facility. If Manager, with the Company's
approval, chooses to use a name for this Facility similar to one that it uses
for any other facility which it owns and\or manages, whether or not such name is
registered with any federal or state agency, then Manager hereby grants to the
Company and the Company accepts, a non-exclusive right to use Manager's chosen
name at this Facility only. Upon the termination of this Agreement for any
reason whatsoever, the Company shall immediately cease all use of Manager's
chosen name for the Facility, including any items which carry said name, such as
menus, supplies, signage, stationery, etc. The Company shall immediately direct
all telephone companies and their Yellow Pages advertising affiliates which
identify the Company's Facility under Manager's chosen name, to cease, effective
with their next published edition, all references to the Facility as such under
Manager's chosen name and, at the request of Manager, shall provide Manager with
written confirmation from such third parties of receipt of such direction. Any
post-termination usage by the Company of Manager's chosen name shall be a
willful infringement of Manager's trademark and other rights.
14. RIGHT OF FIRST REFUSAL. Upon the Company's receipt of any bona
fide "Third Party Offer" to consummate a sale or lease transaction regarding
this Facility, and provided such transaction has been approved by a Majority of
the Bondholders, the Company shall advise Manager in writing (including the
terms and conditions of such Third Party Offer) within ten (10) days of the
Company's receipt of such Third Party offer. Manager (or any affiliate) shall
have the right and option, exercisable by sending written notice of such
exercise by the thirtieth (30th) business day following receipt of such notice,
to purchase the Facility (or leasehold, if applicable) on the same terms and
conditions as set forth in such notice provided that Manager shall not be
responsible for payment of any finder's or brokerage fees, or for any non-cash
or non-purchase price terms of such Third Party offer. Any change in such terms
or such purchaser, or any failure to complete such sale within six (6) months
after the date the Company gives such notice to Manager, shall be treated as a
new offer, entitling Manager to new first refusal rights. This Section 14 shall
not apply to a conveyance of the Facility pursuant to a foreclosure under the
Bond Documents or a deed in lieu of foreclosure thereunder.
15. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with the Company's approval,
shall combine any advertising, public relations, or other activities with
similar activities at other facilities owned or operated
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by Manager or its Affiliates, the cost of such activities shall be shared
proportionately by the Company and Manager or its Affiliates, as the case may
be. Manager shall exclusively handle all public relations matters for the
Facility either through available in-house support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between the Company and Manager with respect to the Facility,
it being understood that Manager's status shall be that of an independent
contractor.
(c) COSTS AND EXPENSES OF FACILITY; INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the operation
of the Facility, shall be the sole responsibility of the Company. Manager, by
reason of the execution of this Agreement and the performance of its services
hereunder, shall not be liable for or deemed to have assumed any liability for
such fees, costs and expenses, or any other liability or debt of the Company
whatsoever, arising out of or relating to the Facility or incurred in its
operation. The Company agrees to indemnify, defend, pay on behalf of, and hold
Manager and its officers, directors, agents and employees harmless from and
against all losses, claims, damages and other liabilities arising out of or
relating to the ownership or operation of the Facility (except those resulting
from the willful misconduct or gross negligence of Manager), including, without
limitation, any liabilities asserted against Manager or any of its officers,
directors, employees or agents by reason of any action or inaction taken by any
of the foregoing while performing the duties of Manager hereunder on behalf of
the Company or any of its officers, directors, employees or agents. Manager
agrees to indemnify, defend, pay on behalf of, and hold the Company and its
officers, directors, agents and employees harmless from and against all losses,
claims, damages and other liabilities arising out of the gross negligence or
willful misconduct of Manager or any of its officers, directors, employees or
agents. The terms of this Section 15(c) shall survive the expiration or earlier
termination of this Agreement.
(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are the
Company's property.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with the Company
in effecting an orderly transition to any new manager of the Facility in order
to avoid any interruption in the rendering of services to the Company and, in
connection therewith, shall surrender to the Company all contracts, documents,
books, records, forms and reports in the possession of Manager regarding the
operation of the Facility.
(f) FORCE MAJEURE. Manager's obligations under this Agreement
are subject to strikes, labor disturbances, casualty, arbitrary and capricious
action by third parties, the Company's compliance with and observance of the
terms of this Agreement (including, without limitation, the Company's obligation
to provide Management Fees and sufficient working capital for the operation of
the Facility and funding for the capital improvements projected in the Annual
Budget), changes in laws, statutes, ordinances, regulations or orders of
governmental authorities or tribunals, war or other state of national emergency,
terrorism, acts of God and other factors beyond the control of Manager
collectively, ("Force Majeure"). Manager shall not be responsible or liable in
any way for its inability to discharge any of its obligations hereunder due to
Force Majeure.
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(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Manager
may not assign this Agreement without the consent of the Company and the
Majority of Owners; provided, however, if the proposed assignee is an Affiliate
of Manager, such consent shall not be unreasonably withheld. For the purpose of
this Agreement, the term "Affiliate" shall mean any other entity in which a
principal or principals of Manager own at least 51 percent of said entity.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the beginning
of this Agreement. All notices shall be deemed to be effective (i) upon
receipt, if hand delivered, (ii) three (3) days after mailing, if mailed by
certified mail, or (iii) the next business day after sending, if sent by
overnight courier service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both the Company and Manager.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of Pennsylvania, and all the terms and provisions hereof
and the rights and obligations of the parties hereto shall be construed and
enforced in accordance with the laws thereof, and the Courts sitting therein.
(k) TIME OF THE ESSENCE. Time is of the essence throughout this
entire Agreement.
(l) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
(n) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further and continuing waiver of any
such term, provision or condition of this Agreement.
(o) COVENANT NOT TO COMPETE. Neither the Company nor any
affiliate thereof, nor the Manager or any affiliate thereof, shall build,
operate or acquire any facility providing services substantially similar to the
services provided by the Facility within a 20 mile radius of the Facility
without the prior written consent of a majority of the bondholders, which
consent shall not be unreasonably withheld.
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(p) NONDISCRIMINATION CLAUSE. During the term of this
Agreement, the Manager agrees, as to itself and as to each employee of the
Facility controlling, controlled by or under common control with the Manager
(each, a "Contractor") as follows:
1. Contractor shall not discriminate against any employee, applicant
for employment, independent contractor or any other person because of race,
color, religious creed, handicap, ancestry, national origin, age or sex.
Contractor shall take affirmative action to insure that applicants are employed,
and that employees or agents are treated during employment, without regard to
their race, color, religious creed, handicap, ancestry, national origin, age or
sex. Such affirmative action shall include, but is not limited to: employment,
upgrading, demotion, or transfer, recruitment or recruitment advertising; layoff
or termination; rates of pay or other forms of compensation; and selection for
training. Contractor shall post in conspicuous places, available to employees,
agents, applicants for employment and other persons, a notice to be provided by
the contracting agency setting forth the provisions of this nondiscrimination
clause.
2. Contractor shall in advertisements or requests for employment placed
by it or on its behalf, state that all qualified applicants will receive
consideration for employment without regard to race, color, religious creed,
handicap, ancestry, national origin, age, or sex.
3. Contractor shall send each labor union or workers' representative
with which it has a collective bargaining agreement or other contract or
understanding, a notice advising said labor union or workers' representative of
its commitment to this nondiscrimination clause. Similar notice shall be sent
to every other source of recruitment regularly utilized by Contractor.
4. It shall be no defense to a finding of noncompliance with this
nondiscrimination clause that Contractor had delegated some of its employment
practices to any union, training program or other source of recruitment which
prevents it from meeting its obligations. However, if the evidence indicates
that Contractor was not on notice of the third-party discrimination or made a
good faith effort to correct it, such factor shall be considered in mitigation
in determining appropriate sanctions.
5. Where the practices of a union or any training program or other
source of recruitment will result in the exclusion of minority group persons, so
that Contractor will be unable to meet its obligations under this
nondiscrimination clause, Contractor shall then employ and fill vacancies
through other nondiscriminatory employment procedures.
6. Contractor shall comply with all state and federal laws prohibiting
discrimination in hiring or employment opportunities. In the event of
Contractor's noncompliance with the nondiscrimination clause of this contract or
with any such laws, the maturity of the indebtedness to the contracting agency
entered into pursuant to this contract may be accelerated, and Contractor may be
declared temporarily ineligible for further Commonwealth contracts, and other
sanctions may be imposed and remedies invoked.
7. Contractor shall furnish all necessary employment documents and
records to, and permit access to its books, records and accounts by, the
contracting agency for purposes of investigation to ascertain compliance with
the provisions of this clause. If Contractor does not possess documents or
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records reflecting the necessary information requested, it shall furnish such
information on reporting forms supplied by the contracting agency.
8. Contractor shall actively recruit minority subcontractors and women
subcontractors or subcontractors with substantial minority or women
representation among their employees.
9. Contractor shall include the provisions of this nondiscrimination
clause in every subcontract, so that such provisions will be binding upon each
subcontractor.
10. Contractor obligations under this clause are limited to Contractor's
facilities within Pennsylvania or, where the contract is for purchase of goods
manufactured outside of Pennsylvania, the facilities at which such goods are
actually produced.
IN WITNESS WHEREOF, the parties hereto have executed this
Management Agreement through their duly authorized representatives as of the day
and year first above written.
COMPANY: Senior Quarters at Glen Riddle, L.P.
By: Senior Living Associates, Inc., General
Partner
BY: ______________________________
Hal Peskin, President
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY: ______________________________
Evan Kaplan, President
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1/26/96
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the 29th day of
January, 1996, by and between Hassett Belfer Senior Housing, LLC ("Owner") with
offices located at 40 Cuttermill Road, Suite 401, Great Neck, NY 11021, and
Senior Quarters Management Corp., a New York Corporation ("Manager") with
offices located at 339 Crossways Park Drive, Woodbury, New York 11797.
Manager is in the business of owning and\or furnishing management services
to independent and assisted living residences for senior citizens. Owner
intends to construct an 80 unit retirement residence located in Glen Cove, New
York ("Facility"). Owner and Manager desire that Owner retain Manager to manage
the Facility and provide certain services in connection therewith.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows:
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the exclusive
management agent for the Facility, subject to the terms of this Agreement.
Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and until
four (4) months prior to the projected completion date of the Facility (the
first day of the four (4) month period hereinafter referred to as the
"Commencement Date"), Manager agrees to provide assistance to Owner in the
planning and financing of the Facility. Such assistance will include review of
architectural drawings and site plans; arranging for feasibility studies;
licensure and certification planning; support and assistance in filing for
Certificate of Need and other governmental requirements, if any; financial
analysis, and establishment of policies for the Facility, including the
preparation of procedures and operations for the Facility ("Initial Services").
(b) GENERAL MANAGEMENT. Beginning on the Commencement Date (to
permit the completion of all start-up work, including pre-opening marketing,
staff recruitment, training, facility setup, and licensing, if any) and
continuing until the expiration or earlier termination of this Agreement,
Manager shall manage and supervise the day-to-day operation of the Facility, in
the name of, on behalf of, and for the account of, Owner. Manager will maintain
a level of quality consistent with standards maintained at comparable class A
senior housing facilities, and in no event at a standard less than that
maintained at The Regency in Glen Cove, while said facility is being managed by
Senior Quarters Management Corp. or affiliate.
<PAGE>
(c) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager shall provide the following specific
services in the name of, on behalf of, and for the account of, Owner:
(i) FINANCIAL AND ACCOUNTING SERVICES.
Establish, prepare and maintain each of the following
items:
a. A monthly balance sheet and statement of
operations for the Facility, to be submitted to Owner within twenty (20) days
after the end of each calendar month, to include status of collection;
statements in comparative form showing comparison to prior year and to current
annual budget;
b. Resident billing records and collection of
all rents and additional rents;
c. Accounts receivable and collection records
and all necessary follow-up;
d. Accounts payable records;
e. All payroll functions in connection with the
Facility required by any federal, state or municipal authority, including
preparation of payroll checks, establishment of depository accounts for
withholding taxes, payment of such taxes (at Owner's sole expense), filing of
payroll reports, filing the necessary forms for unemployment insurance, workers
compensation and other forms relating to employment of employees in connection
with the Facility, and the issuance of W-2 forms to all employees; certain
payroll functions may be provided by an outside payroll service company;
f. A complete general ledger for the purposes
of recording and summarizing all transactions for the Facility; and
g. Such other financial or tax reporting and
financial controls as reasonably required by Owner or any lender to the
Facility.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory. All such purchasing shall be in accordance with the Annual Budget.
Manager shall use its best efforts to achieve the best possible pricing for the
Facility. All volume discounts and savings available to Manager pertaining to
this Facility, whether due to its operation of other facilities or otherwise,
shall be entirely passed through to the Facility.
(iii) LICENSURE. Obtain all necessary licenses, permits and
approvals by applicable governmental authorities with respect to the operation
of the Facility, and maintain
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certification from public third party payment programs, if any. Manager will
comply with all applicable provisions of law and regulations, and if necessary
will provide all information required by the New York State Department of Social
Services ("DSS") to DSS, and will cooperate with DSS in carrying out inspection
and enforcement activities.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel
and/or terminate in the name of and on behalf of Owner, such agreements and
contracts which Manager may deem necessary or advisable for the operation of the
Facility, including, without limitation, the furnishing of concessions,
supplies, repairs, alterations, decorations, utilities, extermination, refuse
removal and other services customarily provided to the Facility by independent
contractors. Manager shall be entitled to utilize any Affiliated Entities to
provide these services, provided the rates and prices therefor are competitive,
and Owner so approves and consents in writing. Affiliated Entity or Affiliate
shall mean with respect to any person, any corporation, partnership, trust or
other entity directly or indirectly controlling or controlled by or under direct
or indirect common control with such person. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of an entity whether through the
Ownership of voting stock, by contract or otherwise. All contracts which have a
duration of over one (1) year or a price in excess of five thousand ($5,000)
dollars are subject to Owner's prior review and final approval. All such
contracts shall be in accordance with the Annual Budget. Manager shall use its
best efforts to achieve the best possible pricing for the Facility. All volume
discounts and savings available to Manager pertaining to this Facility, whether
due to its operation of other facilities or otherwise, shall be entirely passed
through to the Facility.
(v) SALES & MARKETING - Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff. This
includes but is not limited to review and processing applications for residency
consistent with income qualifications, applicable laws and regulations and
appropriateness of occupancy; coordinating the transfer of residents to other
facilities where such transfer is medically necessitated or where other
circumstances require. The overall sales and marketing plan is subject to
Owner's prior review and approval, which shall not be unreasonably withheld,
including but not limited to form of lease and establishment of rent levels and
other resident charges. Manager shall maintain complete files for each resident
of the Facility, including leases, correspondence and all other pertinent
documents and papers.
(d) LIABILITY OF MANAGER. Manager shall have no liability to
Owner as a result of any decision made with respect to or any actions taken or
not taken in connection with the Manager's discharge of its obligations under
Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith in accordance with the terms of this
Agreement.
(e) EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Manager shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors,
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suppliers, residents, sponsors, licensees, customers and guests of the Facility.
Where circumstances allow, any communications from Owner to such persons or
entities or authorities shall be directed through Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to each
fiscal year that commences during the term of this Agreement, Manager shall
submit to Owner a proposed budget projecting the revenue to be available and
funds to be required during such fiscal year in order to operate the Facility
and make capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The budget shall be
based upon data and information then available and shall include, without
limitation, estimated salaries and fringe benefits for all employee groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the budget. Owner shall,
within twenty (20) days following receipt of such Annual Budget, notify Manager
of either Owner's approval of the Annual Budget or those items of which Owner
approves and those items of which Owner disapproves. As soon as reasonably
practical thereafter, Owner and Manager shall attempt to establish a mutually
agreeable Annual Budget for the Facility. In the event Owner does not timely
either approve, or disapprove, in total or in part, such Annual Budget, as
provided herein, then such Annual Budget as proposed by Manager shall be deemed
approved by Owner, and Manager shall be authorized to implement such program.
If Owner disapproves of the proposed Annual Budget either in total or in part,
then Owner and Manager shall have thirty (30) days from the date of Owner's
disapproval notice to formulate a mutually agreeable Annual Budget. If the
parties are unable to reach an agreement within said 30 day period, then Owner
and Manager shall each direct their respective accountants to pick and agree
upon a neutral third party accountant within fifteen (15) days of being directed
to do so, to act as an arbitrator in order to reach said Annual Budget. This
neutral third party accountant will be directed to reach a decision within
fifteen (15) days of being chosen, and his/her decision shall be final and
binding on both parties. Until this agreed upon Annual Budget is reached, the
Annual Budget for the immediately preceding calendar year plus five (5%) percent
for each category, shall apply. Each budget, as approved (and as revised from
time to time during a fiscal year with Owner's approval, as set forth in Section
3(b) hereof), is referred to herein as the "Annual Budget." The projected budget
submitted by Manager to Owner shall be an estimate of revenue and costs, and
Owner acknowledges that (i) projected revenue may not be actually received and
(ii) projected costs may be exceeded by actual expenses and capital expenditures
incurred in connection with the operation and maintenance of the Facility. By
submitting such a projected budget, Manager will not be providing a guarantee or
warranty as to the projected revenue, expenses, or capital expenditures of the
Facility. However, Manager will at all times endeavor to operate and maintain
the Facility as efficiently and profitably as possible, consistent with the
terms of this Agreement.
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(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Manager may not exceed any Annual Budget expense category annually,
which category is within Manager's control, by more than ten (10%) percent
without the approval of Owner, which shall not be unreasonably withheld or
delayed. Subject to the foregoing limitation, if there is an operating
shortfall, Owner shall be responsible on a periodic basis, as and when needed,
for all expenses and capital expenditures incurred in connection with the
operation and maintenance of the Facility, including, without limitation, costs
overruns which exceed the projections in the Annual Budget, but not to exceed
ten (10%) percent of the Annual Budget, unless otherwise agreed.
(c) BANK ACCOUNTS AND WORKING CAPITAL. Manager shall establish
in a local bank selected by Owner an account or accounts for the operation of
the Facility ("Operating Accounts"), in Owner's name and on behalf of Owner, and
shall thereafter deposit therein all funds received by Manager on Owner's behalf
from the operation of the Facility ("Gross Receipts"). Resident security
deposits shall held in a separate, segregated account. Owner shall receive
duplicate copies of all such accounts on a monthly basis. Subject to the other
provisions of this Agreement, Owner shall provide sufficient working capital for
the operation of the Facility (including, without limitation, the payment of
Manager's Management Fee under Section 6 hereof) and shall deposit such working
capital in the Operating Accounts from time to time upon the request of Manager.
Subject to the Annual Budget and the other provisions of this Agreement, all
expenses incurred in connection with the operation of the Facility (including,
without limitation, Manager's Management Fee) shall be paid out of the Operating
Accounts. Manager may write checks and draw on the Operating Accounts to pay
for operation of the Facility in accordance with the terms of this Agreement to
the extent required by Manager in the discharge of its obligations hereunder.
Subject to paragraph 3(b) above, Owner shall also provide sufficient funding to
make the capital improvements projected in the Annual Budget. Manager shall
have no obligation to (i) provide or contribute working capital required for the
operation of the Facility, or (ii) fund capital expenditures required to
maintain the Facility in good condition and repair.
(d) Manager shall pay from the Operating Accounts all costs
incurred in operating, maintaining and repairing the Facility, including but not
limited to: debt service under all mortgages and other payments due to Owner's
mortgagees, if any; water charges; sewer rents; real estate tax assessments and
all other charges and impositions payable with respect to the Facility; all
utility costs; labor and on-site payroll for employees of the Facility; and the
cost of repairs and improvements to the property; all in accordance with the
Annual Budget and the terms of this Agreement. Manager shall pay all such costs
promptly when such payments are due and payable. Manager, at the cost and
expense of Owner, shall bond or remove any mechanic's or materialman's liens
affecting the Facility within 15 days of the filing thereof. Manager shall pay
to Owner, on a monthly basis, the Gross Receipts, if any, remaining after the
payment of those items provided for in this Agreement.
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(e) BONDING. Manager shall maintain appropriate fidelity levels
with respect to personnel authorized to make withdrawals from accounts and shall
provide satisfactory evidence to Owner that such bond is in effect and that
Owner is the named insured thereunder.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing basis,
provide the Facility with a qualified Administrator ("Facility Administrator")
approved by Owner. The Facility Administrator shall be an employee of Manager
and compensated by Owner as set forth in the Annual Budget. Manager shall be
entitled to utilize the Facility Administrator, along with employees and agents
of Manager, in the discharge of Manager's obligations.
(b) MANAGER'S EMPLOYEES. Manager will provide such other
personnel deemed necessary to operate the Facility, pursuant to the standards
set forth in this Agreement and in accordance with the Annual Budget. All
employees working at or in connection with the operation of the Facility shall
be employees of Manager. All salary, fringe benefits, bonuses and related
expenses payable to such employees shall be borne solely by Owner as set forth
in the Annual Budget. Manager shall not be permitted to charge any of its
general overhead, administrative expenses or home office costs and salaries to
the Facility.
(c) MANAGER AUTHORITY. Manager shall elect, appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager chooses or shall deem necessary for the proper operation of the
Facility, including but not limited to personnel for food service, cleaning,
maintenance and operations, secretarial and bookkeeping, all in accordance with
the Annual Budget. Manager's selection, appointment, and discharge of the
Administrator and such other personnel and the terms of their employment,
including compensation, shall be subject to final review and approval by Owner;
however, Owner retains the authority to require Manager to discharge any person
working in the Facility.
5. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the fifth (5th) anniversary of the Commencement Date,
with renewal periods of five (5) years each thereafter, provided Manager
notifies Owner in writing within one-hundred eighty (180) days of the expiration
of the then current term, of its decision to exercise the upcoming renewal
option period. Owner then has sixty (60) days, from its receipt of Manager's
notice to exercise the renewal option, to disapprove of Manager's exercise of
said option, in which case, this Agreement shall expire at the end of the then
current term. In such event, notwithstanding anything to the contrary in this
Agreement, no liquidated damages shall be payable nor shall Owner be liable to
Manager in any way whatsoever for its disapproval of the renewal option. In the
event that Owner does not timely disapprove of Manager's exercise of said
option, then said option shall be deemed approved by Owner.
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6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. Owner shall pay Manager a
management fee ("Management Fee"), commencing on the Commencement Date, equal to
the sum of three and one half (3.5%) percent of total collected gross revenues,
payable on the fifteenth (15th) day of each month for the previous month's total
gross revenues. During the initial four (4) month start-up phase beginning with
the Commencement Date, and until the calculated Management Fee of three and one
half (3.5%) percent of total collected gross revenues together with the
Incentive Fee computed in accordance with paragraph 6(b) below exceeds eight
thousand two hundred ($8,200) dollars per month, a minimum monthly Management
Fee of eight thousand two hundred ($8,200) dollars ("Minimum Fee") will be
payable starting on the fifteenth day of the month following the Commencement
Date, and thereafter on the fifteenth (15th) day of each month.
(b) INCENTIVE FEE. In addition to the above-mentioned
Management Fee, Manager shall also earn and will be paid an incentive fee
("Incentive Fee") equal to two (2%) percent of the "Net Operating Income" which
is defined as income before debt service and income taxes produced by operations
in the Facility. Real Estate taxes and all other costs and expenses of the
Facility (except debt service and income taxes) shall be included in the
computation of Net Operating Income. Said Incentive Fee will be paid on a
monthly basis, and adjusted annually in accordance with the actual annual Net
Operating Income.
(c) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by Owner or
recommended by Manager and approved by Owner are not included as part of the
Management Fee due to Manager hereunder and shall be subject to Manager being
entitled to additional compensation to be agreed upon between Manager and Owner.
7. LEGAL ACTIONS.
(a) Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility, all at Owner's expense, but subject to Owner's
prior approval, which shall not be unreasonably withheld, except that if said
action is for an amount of five thousand ($5,000) or less, Owner's prior
approval shall not be required. However, in such instance, Manager will provide
Owner with copies of all legal documentation.
(b) Manager is authorized to settle, on the Owner's behalf and in
Owner's name, on terms and conditions as Manager shall deem in the best interest
of the Facility, any and all claims or demands arising out of the operation of
the Facility, irrespective of whether or not legal action has been instituted,
provided such settlement does not exceed Five Thousand ($5,000) Dollars for each
such claim or demand. Owner agrees that such sums shall be paid as
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an operating expense of the Facility. Manager will consult Owner on all
settlements and legal actions; however, Owner's prior approval shall be required
for all settlements in excess of five thousand ($5,000) dollars.
8. INFORMATION; COOPERATION, COMPLIANCE WITH LAW.
(a) Owner shall provide Manager with any information required by
Manager for the performance of its obligations under this Agreement, and Owner
shall permit Manager to examine and copy any data in the possession or control
of Owner affecting the operation of the Facility, including, without limitation,
accounting and financial information. Owner shall fully cooperate with Manager
to permit Manager to discharge its obligations hereunder. All such information
in the possession or control of Manager shall be provided to Owner upon request.
(b) Owner, at its own cost and expense, shall have the right to
audit all aspects of Manager's performance hereunder, including but not limited
to financial and accounting matters; contracts (procedures and content);
personnel matters; sales and marketing practices; licensure issues, if any; and
Facility operations. Manager shall fully and promptly cooperate with Owner's
professionals utilized in connection therewith and shall provide all information
requested to undertake such audits.
(c) If Owner determines that a licensed home care services agency
is to be utilized at the Facility, Manager will arrange for the delivery of home
care to the residents through a vendor selected by Owner. Manager shall have
supervisory control of said agency, subject to Owner's prior approval, which
approval shall not be unreasonably withheld.
(d) Manager shall promptly comply with all laws, regulations,
licenses and requirements of all governmental or administrative agencies having
jurisdiction over the Facility. Manager shall furnish to Owner, upon receipt,
any and all notices affecting the Facility, including without limitation,
notices from any taxing or other governmental authority and notices of all
violations of laws, regulations, ordinances or orders issued by any governmental
authority or by any Board of Fire Underwriters or other similar body.
9. INSURANCE. Manager shall secure, on the Owner's behalf and in the
Owner's name, on such terms and conditions as Manager and Owner shall deem in
the best interests of the Facility, insurance coverage in amounts sufficient to
protect the Facility, Manager, and Owner against claims of third parties,
property damage and such other risks as are prudent and customary in the
operation of similar facilities. The cost of insurance shall be charged as an
operating expense of the Facility. Manager shall be a named insured under all
policies of insurance affecting the Facility. Any insurance coverage acquired
for the Facility is subject to Owner's prior review and final approval. Manager
shall maintain complete copies of all insurance policies at the Facility.
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10. REPRESENTATIONS AND WARRANTIES. Owner and Manager make the
following representations and warranties, which are material, and upon which
Owner and Manager have relied as an inducement to enter into this Agreement.
(a) STATUS OF OWNER. Owner is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
New York; and is qualified to do business in the State of New York; and has all
necessary power to carry on its business as now being or in the future will be
conducted.
(b) STATUS OF MANAGER. Manager is a for-profit corporation duly
organized, validly existing and in good standing under the laws of the State of
New York; and is qualified to do business in the State of New York; and has all
necessary power to carry on its business as now being or in the future will be
conducted.
(c) AUTHORITY AND DUE EXECUTION. Owner and Manager both have
full power and authority to execute and deliver this Agreement and all related
documents and to carry out the transactions contemplated hereby, which actions
will not with the passing of time, the giving of notice or both, result in the
default under or breach or violation of (a) Articles of Organization, Member
Certificates, Operating Agreement, Articles of Incorporation, and/or By- Laws,
(b) any law, regulation, court order, injunction or decree of any court,
administrative agency or governmental body, or (c) any mortgage, note, bond,
indenture, agreement, lease, license, permit or other instrument or obligation
to which Owner, Manager, or the Facility, is now a party or by which Owner,
Manager, or the Facility, or any of its assets may be bound or affected. This
Agreement constitutes the valid and binding obligation of Owner and Manager
enforceable in accordance with its terms.
(d) LITIGATION. There is no litigation, claim, investigation,
challenge or other proceeding pending or, to the knowledge of Owner or Manager
threatened against Owner or Manager, or the Facility, which seeks to enjoin or
prohibit Owner or Manager from entering into this Agreement, or which in any way
will adversely affect the Facility.
(e) QUIET ENJOYMENT. Owner shall request in writing of all
lenders to the Facility that all mortgages, security instruments, or other
instruments or encumbrances on the Facility executed after this Agreement's
execution shall provide that this Agreement and Manager's rights hereunder shall
not be terminated or adversely affected in case of a foreclosure or the taking
of a deed in lieu of foreclosure, of any such instrument. Owner shall further
request in writing that such instrument shall also provide that no foreclosure
or similar action shall be brought by the mortgages and/or holder of any
promissory notes which such instrument secures in case of breach thereof, until
Manager has received thirty (30) days' prior written notice from the holder of
such instrument of its intention to foreclose, giving Manager the right to
correct any default within said thirty (30) day period.
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11. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
(i) If Owner shall fail to pay any installment of the
Minimum Fee, Management Fee or Incentive Fee for a period of seven (7) days
after notice of such default from Manager;
(ii) If either Manager or Owner fails to perform any material
term, provision, or covenant of this Agreement (other than as set forth in
Section 12(a)(i) above), and such failure continues for a period of thirty (30)
days after written notice from the other party specifying such failure to
perform;
(iii) If during any six month period within the term of this
Agreement, the Facility has a twenty (20%) negative variance from the Net
Operating Income in the Budget.
(iv) If Manager is dissolved or liquidated, 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, makes
a general assignment for the benefit of creditors, or files a petition or an
answer seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating Manager bankrupt or insolvent or approving a petition seeking
reorganization of such party or appointing a receiver, trustee or liquidator for
such party of all or a substantial part of its assets, and such order, judgment
or decree shall continue unstayed and in effect for any period of sixty (60)
consecutive days.
(v) If Manager fails to operate the Facility such that any
covenant required by any lender to the Owner relating to the operation of the
Facility is not met.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may, at
its option, terminate this Agreement, and\or exercise all other rights and
remedies available to such party at law or in equity, including specific
performance. In the event of any termination of this Agreement, Manager shall
be paid all Minimum Fees, Management Fees or Incentive Fees and other fees due
to the date of termination, if this Agreement is terminated by Owner for a
reason other than for good cause as delineated in paragraph 11(c) below. No
delay or failure on the part of either party hereunder to declare the other
party in default or exercise any remedies in respect of such default shall
operate as a waiver of such right to declare a default and exercise such
remedies. If either party is forced to engage counsel to enforce any of the
default provisions of this Agreement, the prevailing party shall also be
entitled to reasonable attorneys' fees and all costs attendant to such action.
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(c) LIQUIDATED DAMAGES. If this Agreement is terminated by
Owner for a reason other than for good cause as delineated in paragraph 11
herein, Owner shall pay Manager, in addition to any Minimum Fee, Management Fee
or Incentive Fee due Manager, within thirty (30) days following the date of such
event, as "Liquidated Damages", because actual damages incurred by Manager will
be difficult or impossible to ascertain, and not as a penalty, an amount equal
to the following:
During the first three (3) years of the term of this Agreement, an
amount equal to the Management Fees, Minimum Fees and Incentive Fees
earned in the prior twelve (12) month period; if 12 months have not
elapsed since the Commencement Date, this amount shall equal the
average monthly Management Fees, Minimum Fees and Incentive Fees
earned by Manager multiplied by twelve (12);
During the fourth and fifth years of the term of this Agreement or
any renewal term thereafter, an amount equal to the Management Fees,
Minimum Fees and Incentive Fees earned in the prior six (6) month
period.
If the Management Agreement terminates prior to the Commencement
Date without cause, Owner shall pay Manager within thirty (30) days following
the date of termination, Liquidated Damages in an amount equal to twenty five
thousand ($25,000) dollars.
(d) Termination for "good cause" is defined as:
(i) any "Event of Default" defined in section 11 hereof,
unless timely cured in accordance with such section;
(ii) any act of fraud, misappropriation, embezzlement or
similar willful and malicious conduct by the Manager against the Owner; or
(iii) indictment of any principals of the Manager for a felony
or any conviction of, or guilty plea by any principal to, a crime involving
moral turpitude if that crime of moral turpitude tends or would reasonably tend
to bring the Owner into disrepute.
12. FACILITY'S NAME. Manager and Owner must agree on the name of the
Facility and to use such name in any advertising or promotion for the Facility.
If both parties choose to use a name for this Facility similar to one that
Manager uses for any other facility which it owns and\or manages, whether or not
such name is registered with any federal or state agency, then Manager hereby
grants to Owner and Owner accepts, a non-exclusive right to use Manager's chosen
name at this Facility only. Upon the termination of this Agreement for any
reason whatsoever, Owner shall as soon as is practicable, cease all use of
Manager's name for the Facility, including any items which carry said name, such
as menus, supplies, signage, stationery, etc. Owner shall immediately direct
all telephone companies and their Yellow Pages
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advertising affiliates which identify Owner's Facility under Manager's name, to
cease, effective with their next published edition, all references to the
Facility as such under Manager's name and, at the request of Manager, shall
provide Manager with written confirmation from such third parties of receipt of
such direction. Any post-termination usage by Owner of Manager's name shall be
a willful infringement of Manager's trademark and other rights. If the
Facility's name is not similar to one used by Manager for any other facility
which it owns and/or manages, then Manager agrees that the provisions and
restrictions of this paragraph shall apply to its use of the Facility's name to
the full extent set forth herein.
13. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's prior approval,
shall combine any advertising, public relations, or other activities with
similar activities at other facilities owned or operated by Manager or its
Affiliates, the cost of such activities shall be shared proportionately by Owner
and Manager or its Affiliates, as the case may be. Manager shall handle all
public relations matters for the Facility either through available in-house
support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between Owner and Manager with respect to the Facility, it
being understood that Manager's status shall be that of an independent
contractor.
(c) COSTS AND EXPENSES OF FACILITY, INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the operation
of the Facility, shall be the sole responsibility of Owner, provided they are
incurred in connection with Manager's proper performance under this Agreement.
Accordingly, Manager, by reason of the execution of this Agreement and the
proper performance of its services hereunder, shall not be liable for or deemed
to have assumed any liability for such fees, costs and expenses, or any other
liability or debt of Owner whatsoever, arising out of or relating to the
Facility or incurred in its operation. Owner agrees to indemnify, defend, pay
on behalf of, and hold Manager and its officers, directors, agents and employees
harmless from and against all losses, claims, damages and other liabilities
arising out of or relating to the Ownership or operation of the Facility (except
those resulting from the willful misconduct, negligence or breach of contract by
Manager), including, without limitation, any liabilities asserted against
Manager or any of its officers, directors, employees or agents by reason of any
action or inaction taken by any of the foregoing while properly performing the
duties of Manager hereunder on behalf of Owner. Manager agrees to indemnify,
defend, pay on behalf of, and hold Owner and its officers, directors, agents and
employees harmless from and against all losses, claims, damages and other
liabilities arising out of the willful misconduct, negligence or breach of
contract by Manager. The terms of this Section 14(c) shall survive the
expiration or earlier termination of this Agreement.
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(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are Owner's
property.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with Owner in
effecting an orderly transition to any new Manager of the Facility in order to
avoid any interruption in the rendering of services to Owner and, in connection
therewith, shall surrender to Owner all contracts, documents, books, records,
forms and reports in the possession of Manager regarding the operation of the
Facility.
(f) FORCE MAJEURE. Manager's obligations under this Agreement
are subject to strikes, labor disturbances, casualty, arbitrary and capricious
action by third parties, Owner's compliance with and observance of the terms of
this Agreement (including, without limitation, Owner's obligation to provide
Management Fees and sufficient working capital for the operation of the Facility
and funding for the capital improvements projected in the Annual Budget in
accordance with the terms of this Agreement), changes in laws, statutes,
ordinances, regulations or orders of governmental authorities or tribunals, war
or other state of national emergency, terrorism, acts of God and other factors
beyond the control of Manager collectively ("Force Majeure"). Manager shall not
be responsible or liable in any way for its inability to discharge any of its
obligations hereunder solely due to Force Majeure.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Manager
may not assign this Agreement to any other entity without Owner's consent, which
consent may be withheld in Owner's sole and absolute discretion, except to an
entity in which Evan A. Kaplan, Glenn Kaplan and Wayne Kaplan collectively own a
100 percent interest.
(h) NOTICES. All notices, demands, consents, approvals and
requests to be made hereunder by one party to other shall be in writing, and
shall be delivered by hand, mailed by certified mail, return receipt requested,
or sent by overnight courier service, with postage prepaid, to the addresses
listed at the beginning of this Agreement, or to such other address as either
party may designate by sending written notice to the other party in the manner
hereinabove prescribed.
All notices shall be deemed to be received (i) upon receipt, if hand
delivered, (ii) three (3) days after mailing, if mailed by certified mail, or
(iii) the next business day after sending, if sent by overnight courier service.
(i) ENTIRE AGREEMENT, AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both Owner and Manager.
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(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New York, and all the terms and provisions hereof and
the rights and obligations of the parties hereto shall be construed and enforced
in accordance with the laws thereof, and the Courts sitting in Nassau County
therein.
(k) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(l) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
(m) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further and continuing waiver of any
such term, provision or condition of this Agreement.
(n) EQUITY INVESTMENT.
(i) At Owner's election and sole discretion, upon sixty (60)
days' prior written notice from Owner to Manager, Manager or its designee can be
required by Owner to purchase up to a ten (10%) percent limited partnership
interest in the Ownership of the Facility and all of its real and personal
property for a maximum price of two hundred thousand ($200,000) dollars. Said
actual price shall be based on a Percentage of the Fair Market Value ("FMV") of
all limited partnership interests of the Facility, with said FMV determined
according to the method set forth in paragraph 14(a)(ii) below. Said sale will
be subject to definitive documentation to be mutually agreed upon by both
parties. However, the arbitrary failure of Manager to complete the equity
investment contemplated herein shall be considered an Event of Default by
Manager and shall be subject to the remedies set forth in paragraph 12(b).
(ii) In the event that Manager or its designee has become a
limited partner in the Facility and thereafter the Management Agreement is
terminated, Owner must purchase Manager's or its designee's limited partnership
interest in the Facility at its FMV. If Owner and Manager cannot agree on the
FMV within thirty (30) days, they shall each promptly hire an independent
appraiser to make a definitive appraisal of the value of Manager's limited
partnership interest within 30 days after their appointment. If the two
appraisers cannot agree on the FMV of Manager's limited partnership interest,
the two appraisers shall promptly choose a third independent appraiser,
agreeable to both of the original appraisers, and the third appraiser's value of
Manager's limited partnership interest shall be made within thirty (30) days
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of appointment and shall be conclusive for purposes hereof. Each side shall
bear the costs of their own appraiser, and shall share equally in the cost of
the third appraiser, if necessary. The closing shall take place sixty (60) days
after determination of the appraised value.
(o) MODIFICATIONS REQUESTED BY AND COOPERATION WITH MORTGAGEE. If any
prospective mortgagee of the land or building requires the modification of this
Agreement in such manner and does not materially lessen Manager's rights
hereunder, Manager shall not delay or withhold its consent to such modification
and shall execute and deliver such confirming documentation as thereby required,
including any reasonable and necessary changes to this Agreement. Manager shall
comply with all requirements of Owner's mortgagees and shall promptly furnish
Owner with copies of all notices and other communication which are sent by any
mortgagee to Manager.
IN WITNESS WHEREOF, the parties hereto have executed this Management
Agreement through their duly authorized representatives as of the day and year
first above written.
OWNER: HASSETT BELFER SENIOR HOUSING, LLC
BY:
--------------------------------------
, member
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY:
--------------------------------------
EVAN A. KAPLAN, President
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4/29/96
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the _____ day of
April, 1996, by and between The Mayfair at Glen Cove, LLC ("Owner") with offices
located at 40 Cuttermill Road, Suite 401, Great Neck, NY 11021, and Senior
Quarters Management Corp., a New York Corporation ("Manager") with offices
located at 339 Crossways Park Drive, Woodbury, New York 11797.
Manager is in the business of owning and/or furnishing management services
to independent and assisted living residences for senior citizens. Owner
intends to construct an 80 unit retirement residence located in Glen Cove, New
York ("Facility"). Owner and Manager desire that Owner retain Manager to manage
the Facility and provide certain services in connection therewith.
The City of Glen Cove Housing Authority (the "Authority") has issued its $
_____________ aggregate principal amount of Senior Living Facility Revenue Bonds
(The Mayfair at Glen Cove), Series 1996 (the "Bonds") pursuant to a Trust
Indenture dated as of May 1, 1996 (the "Indenture"), between the Authority and
Manufacturers and Traders Trust Company, as trustee (the "Trustee") and has
deposited the proceeds of the Bonds with the Trustee. The Authority and the
Owner have entered into a Lease Agreement dated as of May 1, 1996 (the "Company
Lease") pursuant to which the Authority will lease the Facility from the Owner
upon the completion of the Facility for a lump-sum rental payment equal to the
proceeds of the Bonds. The Owner will then use such proceeds of the Bonds,
INTER ALIA, to repay the construction loan which the Owner has incurred to pay
the costs of constructing the Facility. In addition, the Owner and the
Authority have entered into a Lease Agreement dated as of May 1, 1996 (the
"Lease Agreement"), pursuant to which the Owner will sublease the Facility from
the Authority upon the completion of the Facility for periodic rental payments
sufficient to pay, INTER ALIA, the debt service on the Bonds. In addition,
the Authority and the Owner have executed a Mortgage, Assignment and Security
Agreement dated as of May 1, 1996 (the "Mortgage, Assignment and Security
Agreement"), pursuant to which the Owner and the Authority have granted to the
Trustee a mortgage on and security interest in the Facility, an assignment of
the Company Lease and the Lease Agreement and a mortgage on and security
interest in the Trust Estate (as defined in the Mortgage, Assignment and
Security Agreement). In addition, the Company and the Trustee will enter into a
Continuing Disclosure Agreement dated as of May 1, 1998 (the "Continuing
Disclosure Agreement"), for the benefit of the owners of the Bonds in order to
comply with Rule 15cd2-12 promulgated by the Securities and Exchange Commission.
The Indenture, the Company Lease, the Lease Agreement, the Mortgage, Assignment
and Security Agreement and the Continuing Disclosure Agreement are hereinafter
referred to collectively as the "Bond Documents." The Owner and the Manager
acknowledge that the Bond Documents require that the Owner's payment obligations
under this Agreement must be subordinated to certain payment obligations under
the Bond Documents (including, without limitation, the operating expenses of the
Facility (excluding any Management Fees payable under this Agreement), debt
service on the Bonds and deposits into the Debt Service Reserve Fund and the
Capital and Maintenance Fund established under the Indenture).
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows:
<PAGE>
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the exclusive
management agent for the Facility, subject to the terms of this Agreement.
Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and until
four (4) months prior to the projected completion date of the Facility (the
first day of the four (4)-month period hereinafter referred to as the
"Commencement Date"), Manager agrees to provide assistance to Owner in the
planning and financing of the Facility. Such assistance will include review of
architectural drawings and site plans; arranging for feasibility studies;
licensure and certification planning; support and assistance in filing for
Certificate of Need and other governmental requirements, if any; financial
analysis, and establishment of policies for the Facility, including the
preparation of procedures and operations for the Facility ("Initial Services").
(b) GENERAL MANAGEMENT. Beginning on the Commencement Date (to
permit the completion of all start-up work, including pre-opening marketing,
staff recruitment, training, facility set-up, and licensing, if any) and
continuing until the expiration or earlier termination of this Agreement,
Manager shall manage and supervise the day-to-day operation of the Facility, in
the name of, on behalf of, and for the account of, Owner. Manager will maintain
a level of quality consistent with standards maintained at comparable class A
senior housing facilities, and in no event at a standard less than that
maintained at The Regency in Glen Cove, while said facility is being managed by
Senior Quarters Management Corp. or affiliate.
(c) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager shall provide the following specific
services in the name of, on behalf of, and for the account of, Owner:
(i) FINANCIAL AND ACCOUNTING SERVICES.
Establish, prepare and maintain each of the following
items:
a. A monthly balance sheet and statement of
operations for the Facility, to be submitted to Owner within twenty (20) days
after the end of each calendar month, to include status of collection;
statements in comparative form showing comparison to prior year and to current
annual budget;
b. Resident billing records and collection of all
rents and additional rents;
c. Accounts receivable and collection records and all
necessary follow-up;
d. Accounts payable records;
e. All payroll functions in connection with the
Facility required by any federal, state or municipal authority, including
preparation of payroll checks, establishment of depository accounts for
withholding taxes, payment of such taxes (at Owner's sole expense), filing of
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payroll reports, filing the necessary forms for unemployment insurance, workers
compensation and other forms relating to employment of employees in connection
with the Facility, and the issuance of W-2 forms to all employees; certain
payroll functions may be provided by an outside payroll service company;
f. A complete general ledger for the purposes of
recording and summarizing all transactions for the Facility;
g. Such other financial or tax reporting and
financial controls as reasonably required by Owner or any lender to the
Facility; and
h. Manager is responsible for the preparation and
delivery of all reports required to be delivered to the Trustee and/or the
Bondholders under the Bond Documents, at the time and in the manner required
thereunder.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including, without limitation, supplies, equipment
and inventory. All such purchasing shall be in accordance with the Annual
Budget. Manager shall use its best efforts to achieve the best possible pricing
for the Facility. All volume discounts and savings available to Manager
pertaining to this Facility, whether due to its operation of other facilities or
otherwise, shall be entirely passed through to the Facility.
(iii) LICENSURE. Obtain all necessary licenses, permits and
approvals by applicable governmental authorities with respect to the operation
of the Facility, and maintain certification from public third party payment
programs, if any. Manager will comply with all applicable provisions of law and
regulations, and if necessary will provide all information required by the New
York State Department of Social Services ("DSS") to DSS, and will cooperate with
DSS in carrying out inspection and enforcement activities. All such licenses,
permits, approvals and certifications shall be in the name of the Owner, unless
the governing entities require otherwise.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel
and/or terminate in the name of and on behalf of Owner, such agreements and
contracts which Manager may deem necessary or advisable for the operation of the
Facility, including, without limitation, the furnishing of concessions,
supplies, repairs, alterations, decorations, utilities, extermination, refuse
removal and other services customarily provided to the Facility by independent
contractors. Manager shall be entitled to utilize any Affiliated Entities to
provide these services, provided the rates and prices therefor are competitive,
and Owner so approves and consents in writing, and notices of such contracts is
given to the Owners of the Bonds. Affiliated Entity or Affiliate shall mean
with respect to any person, any corporation, partnership, trust or other entity
directly or indirectly controlling or controlled by or under direct or indirect
common control with such person. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of an entity whether through the Ownership of voting
stock, by contract or otherwise. All contracts which have a duration of over
one (1) year or a price in excess of five thousand ($5,000) dollars are subject
to Owner's prior review and final approval. All such contracts shall be in
accordance with the Annual Budget. Manager shall use its best efforts to
achieve the best possible pricing for the Facility. All volume discounts and
savings available to Manager pertaining to this Facility, whether due to its
operation of other facilities or otherwise, shall be entirely passed through to
the Facility.
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(v) SALES & MARKETING. Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff. This
includes but is not limited to review and processing applications for residency
consistent with income qualifications, applicable laws and regulations and
appropriateness of occupancy; coordinating the transfer of residents to other
facilities where such transfer is medically necessitated or where other
circumstances require. The overall sales and marketing plan is subject to
Owner's prior review and approval, which shall not be unreasonably withheld,
including but not limited to form of lease and establishment of rent levels and
other resident charges. Manager shall maintain complete files for each resident
of the Facility, including leases, correspondence and all other pertinent
documents and papers.
(d) LIABILITY OF MANAGER. Manager shall have no liability to
Owner as a result of any decision made with respect to or any actions taken or
not taken in connection with the Manager's discharge of its obligations under
Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith in accordance with the terms of this
Agreement.
(e) EXCLUSIVE REPRESENTATIVE. It is understood and agreed that
Manager shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Where circumstances allow, any
communications from Owner to such persons or entities or authorities shall be
directed through Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to each
fiscal year that commences during the term of this Agreement, Manager shall
submit to Owner a proposed budget projecting the revenue to be available and
funds to be required during such fiscal year in order to operate the Facility
and make capital improvements that may be required in order to keep the
Facility's physical plant in good condition and repair. The budget shall be
based upon data and information then available and shall include, without
limitation, estimated salaries and fringe benefits for all employee groups,
projected staffing patterns for the Facility, estimates of required purchases
for supplies, inventory, food and similar items, and an estimate of the level of
rates and charges sufficient to generate revenue necessary to operate the
Facility and make capital improvements projected in the budget. Owner shall,
within twenty (20) days following receipt of such Annual Budget, notify Manager
of either Owner's approval of the Annual Budget or those items of which Owner
approves and those items of which Owner disapproves. As soon as reasonably
practical thereafter, Owner and Manager shall attempt to establish a mutually
agreeable Annual Budget for the Facility. In the event Owner does not timely
either approve, or disapprove, in total or in part, such Annual Budget, as
provided herein, then such Annual Budget as proposed by Manager shall be deemed
approved by Owner, and Manager shall be authorized to implement such program.
If Owner disapproves of the proposed Annual Budget either in total or in part,
then Owner and Manager shall have thirty (30) days from the date of Owner's
disapproval notice to formulate a mutually agreeable Annual Budget. If the
parties are unable to reach an agreement within said 30-day period, then Owner
and Manager shall each direct their respective accountants to pick and agree
upon a neutral third party accountant within fifteen (15) days of being directed
to do so, to act as an arbitrator in order to reach said Annual Budget. This
neutral third party accountant will be directed to reach a decision within
fifteen (15) days of being chosen, and his/her decision shall be final and
binding on both parties. Until this agreed upon Annual Budget is reached, the
Annual Budget for the immediately preceding calendar
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year plus five (5%) percent for each category, shall apply. Each budget, as
approved (and as revised from time to time during a fiscal year with Owner's
approval, as set forth in Section 3(b) hereof), is referred to herein as the
"Annual Budget." The projected budget submitted by Manager to Owner shall be an
estimate of revenue and costs, and Owner acknowledges that (i) projected revenue
may not be actually received and (ii) projected costs may be exceeded by actual
expenses and capital expenditures incurred in connection with the operation and
maintenance of the Facility. By submitting such a projected budget, Manager
will not be providing a guarantee or warranty as to the projected revenue,
expenses, or capital expenditures of the Facility. However, Manager will at all
times endeavor to operate and maintain the Facility as efficiently and
profitably as possible, consistent with the terms of this Agreement. Anything
in this Section 3 to the contrary notwithstanding, as long as any Bonds remain
outstanding, the Annual Budget shall comply with Section 6.15 of the Lease
Agreement.
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Manager may not exceed any Annual Budget expense category annually,
which category is within Manager's control, by more than ten (10%) percent
without the approval of Owner, which shall not be unreasonably withheld or
delayed. Subject to the foregoing limitation, if there is an operating
shortfall, Owner shall be responsible on a periodic basis, as and when needed,
for all expenses and capital expenditures incurred in connection with the
operation and maintenance of the Facility, including, without limitation, costs
overruns which exceed the projections in the Annual Budget, but not to exceed
ten (10%) percent of the Annual Budget, unless otherwise agreed.
(c) BANK ACCOUNTS AND WORKING CAPITAL. Manager, in the
Facility's name and on behalf of the Owner, shall transfer daily all Gross
Receipts (as defined in the Bond Documents) of the Facility to the Trustee for
deposit in the Revenue Fund established under the Indenture. Manager shall
establish in a local bank selected by Owner an account or accounts for the
operation of the Facility ("Operating Accounts"), in Owner's name and on behalf
of Owner, and shall thereafter deposit therein all funds received by Manager on
Owner's behalf from the operation of the Facility ("Gross Receipts"). Resident
security deposits shall held in a separate, segregated account. Owner shall
receive duplicate copies of all such accounts on a monthly basis. Subject to
the other provisions of this Agreement and the Indenture, Owner shall provide
sufficient working capital for the operation of the Facility (including, without
limitation, the payment of Manager's Management Fee under Section 6 hereof) and
shall deposit such working capital in the Operating Accounts from time to time
upon the request of Manager, subject to the provisions of the Bond Documents.
Subject to the Annual Budget and the other provisions of this Agreement, all
expenses incurred in connection with the operation of the Facility shall be paid
out of the Operating Accounts; provided, however, that as long as any Bonds
remain outstanding, the Manager's Management Fees shall be paid directly by the
Trustee out of the Revenue Fund established under the Indenture and as otherwise
provided in the Bond Documents. Manager may write checks and draw on the
Operating Accounts to pay for operation of the Facility in accordance with the
terms of this Agreement to the extent required by Manager in the discharge of
its obligations hereunder. Subject to paragraph 3(b) above, Owner shall also
provide sufficient funding to make the capital improvements projected in the
Annual Budget. Manager shall have no obligation to (i) provide or contribute
working capital required for the operation of the Facility, or (ii) fund capital
expenditures required to maintain the Facility in good condition and repair.
(d) Manager shall pay from the Operating Accounts all costs
incurred in operating, maintaining and repairing the Facility, excluding the
debt service on the Bonds, and including but not
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limited to: water charges; sewer rents; real estate tax assessments and all
other charges and impositions payable with respect to the Facility; all utility
costs; labor and on-site payroll for employees of the Facility; and the cost of
repairs and improvements to the property; all in accordance with the Annual
Budget and the terms of this Agreement. Manager shall pay all such costs
promptly when such payments are due and payable. Manager, at the cost and
expense of Owner, shall bond or remove any mechanic's or materialman's liens
affecting the Facility within 15 days of the filing thereof.
(e) BONDING. Manager shall maintain appropriate fidelity levels
with respect to personnel authorized to make withdrawals from accounts and shall
provide satisfactory evidence to Owner that such bond is in effect and that
Owner is the named insured thereunder.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing basis,
provide the Facility with a qualified Administrator ("Facility Administrator")
approved by Owner. The Facility Administrator shall be an employee of Manager
and compensated by Owner as set forth in the Annual Budget. Manager shall be
entitled to utilize the Facility Administrator, along with employees and agents
of Manager, in the discharge of Manager's obligations.
(b) MANAGER'S EMPLOYEES. Manager will provide such other
personnel deemed necessary to operate the Facility, pursuant to the standards
set forth in this Agreement and in accordance with the Annual Budget. All
employees working at or in connection with the operation of the Facility shall
be employees of Manager. All salary, fringe benefits, bonuses and related
expenses payable to such employees shall be borne solely by Owner as set forth
in the Annual Budget. Manager shall not be permitted to charge any of its
general overhead, administrative expenses or home office costs and salaries to
the Facility.
(c) MANAGER'S AUTHORITY. Manager shall elect, appoint and, from
time to time, replace the Facility Administrator and such other personnel as
Manager chooses or shall deem necessary for the proper operation of the
Facility, including but not limited to personnel for food service, cleaning,
maintenance and operations, secretarial and bookkeeping, all in accordance with
the Annual Budget. Manager's selection, appointment, and discharge of the
Administrator and such other personnel and the terms of their employment,
including compensation, shall be subject to final review and approval by Owner;
however, Owner retains the authority to require Manager to discharge any person
working in the Facility.
5. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the fifth (5th) anniversary of the Commencement Date,
with renewal periods of five (5) years each thereafter, provided Manager
notifies Owner in writing within one hundred eighty (180) days of the expiration
of the then current term, of its decision to exercise the upcoming renewal
option period. Owner then has sixty (60) days, from its receipt of Manager's
notice to exercise the renewal option, to disapprove of Manager's exercise of
said option, in which case, this Agreement shall expire at the end of the then
current term. In such event, notwithstanding anything to the contrary in this
Agreement, no liquidated damages shall be payable nor shall Owner be liable to
Manager in any way whatsoever for its disapproval of the renewal option. In the
event that Owner does not timely disapprove of Manager's exercise of said
option, then said option shall be deemed approved by Owner.
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6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. Owner shall pay Manager a base
management fee ("Base Management Fee"), commencing on the Commencement Date,
equal to the sum of three and one-half (3.5%) percent of total collected gross
revenues, payable on the fifteenth (15th) day of each month for the previous
month's total gross revenues. During the initial four (4)-month start-up phase
beginning with the Commencement Date, and until the calculated Base Management
Fee of three and one-half (3.5%) percent of total collected gross revenues
together with the Incentive Fee computed in accordance with paragraph 6-(b)
below exceeds eight thousand two hundred ($8,206) dollars per month, a minimum
monthly Base Management Fee of eight thousand two hundred ($8,200) dollars
("Minimum Fee") will be payable starting on the fifteenth day of the month
following the Commencement Date, and thereafter on the fifteenth (15th) day of
each month. If any portion of the Management Fees are not paid when due because
of the unavailability of funds under the Indenture or other provisions of the
Bond Documents, such Management Fees shall not accrue interest, and Manager's
remedy shall be to terminate this Agreement as provided in Section 11 hereof.
(b) INCENTIVE FEE. In addition to the above-mentioned Base
Management Fee, Manager shall also earn and will be paid an incentive fee
("Incentive Fee") equal to two (2%) percent of the "Net Operating Income" which
is defined as all revenues produced by operations in the Facility minus all
costs and expenses of operating the Facility (including real estate taxes but
excluding debt service and income taxes). Said Incentive Fee will be paid on a
monthly basis, and adjusted annually in accordance with the actual annual Net
Operating Income. The Base Management Fees and any Incentive Fee shall be
referred to collectively as the "Management Fees."
(c) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
including, without limitation, special projects requested by Owner or
recommended by Manager and approved by Owner are not included as part of the
Management Fees due to Manager hereunder and shall be subject to Manager being
entitled to additional compensation to be agreed upon between Manager and Owner.
(d) SUBORDINATION. Anything in this Agreement to the contrary
notwithstanding, the Manager and the Owner agree that as long as any Bonds
remain outstanding, any Management Fees payable hereunder to the Manager shall
be paid only as provided in (i) Section 5.04(b)(8) of the Trust Indenture (which
requires among other things the prior payment each month of operating expenses
(other than Management Fees), debt service on the Bonds and deposits into
certain funds held by the Trustee under the Indenture) and (ii) Section 5.09(c)
of the Indenture (which provides for semi-annual payments form the Operating
Reserve Fund upon compliance with certain requirements).
7. LEGAL ACTIONS.
(a) Manager shall institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility, all at Owner's expense, but subject to Owner's
prior approval, which shall not be unreasonably withheld, except that if said
action is for an amount of five thousand ($5,000) or less,
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Owner's prior approval shall not be required. However, in such instance,
Manager will provide Owner with copies of all legal documentation.
(b) Manager is authorized to settle, on the Owner's behalf and in
Owner's name, on terms and conditions as Manager shall deem in the best interest
of the Facility, any and all claims or demands arising out of the operation of
the Facility, irrespective of whether or not legal action has been instituted,
provided such settlement does not exceed Five Thousand ($5,000) Dollars for each
such claim or demand. Owner agrees that such sums shall be paid as an operating
expense of the Facility. Manager will consult Owner on all settlements and
legal actions; however, Owner's prior approval shall be required for all
settlements in excess of five thousand ($5,000) dollars.
8. INFORMATION; COOPERATION; COMPLIANCE WITH LAW.
(a) Owner shall provide Manager with any information required by
Manager for the performance of its obligations under this Agreement, and Owner
shall permit Manager to examine and copy any data in the possession or control
of Owner affecting the operation of the Facility, including, without limitation,
accounting and financial information. Owner shall fully cooperate with Manager
to permit Manager to discharge its obligations hereunder. All such information
in the possession or control of Manager shall be provided to Owner upon request.
(b) Owner, at its own cost and expense, shall have the right to
audit all aspects of Manager's performance hereunder, including but not limited
to financial and accounting matters; contracts (procedures and content);
personnel matters; sales and marketing practices; licensure issues, if any; and
Facility operations. Manager shall fully and promptly cooperate with Owner's
professionals utilized in connection therewith and shall provide all information
requested to undertake such audits.
(c) If Owner determines that a licensed home care services agency
is to be utilized at the Facility, Manager will arrange for the delivery or home
care to the residents through a vendor selected by Owner. Manager shall have
supervisory control of said agency, subject to Owner's prior approval, which
approval shall not be unreasonably withheld.
(d) Manager shall promptly comply with all laws, regulations,
licenses and requirements of all governmental or administrative agencies having
jurisdiction over the Facility. Manager shall furnish to Owner, upon receipt,
any and all notices affecting the Facility, including without limitation,
notices from any taxing or other governmental authority and notices of all
violations of laws, regulations, ordinances or orders issued by any governmental
authority or by any Board of Fire Underwriters or other similar body.
9. INSURANCE. Manager shall secure, on the Owner's behalf and in the
Owner's name, on such terms and conditions as Manager and Owner shall deem in
the best interests of the Facility, insurance coverage in amounts sufficient to
protect the Facility, Manager, and Owner against claims of third parties,
property damage and such other risks as are prudent and customary in the
operation of similar facilities; provided, however, as long as any Bonds remain
outstanding, such insurance shall comply with the provisions of the Bond
Documents. The cost of insurance shall be charged as an operating expense of
the Facility. Manager shall be a named insured under all policies of insurance
affecting the Facility. Any insurance coverage acquired for the Facility is
subject to Owner's prior
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review and final approval. Manager shall maintain complete copies of all
insurance policies at the Facility.
10. REPRESENTATIONS AND WARRANTIES. Owner and Manager make the
following representations and warranties, which are material, and upon which
Owner and Manager have relied as an inducement to enter into this Agreement.
(a) STATUS OF OWNER. Owner is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
New York; and is qualified to do business in the State of New York; and has all
necessary power to carry on its business as now being or in the future will be
conducted.
(b) STATUS OF MANAGER. Manager is a for profit corporation duly
organized, validly existing and in good standing under the laws of the State of
New York; and is qualified to do business in the State of New York; and has all
necessary power to carry on its business as now being or in the future will be
conducted.
(c) AUTHORITY AND DUE EXECUTION. Owner and Manager both have
full power and authority to execute and deliver this Agreement and all related
documents and to carry out the transactions contemplated hereby, which actions
will not with the passing of time, the giving of notice or both, result in the
default under or breach or violation of (a) Articles of Organization, Member
Certificates, Operating Agreement, Articles of Incorporation, and/or By Laws,
(b) any law, regulation, court order, injunction or decree of any court,
administrative agency or governmental body, or (c) any mortgage, note, bond,
indenture, agreement, lease, license, permit or other instrument or obligation
to which Owner, Manager, or the Facility is now a party or by which Owner,
Manager, or the Facility, or any of its assets, may be bound or affected. This
Agreement constitutes the valid and binding obligation of Owner and Manager
enforceable in accordance with its terms
(d) LITIGATION. There is no litigation, claim, investigation,
challenge or other proceeding pending or, to the knowledge of Owner or Manager,
threatened against Owner or Manager, or the Facility, which seeks to enjoin or
prohibit Owner or Manager from entering into this Agreement, or which in any way
will adversely affect the Facility.
11. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
(i) If Owner shall fail to pay any installment of the
Minimum Fee, Management Fee or Incentive Fee for a period of seven (7) days
after notice of such default from Manager;
(ii) If either Manager or Owner fails to perform any material
term, provision, or covenant of this Agreement (other than as set forth in
Section [12(a)(i) above]), and such failure continues for a period of thirty
(30) days after written notice from the other party specifying such failure to
perform;
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(iii) If during any six-month period within the term of this
Agreement, the Facility has a twenty (20%) negative variance from the Net
Operating Income in the Budget.
(iv) If Manager is dissolved or liquidated, 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, makes
a general assignment for the benefit of creditors, or files a petition or an
answer seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating Manager bankrupt or insolvent or approving a petition seeking
reorganization of such party or appointing a receiver, trustee or liquidator for
such party of all or a substantial part of its assets, and such order, judgment
or decree shall continue unstayed and in effect for any period of sixty (60)
consecutive days.
(v) If Manager fails to operate the Facility such that any
covenant required by any lender to the Owner relating to the operation of the
Facility is not met.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may,
subject to Section __ of the Lease Agreement, at its option, terminate this
Agreement, and/or exercise all other rights and remedies available to such party
at law or in equity, including specific performance. In the event of any
termination of this Agreement, Manager shall be paid all Minimum Fees,
Management Fees or Incentive Fees and other fees due to the date of termination,
if this Agreement is terminated by Owner for a reason other than for good cause
as delineated in paragraph 11(c) below. No delay or failure on the part of
either party hereunder to declare the other party in default or exercise any
remedies in respect of such default shall operate as a waiver of such right to
declare a default and exercise such remedies. If either party is forced to
engage counsel to enforce any of the default provisions of this Agreement, the
prevailing party shall also be entitled to reasonable attorneys fees and all
costs attendant to such action.
(c) LIQUIDATED DAMAGES. If this Agreement is terminated by
Owner for a reason other than for good cause as delineated in paragraph 11
herein, Owner shall pay Manager, in addition to any Minimum Fee, Management Fee
or Incentive Fee due Manager, within thirty (30) days following the date of such
event, as "Liquidated Damages," because actual damages incurred by Manager will
be difficult or impossible to ascertain, and not as a penalty, an amount equal
to the following:
During the first three (3) years of the term of this Agreement, an
amount equal to the Management Fees, Minimum Fees and Incentive Fees
earned in the prior twelve (12) month period. If 12 months have not
elapsed since the Commencement Date, this amount shall equal the
average monthly Management Fees, Minimum Fees and Incentive Fees
earned by Manager multiplied by twelve (12);
During the fourth and fifth years of the term of this Agreement or
any renewal term thereafter, an amount equal to the Management Fees,
Minimum Fees and Incentive Fees earned in the prior six (6)-month
period.
If the Management Agreement terminates prior to the Commencement
Date without cause, Owner shall pay Manager within thirty (30) days
following the date of
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termination, Liquidated Damages in an amount equal to twenty-five
thousand ($25,000) dollars.
(d) Anything in this Agreement to the contrary notwithstanding, as
long as any of the Bonds remain outstanding, the Owner shall be required to pay
any Liquidated Damages only from the moneys, if any, paid over to the Owner by
the Trustee from the Operating Reserve Fund pursuant to Section 5.09(c)(3) of
the Indenture.
(e) Termination for "good cause" is defined as:
(i) any "Event of Default" defined in section 11 hereof,
unless timely cured in accordance with such section;
(ii) any act of fraud, misappropriation, embezzlement or
similar willful and malicious conduct by the Manager against the Owner; or
(iii) indictment of any principals of the Manager for a felony
or any conviction of, or guilty plea by any principal to, a crime involving
moral turpitude if that crime of moral turpitude tends or would reasonably tend
to bring the Owner into disrepute.
(iv) the Owner fails to meet the Occupancy Covenant set forth
in the Lease Agreement for four consecutive quarters (without regard to the
provision thereof negating any failure to meet the covenant by retaining a
Management Consultant) and fails to meet the Debt Service Coverage Ratio set
forth in the Lease Agreement for two consecutive quarters during the same time
period (without regard to the provision thereof negating any failure to meet the
covenant by retaining a Management Consultant);
(v) the Debt Service Coverage Ratio (as defined in the Bond
Documents) is less than 1.0 for any three consecutive Quarterly Evaluation dates
(as defined in the Bond Documents), commencing with the June 30, 1998 Quarterly
Evaluation Date, or any Annual Evaluation Date (as defined in the Bond
Documents), commencing with the December 31, 1999 Annual Evaluation Date;
(vi) the Owner fails to maintain a minimum of 30 Days
Cash-on-Hand (as defined in the Bond Documents) as of each Quarterly Evaluation
Dates (as defined in the Bond Documents), commencing with the December 31, 1997
Quarterly Evaluation Date, or any Annual Evaluation Date (as defined in the Bond
Documents), commencing with the December 31, 1997 Annual Evaluation Date; or
(vii) the Management Consultant engaged pursuant to the
provisions of the Bond Documents recommends the termination of the Manager.
12. FACILITY'S NAME. Manager and Owner must agree on the name of the
Facility and to use such name in any advertising or promotion for the Facility.
If both parties choose to use a name for this Facility similar to one that
Manager uses for any other facility which it owns and/or manages, whether or not
such name is registered with any federal or state agency, then Manager hereby
grants to Owner and Owner accepts, a non-exclusive right to use Manager's chosen
name at this Facility only. Upon the termination of this Agreement for any
reason whatsoever, Owner shall, as soon as is practicable, cease
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all use of Manager's name for the Facility, including any items which carry said
name, such as menus, supplies, signage, stationery, etc. Owner shall
immediately direct all telephone companies and their Yellow Pages advertising
affiliates which identify Owner's Facility under Manager's name, to cease,
effective with their next published edition, all references to the Facility as
such under Manager's name and, at the request of Manager, shall provide Manager
with written confirmation from such third parties of receipt of such direction.
Any post-termination usage by Owner of Manager's name shall be a willful
infringement of Manager's trademark and other rights. If the Facility's name is
not similar to one used by Manager for any other facility which it owns and/or
manages, then Manager agrees that the provisions and restrictions of this
paragraph shall apply to its use of the Facility's name to the full extent set
forth herein.
13. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's prior approval,
shall combine any advertising, public relations, or other activities with
similar activities at other facilities owned or operated by Manager or its
Affiliates, the cost of such activities shall be shared proportionately by Owner
and Manager or its Affiliates, as the case may be. Manager shall handle all
public relations matters for the Facility either through available in-house
support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between Owner and Manager with respect to the Facility, it
being understood that Manager's status shall be that of an independent
contractor.
(c) COSTS AND EXPENSES OF FACILITY; INDEMNITY. All fees, costs,
expenses and purchases arising out of, relating to, or incurred in the operation
of the Facility, shall be the sole responsibility of Owner, provided they are
incurred in connection with Manager's proper performance under this Agreement.
Accordingly, Manager, by reason of the execution of this Agreement and the
proper performance of its services hereunder, shall not be liable for or deemed
to have assumed any liability for such fees, costs and expenses, or any other
liability or debt of Owner whatsoever, arising out of or relating to the
Facility or incurred in its operation. Owner agrees to indemnify, defend, pay
on behalf of, and hold Manager and its officers, directors, agents and employees
harmless from and against all losses, claims, damages and other liabilities
arising out of or relating to the Ownership or operation of the Facility (except
those resulting from the willful misconduct, negligence or breach of contract by
Manager), including, without limitation, any liabilities asserted against
Manager or any of its officers, directors, employees or agents by reason of any
action or inaction taken by any of the foregoing while properly performing the
duties of Manager hereunder on behalf of Owner. Manager agrees to indemnify,
defend, pay on behalf of, and hold Owner and its officers, directors, agents and
employees harmless from and against all losses, claims, damages and other
liabilities arising out of the willful misconduct, negligence or breach of
contract by Manager. The terms of this Section 13(c) shall survive the
expiration or earlier termination of this Agreement.
(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are Owner's
property.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with Owner in
effecting an orderly transition to any new
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Manager of the Facility in order to avoid any interruption in the rendering of
services to Owner and, in connection therewith, shall surrender to Owner all
contracts, documents, books, records, forms and reports in the possession of
Manager regarding the operation of the Facility.
(f) FORCE MAJEURE. Manager's obligations under this Agreement
are subject to strikes, labor disturbances, casualty, arbitrary and capricious
action by third parties, Owner's compliance with and observance of the terms of
this Agreement (including, without limitation, Owner's obligation to provide
Management Fees and sufficient working capital for the operation of the Facility
and funding for the capital improvements projected in the Annual Budget in
accordance with the terms of this Agreement), changes in laws, statutes,
ordinances, regulations or orders of governmental authorities or tribunals, war
or other state of national emergency, terrorism, acts of God and other factors
beyond the control of Manager (collectively, "Force Majeure"). Manager shall
not be responsible or liable in any way for its inability to discharge any of
its obligations hereunder solely due to Force Majeure.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Manager
may not assign this Agreement to any other entity without (i) Owner's consent,
withheld in the sole and absolute discretion of such Majority of Owners of the
Bonds, which consent may be withheld in Owner's sole and absolute discretion,
except to an entity in which Evan A. Kaplan, Glenn Kaplan and Wayne Kaplan
collectively own a 100 percent interest, and (ii) the consent of the Majority of
Owners of the Bonds, which consent may be withheld in the sole and absolute
discretion of such Majority of Owners of the Bonds.
(h) NOTICES. All notices, demands, consents, approvals and
requests to be made hereunder by one party to other shall be in writing, and
shall be delivered by hand, mailed by certified mail, return receipt requested,
or sent by overnight courier service, with postage prepaid, to the addresses
listed at the beginning of this Agreement, or to such other address as either
party may designate by sending written notice to the other party in the manner
hereinabove prescribed.
All notices shall be deemed to be received (i) upon receipt, if hand
delivered, (ii) three (3) days after mailing, if mailed by certified mail, or
(iii) the next business day after sending, if sent by overnight courier service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both Owner and Manager.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New York, and all the terms and provisions hereof and
the rights and obligations of the parties hereto shall be construed and enforced
in accordance with the laws thereof, and the Courts sitting in Nassau County
therein.
(k) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
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(l) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
(m) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further and continuing waiver of any
such term, provision or condition of this Agreement.
(n) EQUITY INVESTMENT.
(i) At Owner's election and sole discretion, upon sixty (60)
days' prior written notice from Owner to Manager, Manager or its designee can be
required by Owner to purchase up to a ten (10%) percent limited partnership
interest in the Ownership of the Facility and all of its real and personal
property for a maximum price of two hundred thousand ($200,000) dollars. Said
actual price shall be based on a percentage of the Fair Market Value ("FMV") of
all limited partnership interests of the Facility, with said FMV determined
according to the method set forth in paragraph [14(a)(ii) below]. Said sale
will be subject to definitive documentation to be mutually agreed upon by both
parties. However, the arbitrary failure of Manager to complete the equity
investment contemplated herein shall be considered an Event of Default by
Manager and shall be subject to the remedies set forth in paragraph [12(b)].
(ii) In the event that Manager or its designee has become a
limited partner in the Facility and thereafter the Management Agreement is
terminated , Owner must purchase Manager's or its designee's limited partnership
interest in the Facility at its FMV. If Owner and Manager cannot agree on the
FMV within thirty (30) days, they shall each promptly hire an independent
appraiser to make a definitive appraisal of the value of Manager's limited
partnership interest within 30 days after their appointment. If the two
appraisers cannot agree on the FMV of Manager's limited partnership interest,
the two appraisers shall promptly choose a third independent appraiser,
agreeable to both of the original appraisers, and the third appraiser's value of
Manager's limited partnership interest shall be made within thirty (30) days of
appointment and shall be conclusive for purposes hereof. Each side shall hear
the costs of their own appraiser, and shall share equally in the cost of the
third appraiser, if necessary. The closing shall take place sixty (60) days
after determination of the appraised value.
(iii) Anything in this Agreement to the contrary
notwithstanding, as long as any of the Bonds remain outstanding, the Owner shall
be required to repurchase the Manager's or its designee's limited partnership
interest in the Facility only from the moneys, if any, paid over to the Owner by
the Trustee from the Operating Reserve Fund pursuant to Section 5.09(c)(4) of
the Indenture.
(o) MODIFICATIONS REQUESTED BY AND COOPERATION WITH MORTGAGEE.
If any prospective mortgagee of the land or building requires the modification
of this agreement in such manner and does not materially lessen Manager's rights
hereunder, Manager shall not delay or withhold its consent to such modification
and shall execute and deliver such confirming documentation as thereby required,
including any reasonable and necessary changes to this Agreement. Manager shall
comply with all requirements of Owner's mortgagees and shall promptly furnish
Owner with copies of all notices and other communication which are sent by any
mortgagee to Manager.
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IN WITNESS WHEREOF, the parties hereto have executed this
Management Agreement through their duly authorized representatives as of the day
and year first above written.
OWNER: THE MAYFAIR AT GLEN COVE, LLC
BY:
-----------------------------------------
, Member
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY:
--------------------------------------
EVAN A. KAPLAN, President
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MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is made as of the day of
June, 1996, by and between Kapson Chestnut Ridge Development Corp. ("Owner")
with offices located at 339 Crossways Park Drive, Woodbury, NY 11797, and
Senior Quarters Management Corp., a New York Corporation ("Manager") with
offices located at 339 Crossways Park Drive, Woodbury, New York.
Manager is in the business of owning and\or furnishing management services
to independent and assisted living residences for senior citizens. Owner owns a
148 bed adult home, located at 168 Red Schoolhouse Road, Chestnut Ridge, NY
10977, known as Senior Quarters ("Facility"). Owner and Manager desire that
Owner retain Manager to manage the Facility and provide certain services in
connection therewith.
Accordingly, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows:
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the exclusive
management agent for the Facility, subject to the terms of this Agreement.
Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) GENERAL MANAGEMENT. Beginning on the date hereof, and
continuing until the expiration or earlier termination of this Agreement,
Manager, acting as Owner's fiduciary, shall manage and supervise the day-to-day
operation of the Facility, in the name of, on behalf of, and for the account of,
Owner.
(b) SPECIFIC SERVICES. In connection with such management and
supervision of the Facility, Manager shall provide or cause to be provided the
following specific services in the name of, on behalf of, and for the account
of, Owner.
(i) FINANCIAL AND ACCOUNTING SERVICES.
A. Manager shall prepare a monthly balance sheet and
statement of operations for the Facility, to be submitted to Owner within thirty
(30) days after the end of each calendar month;
B. Manager shall supervise and coordinate the
preparation and\or maintenance (as appropriate) of the following items:
(1) Resident billing records;
(2) Accounts receivable and collection records;
(3) Accounts payable records;
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(4) All payroll functions, including,
preparation of payroll checks, establishment of depository accounts for
withholding taxes, payment of such taxes (at Owner's sole expense), filing of
payroll reports and the issuance of W-2 forms to all employees;
(5) A complete general ledger for the purposes
of recording and summarizing all transactions for the Facility; and
(6) Owner acknowledges that the cost of a
bookkeeper to be located on the premises, performing Items 1-5, as well as the
cost of outside auditors are provided for in the annual budget.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory.
(iii) LICENSURE. Assist Owner in: (1) obtaining all
licenses, permits and approvals by applicable governmental authorities with
respect to the operation of the Facility, and (2) maintaining certification from
public third party payment programs, if any. All such licenses, permits,
approvals and certifications shall be in the name of Manager, or an individual
partner of Manager, unless the governing entities require otherwise. Manager
has initially obtained all necessary licenses, permits and approvals which are
currently available in connection with Owner's acquisition of the Facility, all
in conformance with the immediately preceding sentence.
(iv) CONTRACTS. Negotiate, enter into, secure, cancel
and/or terminate in the name of and on behalf of Owner, such agreements and
contracts which Manager may deem necessary or advisable for the operation of the
Facility, including, without limitation, the furnishing of concessions,
supplies, utilities, extermination, refuse removal and other services
customarily provided to the Facility by independent contractors. Subject to
Owner's approval not to be unreasonably withheld or delayed, Manager shall be
entitled to utilize any affiliated entities to provide these services, provided
the rates and prices therefor are competitive. All contracts requiring or
likely to require, an annual expenditure in excess of $20,000, or which have a
term in excess of twelve (12) months, including renewals shall require the
approval of Owner, which approval shall not be unreasonably withheld or delayed.
(v) SALES & MARKETING - Manager will establish and
implement a sales and marketing plan, oversee the design and placement of
advertising, and hire, train and supervise rental and marketing staff.
(c) LIABILITY OF MANAGER. Manager shall have no liability to
Owner as a result of any decision made with respect to or any actions taken or
not taken in connection with the Manager's discharge of its obligations under
Sections 2(a) and (b) above, so long as such decisions, actions or omissions
were taken in good faith, except for gross negligence, malfeasance and/or a
breach of Manager's fiduciary duties.
(d) EXCLUSIVE REPRESENTATIVE. Solely with respect to the
Facility, it is understood and agreed that Manager shall be the exclusive
representative of Owner for purposes of communicating and dealing directly with
the regulatory authorities, governmental agencies, employees, independent
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contractors, suppliers, residents, sponsors, licensees, customers and guests of
the Facility. Any communications from Owner to such persons or entities or
authorities shall be directed through Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. On or prior to the Commencement Date and
thereafter at least ninety (90) days prior to each calendar year that commences
during the term of this Agreement, Manager shall submit to Owner a proposed
Annual Budget projecting the revenue to be available and funds to be required
during such fiscal year in order to operate the Facility and make capital
improvements that may be required in order to keep the Facility's physical plant
in good condition and repair. The Annual Budget shall be based upon data and
information then available and shall include, without limitation, estimated
salaries and fringe benefits for all employee groups, projected staffing
patterns for the Facility, estimates of required purchases for supplies,
inventory, food and similar items, and an estimate of the level of rates and
charges sufficient to generate revenue necessary to operate the Facility and
make capital improvements projected in the Annual Budget. Each Annual Budget as
approved by Owner (and as revised from time to time during a calendar year with
Owner's approval, as set forth in this Paragraph 3), is referred to herein as
the "Annual Budget." Owner shall, within fifteen (15) days following receipt of
such Annual Budget, notify Manager of either Owner's approval of the Annual
Budget or those items of which Owner approves and those items of which Owner
disapproves. In the event that Owner does not timely either approve or
disapprove, in total or in part, of such Annual Budget in writing, as provided
herein, then such Annual Budget as proposed by Manager shall be deemed approved
by Owner, and Manager shall be authorized to implement such program. If Owner
disapproves of the proposed Annual Budget either in total or in part, then Owner
and Manager shall have thirty (30) days from the date of Owner's disapproval
notice to formulate a mutually agreeable Annual Budget. If the parties are
unable to reach an agreement within said 30 day period, then Owner and Manager
shall each direct their respective accountants to pick and agree upon a neutral
third party accountant within fifteen (15) days of being directed to do so, to
act as an arbitrator in order to reach said Annual Budget. This neutral third
party accountant will be directed to reach a decision within fifteen (15) days
of being chosen, and his/her decision shall be final and binding on both
parties. Until this agreed upon Annual Budget is reached, the Annual Budget for
the immediately preceding calendar year (excluding the budgeted items for the
categories of Heat, Light, Power, Insurance and Real Estate Taxes), shall apply.
The projected Annual Budget submitted by Manager to Owner shall be an estimate
of revenue and costs, and Owner acknowledges that (1) projected revenue may not
be actually received and (2) projected costs may be exceeded by actual expenses
and capital expenditures incurred in connection with the operation and
maintenance of the Facility. By submitting such a projected budget, Manager
will not be providing a guarantee or warranty as to the projected revenue,
expenses or capital expenditures of the Facility.
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager agrees to
use its best efforts to operate the Facility in accordance with the Annual
Budget. Manager may not exceed any Annual Budget Expense Category annually, as
listed on the attached Schedule 1, which category is within Manager's control,
by more than ten (10%) percent without the approval of Owner, which shall not be
unreasonably withheld or delayed. Subject to the foregoing limitation, Owner
shall be responsible on a periodic basis, as and when needed, for all expenses
and capital expenditures incurred in connection with the operation and
maintenance of the Facility, including, without limitation, cost overruns which
exceed the projections in the Annual Budget.
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(c) BANK ACCOUNTS AND WORKING CAPITAL. Manager shall establish
in a local bank an account or accounts for the operation of the Facility
("Operating Accounts"), in Owner's name and on behalf of Owner, and shall
thereafter deposit therein all funds received by Manager on Owner's behalf from
the operation of the Facility. Owner shall provide sufficient working capital
for the operation of the Facility (including, without limitation, the payment of
Manager's Management Fee under Section 6 hereof) and shall deposit such working
capital in the Operating Accounts from time to time upon the reasonable request
of Manager. All expenses incurred in connection with the operation of the
Facility (including, without limitation, Manager's Management Fee) shall be paid
out of the Operating Accounts. Manager may write checks and draw on the
Operating Accounts to pay for operation of the Facility to the extent required
by Manager in the discharge of its obligations hereunder provided. Owner shall
sign all checks for Manager's Minimum Fees and Management Fees, and shall pay
same to Manager on the fifteenth day of each month. If Owner disputes any
amount of any of said fees to be paid to Manager, Owner shall nevertheless pay
to Manager all amounts which are undisputed by the fifteenth day of each month,
and shall endeavor to reconcile any disputed amounts with Manager within five
(5) days thereafter. If Owner fails to make a good faith attempt to reconcile
any disputed amount with Manager, then Manager may write a check and draw on the
Operating Accounts for the full amount it deems itself due and shall reconcile
any differences with Owner prior to the fifteenth of the next month. Manager
shall also provide Owner with a Fidelity Bond in an amount to be agreed upon;
however, said amount will not exceed $200,000. Owner shall also provide
sufficient funding to make the capital improvements projected in the Annual
Budget as approved by Owner. Manager shall have no obligation to (1) provide or
contribute working capital required for the operation of the Facility, or (2)
fund capital expenditures required to maintain the Facility in good condition
and repair.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing basis,
provide the Facility with a qualified Administrator ("Facility Administrator").
Subject to the approval of Owner, such approval not to be unreasonably withheld
or delayed, Owner reserves the right to approve of Manager's choice of the
Facility Administrator, unless said Facility Administrator is currently or has
been employed by Manager or any of Manager's affiliated entities for at least
three (3) months. If Owner's approval, or disapproval, if required, is not
received by Manager within five (5) days of Manager's submission of same to
Owner, then such Facility Administrator as proposed by Manager shall be deemed
approved by Owner, and Manager shall be authorized to employ said Facility
Administrator. The Facility Administrator shall be an employee of and
compensated by Owner. Manager shall be entitled to utilize the Facility
Administrator, along with employees and agents of Manager, in the discharge of
Manager's obligations.
(b) OWNER'S EMPLOYEES. All employees working at or in
connection with the operation of the Facility shall be employees of the Owner.
All salary, fringe benefits, bonuses and related expenses payable to such
employees shall be borne solely by the Owner.
(c) MANAGER'S AUTHORITY. Manager shall elect, appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager chooses or shall deem necessary for the proper operation of the
Facility. Manager's selection, appointment and replacement of the Administrator
and such other personnel and the terms of their employment, including
compensation, shall be subject to review of Owner, in accordance with the
procedure described in Section 4(a) above.
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5. TERM OF AGREEMENT. This Agreement shall commence on the date
hereof and shall expire on the tenth (10th) anniversary of said date, with
automatic renewal periods of five (5) years each thereafter at Manager's option
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. Owner shall pay Manager a management fee
("Management Fee"), commencing on the thirtieth (30th) day from the date hereof,
and thereafter on the fifteenth (15th) day of each month for the previous
month's total gross revenues, a sum equal to five (5%) percent of total gross
revenues. If the calculated Management Fee of five (5%) percent of gross
revenues does not exceed $12,500 per month, a minimum monthly Management Fee of
$12,500 ("Minimum Fee") will be payable on the date hereof, and thereafter on
the fifteenth day of each month, except to the extent above paid.
(b) ADDITIONAL SERVICES. Services that do not fall within the
scope of management and supervision of the day-to-day operation of the Facility,
or otherwise provided for herein, including, without limitation, special
projects requested by Owner or recommended by Manager and approved by Owner, are
not included as part of the Management Fee due to Manager hereunder and shall be
subject to Manager being entitled to additional compensation to be agreed upon
between Manager and Owner. Manager shall not be entitled to additional
compensation with respect to home office personnel, or for travel and
entertainment expenses.
7. LEGAL ACTIONS.
(a) Subject to Owner's approval, not to be unreasonably withheld
or delayed, Manager shall institute any necessary legal actions or proceedings
to collect obligations owing to the Facility or to cancel or terminate any
contract for breach thereof or default thereunder and otherwise enforce the
obligations of the residents, sponsors, licensees, customers and other users of
the Facility, all at Owner's expense.
(b) Manager is authorized to settle, on Owner's behalf and in
Owner's name, on terms and conditions as Manager shall deem in the best interest
of the Facility, any and all claims or demands arising out of the operation of
the Facility, irrespective of whether or not legal action has been instituted,
provided such settlement does not exceed Twenty Five Thousand ($25,000) Dollars
for each such claim or demand or the aggregation of such claims or demands
arising from the same party or occurrences. If such settlement or proposed
settlement or the aggregation of such claims or demands arising from the same
party or occurrences exceeds $25,000, it will be subject to Owner's approval,
such approval not to be unreasonably withheld or delayed. Owner agrees that
such sums shall be paid as an operating expense of the Facility.
8. INFORMATION; COOPERATION. Owner shall provide Manager with any
information relating to the Facility in Owner's possession, required by Manager
for the performance of its obligations under this Agreement, and Owner shall
permit Manager to examine and copy any data in the possession or control of
Owner affecting the operation of the Facility, including, without limitation,
accounting and financial information. Owner shall fully cooperate with Manager
to permit Manager to discharge its obligations hereunder. Manager shall keep
all the foregoing information confidential and shall not disclose any such
information without Owner's approval.
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9. INSURANCE. Subject to Owner's approval, such approval not to be
unreasonably withheld or delayed, Manager is authorized to secure, if Owner has
not already done so, either under a blanket insurance policy or otherwise, on
Owner's behalf and in Owner's name, on such terms and conditions as Manager
shall deem in the best interests of the Facility, insurance coverage in amounts
sufficient to protect the Facility, Manager, and Owner against claims of third
parties, property damage and such other risks as are prudent. The cost of
insurance shall be charged as an operating expense of the Facility. Manager
shall be a named insured as its interests may appear under all policies of
insurance affecting the Facility.
10. REPRESENTATIONS AND WARRANTIES. Owner and Manager each make the
following representations and warranties, which are material, and upon which the
other party has relied as an inducement to enter into this Agreement.
(a) STATUS OF OWNER AND MANAGER. Owner is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York; and is qualified to do business and is in good standing in the State
of New York; and has all necessary power to carry on its business as now being
or in the future will be conducted. Manager is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York;
and is qualified to do business in the State of New York; and has all necessary
power to carry on its business as now being or in the future will be conducted.
(b) AUTHORITY AND DUE EXECUTION. Each party has full power and
authority to execute and deliver this Agreement and all related documents and to
carry out the transactions contemplated hereby, which actions will not with the
passing of time, the giving of notice or both, result in the default under or
breach or violation of (A) that party's Certificate of Incorporation, other
Charter, limited liability company agreement or incorporation documents and/or
its By-Laws, as amended to date, or , (B) any mortgage, note, bond, indenture,
agreement, lease, license, permit or other instrument or obligation to which
that party, or the Facility, or any of its assets may be bound or affected.
This Agreement constitutes the valid and binding obligation of each party
enforceable in accordance with its terms.
(c) LITIGATION. There is no litigation, claim, investigation,
challenge or other proceeding pending, or to the knowledge of each party,
threatened against that party, or the Facility, which seeks to enjoin or
prohibit that party from entering into this Agreement, or which in any way will
adversely affect the Facility.
11. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an Event
of Default hereunder:
(i) If Owner shall fail to pay or allow payment of any
installment of the Minimum Fee or Management Fee due Manager for a period of
seven (7) days after written notice of such default from Manager;
(ii) If either Manager or Owner fails to perform any term,
provision, or covenant of this Agreement (other than as set forth in Section
11(a)(i) above), and such failure continues
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for a period of thirty (30) days after written notice from the other party
specifying such failure to perform;
(iii) If Manager is dissolved or liquidated, 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 or is
the subject of an involuntary bankruptcy filing, makes a general assignment for
the benefit of creditors, or files a petition or an answer seeking
reorganization or arrangement with creditors or to take advantage of any
insolvency law, or if an order, judgment or decree shall be entered by any court
of competent jurisdiction, on the application of a creditor, adjudicating
Manager bankrupt or insolvent or approving a petition seeking reorganization of
such party or appointing a receiver, trustee or liquidator for such party of all
or a substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of sixty (60) consecutive days.
(b) REMEDIES. Upon any Event of Default, which is not timely
cured, the party who has not committed or suffered the Event of Default may, at
its option, terminate this Agreement, and if the Owner is the defaulting party,
Manager shall be paid Liquidated Damages as provided below. In the event of any
termination of this Agreement, by reason of an Event of Default by Owner,
Manager, as its sole remedy, shall be paid all Management Fees and other fees
due to the date of termination, plus Liquidated Damages to which Manager is
entitled. No delay or failure on the part of either party hereunder to declare
the other party in default or exercise any remedies in respect of such default
shall operate as a waiver of such right to declare a default and exercise such
remedies. If either party is forced to engage counsel to enforce any of the
default provisions of this Agreement, the prevailing party shall also be
entitled to reasonable attorneys fees and all costs attendant to such action,
upon obtaining a non-appealable final judgment.
(c) LIQUIDATED DAMAGES. If this Agreement terminates due to the
occurrence of an Event of Default by Owner, Owner shall pay Manager in addition
to any Minimum Fee or Management Fee due Manager up to the date of termination,
and as Manager's sole remedy, within thirty (30) days following the date of such
event, as "Liquidated Damages," because actual damages incurred by Manager will
be difficult or impossible to ascertain, and not as a penalty, an amount equal
to the sum of accrued Management Fees during the immediately preceding twenty
four (24) full calendar months (or such shorter period as equals the unexpired
initial term of this Agreement or current option period, if any, at the date of
termination); provided, however, if Manager has not managed the Facility for
twenty four (24) months, then the average monthly Management Fee plus Minimum
Fee of the total number of months that Manager has managed the Facility,
whichever is greater, multiplied by twenty four (24).
12. FACILITY'S NAME. Manager shall have the absolute right and
authority to name and rename the Facility and to use such name(s) in any
advertising or promotion for the Facility, all of the foregoing being subject to
Owner's approval, which approval shall not be unreasonably withheld or delayed.
If Manager chooses to use a name for this Facility similar to one that it uses
for any other facility which it owns and\or manages, whether or not such name is
registered with any federal or state agency, then Manager hereby grants to Owner
and Owner accepts, a non-exclusive right to use Manager's chosen name at this
Facility only. Manager will indemnify, hold harmless and defend Owner against
any claims arising out of Manager's usage of a similar or common name. Upon the
termination of this Agreement for any reason whatsoever, Owner shall immediately
cease all use of Manager's chosen name for the Facility, including any items
which carry said name, such as menus, supplies, signage, stationery, etc. Owner
shall immediately direct all telephone companies and their Yellow Pages
advertising affiliates
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which identify Owner's Facility under Manager's chosen name, to cease, effective
with their next published edition, all references to the Facility as such under
Manager's chosen name and, at the request of Manager, shall provide Manager with
written confirmation from such third parties of receipt of such direction. Any
post-termination usage by Owner of Manager's chosen name shall be a willful
infringement of Manager's trademark and other rights; however, Manager's sole
remedy shall be through injunctive relief. Manager will indemnify and hold
harmless and defend Owner against any claims arising from its usage of Manager's
chosen name.
13. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's approval, shall
combine any advertising, public relations, or other activities with similar
activities at other facilities owned or operated by Manager or its Affiliates,
the cost and expenses involved in such shared advertising will be equitably
prorated among the participating facilities, based on the time or space involved
in the particular medium being used for such shared advertising, and all of said
facilities will be treated equitably regarding such shared expenses. Manager
shall exclusively handle all public relations matters for the Facility either
through available in-house support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained in this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between Owner and Manager with respect to the Facility, it
being understood that Manager's status shall be that of an independent
contractor.
(c) INDEMNITY. Manager, by reason of the execution of this
Agreement and the performance of its services hereunder, shall not be liable for
or deemed to have assumed any liability or debt of Owner whatsoever, arising out
of or relating to the Facility or incurred in its operation. Owner agrees to
indemnify, defend, pay on behalf of, and hold Manager and its officers,
directors, agents and employees harmless from and against all losses, claims,
damages and other liabilities arising out of or relating to the gross negligence
or willful misconduct of Owner, including, without limitation, any liabilities
asserted against Manager or any of its officers, directors, employees, or agents
arising out of or relating to the gross negligence or willful misconduct of
Owner. Manager agrees to indemnify, defend, pay on behalf of, and hold Owner
and its officers, directors, agents and employees harmless from and against all
losses, claims, damages and other liabilities arising out of or relating to the
gross negligence or willful misconduct of Manager, including without limitation,
any liabilities asserted against Owner or any of its officers, directors,
employees or agents arising out of or relating to the gross negligence or
willful misconduct of Manager. Manager will attempt to collect any claims,
damages and other liabilities as aforesaid initially from either existing
insurance policies or from the remedy provisions in Paragraph 12 herein. The
terms of this Section 13(c) shall survive the expiration or earlier termination
of this Agreement.
(d) BOOKS AND RECORDS. All books, records, forms and reports
prepared by Manager in connection with the operation of the Facility are Owner's
property and Manager shall not disclose any information contained in same
without Owner's consent.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with Owner in
effecting an orderly transition to any new Manager of the Facility in order to
avoid any interruption in the rendering of services to Owner,
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including without limitation the transfer of all operating licenses and permits,
and, in connection therewith, shall surrender to Owner all contracts, documents,
books, records, forms and reports in the possession of Manager regarding the
operation of the Facility.
(f) FORCE MAJEURE. Manager's and Owner's obligations under this
Agreement are subject to strikes, labor disturbances, casualty, war or other
state of national emergency, terrorism, acts of God and other factors beyond the
control of Manager or Owner respectively ("Force Majeure").
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the parties hereto and their respective successors and assigns. Manager
may not assign this Agreement to a non-affiliate without Owner's consent;
however, Manager may assign this Agreement to any immediate family members or to
an affiliate whereby the principals are the same as in Manager's original
entity, subject to Owner's consent, which will not be unreasonably withheld or
delayed. Owner, as used herein, shall only mean the then current Owner of the
Facility.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the beginning
of this Agreement. All notices shall be deemed to be effective (i) upon
receipt, if hand delivered, (ii) three (3) days after mailing, if mailed by
certified mail, or (iii) the next business day after sending, if sent by
overnight courier service.
(i) ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the
entire agreement between the parties hereto with respect to the subject matter
hereof, and no prior oral or written representations, covenants or agreements
between the parties with respect to the subject matter hereof shall be of any
force or effect. Any amendments or modifications to this Agreement shall be of
no force or effect unless in writing and signed by both Owner and Manager.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New York and all the terms and provisions hereof and
the rights and obligations of the parties hereto shall be construed and enforced
in accordance with the laws thereof, and the Courts sitting therein.
(k) COMPLIANCE WITH LAWS. Manager and Owner agree to comply
with all laws, rules, codes, regulations, insurance, requirements, etc., to the
best of their respective knowledge and abilities.
(l) SECTION HEADINGS. The section headings throughout this
Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision of this Agreement or
the application thereof to any person or circumstances shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement or the application of
such term or provision to persons or circumstances other than those to which it
is held invalid or unenforceable shall not be affected thereby, and each term
and provision of this Agreement shall be valid and enforceable to the fullest
extent permitted by law.
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(n) WAIVERS. No waiver of any term, provision or condition of
this Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be or construed as a further and continuing waiver of any
such term, provision or condition of this Agreement.
(o) CASUALTY AND CONDEMNATION. If any material portion of the
Facility is damaged or taken by condemnation or similar proceeding such that in
Owner's sole and absolute reasonable discretion, operating an adult home is no
longer economically viable, Owner may on 60 days written notice to Manager,
terminate this Agreement, whereupon, with the exception of any monies due
Manager, Owner and Manager shall have no further obligations or liabilities
hereunder, including liquidated damages.
(p) NON-COMPETITION. So long as this Management Agreement is in
effect, neither Manager nor any of its affiliates or principals, nor Owner or
any of its affiliates or principals, shall own, manage or operate an adult home
that is located within 10 miles of the Facility, without the other party's prior
written consent, except for Change Bridge Inn or Senior Quarters at Cranford.
(q) OWNER'S UNREASONABLE WITHHOLDING OR DELAYING CONSENT OR
APPROVAL. In no event shall Manager be entitled to make, nor shall Manager
make any claim, and Manager hereby waives any claim, for money damages, nor
shall Manager claim any money damages by way of set off, counterclaim or
defense, based upon any claim or assertion by Manager that Owner has
unreasonably withheld or unreasonably delayed any consent or approval to any
matter where such consent or approval is required pursuant to this Agreement,
but Manager's sole remedy shall be an action or proceeding to enforce any such
provision, or for specific performance, injunction or declaratory judgment.
(r) MANAGER'S REMEDIES. Manager shall look only to Owner's
estate and property in the Facility for the satisfaction of Manager's remedies,
for the collection of a judgement (or other judicial process) requiring the
payment of money by Owner in the event of any default by Owner hereunder, and no
other property or assets of Owner or its members, partners or principals,
disclosed or undisclosed, shall be subject to levy, execution or other
enforcement procedure for the satisfaction of Manager's remedies under or with
respect to this Agreement, the relationship of Owner and Manager hereunder or
Manager's use or occupancy of the Premises.
(s) MANAGER'S COOPERATION. Manager will provide an estoppel
certificate and other reasonable documents and will cooperate in all reasonable
respects with Owner's lender or prospective lender or purchaser.
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IN WITNESS WHEREOF, the parties hereto have executed this
Management Agreement through their duly authorized representatives as of the day
and year first above written.
OWNER: KAPSON CHESTNUT RIDGE DEVELOPMENT CORP.
BY: _____________________________
GLENN KAPLAN, President
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY: _______________________________
EVAN A. KAPLAN, President
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MANAGEMENT AGREEMENT
Agreement ("Agreement") is made as of the 8th day of February 1993,
by and between Pensun Associates, ("Owner") with offices located at c/o Nathan
L. Serota Company, 70 East Sunrise Highway, Lynbrook, New York 11563, and Senior
Quarters Management Corp., a New York Corporation ("Manager") with offices
located at 60 Vanderbilt Motor Parkway, Commack, New York.
Manager is in the business of owning and/or furnishing management
services to independent and assisted living residences for senior citizens.
Owner intends to construct a 123-unit assisted living residence located in
Lynbrook, New York to be marketed under the SENIOR QUARTERS ASSISTED LIVING
RESIDENCE service mark of Lynbrook ("Facility"). Owner and Manager desire that
Owner retain Manager to manage the Facility and provide certain services in
connection therewith.
Accordingly, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is acknowledged, and intending to be legally bound, Owner
and Manager agree as follows, subject to this Facility being built as a senior
citizen residence:
1. APPOINTMENT OF MANAGER. Owner appoints Manager as the
exclusive management agent for the Facility, subject to the terms of this
Agreement. Manager hereby accepts such appointment.
2. MANAGEMENT SERVICES.
(a) INITIAL SERVICES. Commencing on the date hereof, and
until four (4) months prior to the opening date of the Facility (the first day
of the four (4) month period hereinafter referred to as the "Commencement
Date"), Manager agrees to provide assistance to Owner in the planning of the
Facility. Such assistance may include review of architectural drawings and site
plans; arranging for feasibility studies; licensure and certification planning;
support and assistance in filing for Certificate of Need and other governmental
requirements, if any; and financial analysis ("Initial Services").
(b) GENERAL MANAGEMENT. Beginning on the Commencement
Date (to permit the completion of all start-up work, including pre-opening
marketing, staff recruitment, training, facility set-up, and licensing, if any)
and continuing until the expiration or earlier termination of this Agreement,
Manager shall manage and supervise the day-to-day operation of the Facility, in
the name of, on behalf of, and for the account of, Owner.
(c) SPECIFIC SERVICES. In connection with such management
and supervision of the Facility, Manager shall provide or cause to be provided
the following specific services in the name of, on behalf of, and for the
account of, Owner.
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(i) FINANCIAL AND ACCOUNTING SERVICES.
Supervise and coordinate the preparation and/or
maintenance (as appropriate) of the following but not limited to these items:
A. A monthly balance sheet and statement of
operations for the Facility to be submitted to Owner within thirty (30) days
after the end of each calendar month;
B. Resident billing records;
C. Accounts receivable and collection records;
D. Accounts payable records;
E. All payroll functions, including preparation
of payroll checks, establishment of depository accounts for withholding taxes,
payment of such taxes (at Owner's sole expense), filing of payroll reports,
income and social security withholdings, and the issuance of W-2 forms to all
employees; and
F. A complete general ledger for the purposes
of recording and summarizing all transactions for the Facility.
(ii) PURCHASING. Purchase all items needed for the
operation of the Facility, including without limitation, supplies, equipment and
inventory.
(iii) LICENSURE. Assist Owner in: (1) obtaining all
licenses, permits and approvals by applicable governmental authorities with
respect to the operation of the Facility, and (2) in maintaining certification
from public third party payment programs, if any. All such licenses, permits,
approvals and certifications shall be in the name of Owner, or an individual
partner of Owner, unless the governing entities require otherwise. OWNER
RESERVES THE RIGHT AT ANY TIME TO OBTAIN ANY AND ALL REQUIRED GOVERNMENT
licensees for itself or designee.
(iv) CONTRACTS. Subject to Owner's prior approval
during Owner's approval of the Annual Budget, Manager shall negotiate, enter
into, secure, cancel and/or terminate in the name of AND on behalf of Owner,
such agreement and contracts which Manager may deem necessary or advisable with
the Owner's prior consent for the operation of the Facility, including, without
limitation, the furnishing of concessions, supplies, utilities, extermination,
refuse removal and other services customarily provided to the Facility by
independent contractors. Manager shall be entitled to utilize any affiliated
entities to provide these services, provided the rates and prices therefor are
competitive.
(v) SALES & MARKETING. Subject to Owner's prior
approval, Manager will establish and implement a sales and marketing plan,
oversee the design and placement of advertising, and hire, train and supervise
rental and marketing staff.
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(d) LIABILITY OF MANAGER. Manager shall have no liability
to Owner as a result of any decision made with respect to or any actions taken
or not taken in connection with the Manager's discharge of its obligations under
Sections 2(a), (b) and (c) above, so long as such decisions, actions or
omissions were taken in good faith.
(e) EXCLUSIVE REPRESENTATIVE. It is understood and agreed
that Manager shall be the exclusive representative of Owner for purposes of
communicating and dealing directly with the regulatory authorities, governmental
agencies, employees, independent contractors, suppliers, residents, sponsors,
licensees, customers and guests of the Facility. Any communications from Owner
to such person or entities or authorities shall be directed through Manager.
3. FISCAL CONTROLS AND PROCEDURES.
(a) ANNUAL BUDGET. At least ninety (90) days prior to
each fiscal year that commences during the term of this Agreement, Manager shall
submit to Owner a proposed budget projecting the revenues to be available and
funds to be required during such fiscal year in order to operate the Facility
and make capital improvements that may be required in order to keep the
Facility's physical PLANT in good condition and repair and payment of premiums
for liability insurance and all risk and fire and casualty for building and
contents, and worker's compensation, and unemployment insurance. The budget
shall be based upon data and information then available and shall include,
without limitation, estimated salaries AND PAYROLL EXPENSES for all employee
groups, projected staffing patterns for the Facility, estimates of required
purchases for supplies, inventory, food and similar items, and an estimate of
the level of rates and charges sufficient to generate revenue necessary to
operate the Facility and make capital improvements projected in the budget.
Owner shall, within twenty (20) days following receipt of such annual budget,
notify Manager of either Owner's approval of the annual budget or those items of
which Owner approves and those items of which Owner disapproves. As soon as
reasonably practical thereafter, Owner and Manager shall attempt to establish a
mutually agreeable annual budget for the Facility. In the event Owner does not
timely either approve, or disapprove, in total or in part, of such annual
budget, as provided herein, then such annual budget as proposed by Manager shall
be deemed approved by Owner, and Manager shall be authorized to implement such
program. Each budget, as approved (and as revised from time to time during a
fiscal year with Owner's prior approval, as set forth in Section 3(b) hereof),
is referred to herein as the "Annual Budget." The projected budget submitted by
Manager to Owner shall be an estimate of revenue, costs, and Owner's
requirements for monthly return on equity and Owner acknowledges that (i)
projected revenue may not be actually received and (ii) projected costs may be
exceeded by actual expenses and capital expenditures incurred in connection with
the operation and MAINTENANCE of the Facility. By submitting such a projected
budget, Manager will not be providing a guarantee or warranty as to the
projected revenue, expenses, insurance or capital expenditures of the Facility.
(b) EFFORTS TO OPERATE WITHIN ANNUAL BUDGET. Manager
agrees to use its best efforts to operate the Facility in accordance with the
Annual Budget. Subject to the foregoing, Owner shall be responsible on a
periodic basis, as and when needed, for all expenses
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and capital expenditures incurred in connection with the operation and
maintenance of the Facility, including, with limitation, cost overruns which
exceed the projections in the Annual Budget.
(c) BANK ACCOUNTS AND WORKING CAPITAL. Under direction
and Owner's prior approval, manager shall establish in a local bank an account
or accounts for the operation of the Facility ("Operating Accounts"), in Owner's
name and on behalf of Owner, and shall thereafter deposit therein all funds
received by Manager on Owner's behalf from the operation of the Facility. Owner
shall provide sufficient working capital for the operation of the Facility
(including, without limitation, the payment of Manager's Minimum Fee, Management
Fee and/or Incentive Fee as provided under Section 6 hereof) and shall deposit
such working capital in the Operating Accounts from time to time upon the
request of Manager. All expenses incurred in connection with the operation of
the Facility (including, without limitation, Manager's Minimum Fee, Management
Fee, and/or Incentive Fee as provided) shall be paid out of the Operating
Accounts. Manager may write checks and draw on the Operating Accounts to pay
for operation of the Facility to the extent required by Manager in the discharge
of its obligations hereunder. Owner shall also provide sufficient funding to
make the capital improvements projected in the Annual Budget unless in Owner's
reasonable discretion, the operations of the Facility are no longer viable, and
Owner begins to wind up the operations of the Facility in order to close same.
Manager shall have no obligation to (1) provide or contribute working capital
required for the operation of the Facility, or (2) fund capital expenditures
required to maintain the Facility in good condition and repair.
4. PERSONNEL.
(a) FACILITY ADMINISTRATOR. Manager shall, on an ongoing
basis, provide the Facility with a qualified Administrator ("Facility
Administrator"). The Facility Administrator shall be an employee of and
compensated and approved by Owner. Manager shall be entitled to utilize the
Facility Administrator, along with employees and agents of Manager, in the
discharge of Manager's obligations.
(b) OWNER'S EMPLOYEES. All employees working at or in
connection with the operation of the Facility shall be employees of Owner. All
salary and related expenses payable to such employees shall be borne solely by
Owner.
(c) MANAGER'S AUTHORITY. Manager may appoint and from
time to time, replace the Facility Administrator and such other personnel as
Manager CHOOSES OR APPOINTS or shall deem necessary for the proper operation
of the Facility. Manager's selection of the Administrator, DIRECTOR OF
HOUSEKEEPING, DIRECTOR OF SOCIAL WORK, DIRECTOR OF RECREATION, DIRECTOR OF
MAINTENANCE AND DIRECTOR OF MEDICAL RECORDS and the terms of their employment,
including compensation, shall be in accordance with this Agreement and the
Annual Budget and shall be subject to Owner's prior approval.
5. TERM OF AGREEMENT. This Agreement shall expire on the fifth
(5th) anniversary of the Commencement Date, defined as four (4) months prior to
the opening of the
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Facility, with one automatic renewal period of five (5) years thereafter, unless
either party notifies the other in writing within one hundred twenty (120) days
of the expiration of the then current term, of its decision not to automatically
exercise the upcoming renewal option period.
6. MANAGEMENT FEE AND ADDITIONAL CHARGES.
(a) MANAGEMENT FEE. There will be no fee for the Initial
Services, except as otherwise provided herein. Owner shall pay Manager a
management fee ("Management Fee"), commencing on the Commencement Date, and
thereafter on the fifteenth (15th) day of each month for the previous month's
total gross revenues collected, a sum equal to five (5%) percent of total gross
revenues. During the initial four (4) month start-up phase beginning with the
Commencement Date, and until the calculated Management Fee of five (5%) percent
of gross revenues exceeds $12,500.00 per month, a minimum monthly Management Fee
of $12,500.00 ("Minimum Fee") will BE PAYABLE ON THE COMMENCEMENT DATE AND
THEREAFTER ON THE ON THE FIFTEENTH (15TH) DAY OF EACH MONTH.
(b) ADDITIONAL SERVICES. Notwithstanding the fact that
services to be provided by Manager which are to be compensated by the Management
Fee are adequate to run the Facility in a first class fashion, any additional
services that do not fall within the scope of management and supervision of the
day-to-day operation of the Facility, including, without limitation, special
projects requested by Owner or recommended by Manager and approved by Owner are
not included as part of the Management Fee due to Manager hereunder and shall be
subject to Manager being entitled to additional compensation to be agreed upon
between Manager and Owner.
(c) INCENTIVE FEE. In addition to the above-mentioned
compensation, Manager may also earn an incentive fee ("Incentive Fee"). The
Incentive Fee shall be equal to 5% of "Net Operating Income", payable annually.
Net Operating Income shall be defined as the remaining income after full payment
of all fixed and variable operating expenses including real estate taxes,
insurance, Management fees, annual debt service OF ORIGINAL TAKE OUT AND
CONSTRUCTION LOAN FINANCING, budgeted and unbudgeted capital expenses, and
Owner's required return on equity. Ownership and Manager shall agree that in
the Annual Budget estimation the Net Operating Income will be based on the
Owner's annual estimation and knowledge of the project's annual debt service,
Ownership's equity recapture requirements, and Owner's required annual equity
return; Manager acknowledges that in no instance shall he be entitled to an
Incentive Fee if income is insufficient to cover all the above-cost, including
Owner's equity return and equity recapture requirement.
7. LEGAL ACTIONS. Subject to the Annual Budget and subject to
Owner's prior approval, Manager may institute any necessary legal actions or
proceedings to collect obligations owing to the Facility or to cancel or
terminate any contract for breach thereof or default thereunder and otherwise
enforce the obligations of the residents, sponsors, licensees, customers and
other users of the Facility, all at Owner's expense.
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8. INFORMATION: COOPERATION. Owner and Manager shall provide
each other with any relevant information required for performance under this
Agreement, and each party shall permit the other to examine and copy any data in
their possession or control affecting the operation of the Facility, including,
without limitation, accounting and financial information. Each party shall
fully cooperate with the other to permit each party to discharge its obligations
hereunder.
9. INSURANCE. Manager is authorized to secure, on the Owner's
behalf and in the Owner's name, subject to Owner's prior approval, on such terms
and conditions as Manager shall deem in the best interests of the Facility, all
insurance coverage in amounts sufficient to protect the Facility Manager, and
Owner against claims of third parties, for property damage, personal injuries,
contract law, labor law, environmental law violation and such other risks as are
prudent. The cost of insurance shall be charged as an operating expense of the
Facility. Manager shall be named as an additional insured under all policies of
insurance affecting the Facility.
10. REPRESENTATIONS AND WARRANTIES. Owner makes the following
additional representations and warranties, which are material, and upon which
Manager has relied as an inducement to enter into this Agreement.
(a) STATUS OF OWNER. Owner is a for-profit general
partnership duly organized, validly existing and in good standing under the laws
of the State of New York; and is qualified to do business and is in good
standing in the State of New York; and has all necessary power to carry on its
business as now being or in the future will be conducted.
(b) AUTHORITY AND DUE EXECUTION. Owner has full power and
authority to execute and deliver this Agreement and all related documents and to
carry out the transactions contemplated hereby, which actions will not with the
passing of time, the giving of notice or both, result in the default under or
breach or violation of (A) the Owner's Partnership Agreement as amended to date,
(b) any law, regulation, court order, injunction or decree of any court,
administrative agency or governmental body, or (C) any mortgage, note, bond,
indenture, agreement, lease, license, permit or other instrument or obligation
to which Owner, or the Facility, is now a party or by which owner, or the
Facility, or any of its assets may be bound or affected. This Agreement
constitutes the valid and binding obligation of Owner enforceable in accordance
with its terms.
(c) LITIGATION. To the best of Owner's knowledge, there
is no litigation, claim, investigation, challenge or other proceeding pending
or, to the knowledge of Owner threatened against Owner, or the Facility, which
seeks to enjoin or prohibit Owner from entering into this Agreement, or which in
any way will adversely affect the Facility.
(d) FIDELITY BOND. Manager shall provide Owner with a
Fidelity Bond in an amount to be agreed upon; however said amount shall not be
less than $500,000, and the cost of said bond shall be an expense of the
FACILITY.
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11. RESTRICTIVE COVENANTS. Owner and Manager mutually covenant
and agree they will not, during the term of this Agreement and for a period of
two (2) years thereafter, without the other party's prior written consent, hire
or otherwise engage or permit any of its affiliates to hire or otherwise engage
any person who is an employee of the other at any time during this Agreement or
the two year period thereafter, or during the six (6) months preceding the
Commencement date.
12. EVENTS OF DEFAULT, REMEDIES AND RIGHTS OF TERMINATION.
(a) DEFAULTS. Each of the following shall constitute an
Event of Default hereunder:
(i) If Owner shall fail to pay any installment of the
Minimum Fee, Management Fee or Incentive Fee for a period of seven (7) days
after notice of such default from Manager:
(ii) If either Manager or Owner fails to perform any
material term, provision, or covenant of this Agreement (other than as set forth
in Section 12(a) (i) above), and such failure continues for a period of thirty
(30) days after written notice from the other party specifying such failure to
perform;
(iii) If Manager is dissolved or liquidated, 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, makes
a general assignment for the benefit of creditors, or files a petition or an
answer seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered by
any court of competent jurisdiction, on the application of a creditor,
adjudicating Manager bankrupt or insolvent or approving a petition seeking
reorganization of such party or appointing a receiver, trustee or liquidator for
such party of all or a substantial part of its assets, and such order, judgment
or decree shall continue unstayed and in effect for any period of ninety (90)
consecutive days.
(b) REMEDIES. Upon any Event of Default, which is not
timely cured, the party who has not committed or suffered the Event of Default
may, at its option, terminate this Agreement, and/or exercise all other rights
and remedies available to such party at law or in equity on 30 days written
notice. In the event of any termination of this Agreement, Manager shall be
paid all Minimum Fees, Management Fees, Incentive Fees and other fees due to the
date of termination. No delay or failure on the part of either party hereunder
to declare the other party in default or exercise any remedies in respect of
such default shall operate as a waiver of such right to declare a default and
exercise such remedies. If either party engages counsel to enforce any of the
default provisions of this Agreement, the prevailing party shall also be
entitled to reasonable attorneys fees and all costs attendant to such action.
(c) TERMINATION. Owner may at its sole discretion, at any
time and without cause, UPON WRITTEN NOTIFICATION, terminate this Agreement.
If Owner elects to terminate
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this Agreement without cause, Owner shall pay manager ON DAY OF SAID
TERMINATION in addition to any Minimum Fee, Management Fee, or Incentive Fee
due the Manager as of the date of such event, the following amounts:
- $300,000 if termination occurs in the first twenty-four (24)
months of this Agreement.
- $200,000 if termination occurs during months twenty-five (25)
through thirty-six (36) of this Agreement.
- $100,000 if termination occurs during any remaining term of
this Agreement.
If Owner elects to terminate this Agreement for Manager's failure to perform
under this Agreement, Manager is not entitled to any additional payments from
Owner.
13. FACILITY'S NAME. Manager shall have the right to initially
name the Facility with the Owner's prior approval and to use such name in any
advertising or promotion for the Facility. If Manager chooses to use a name for
this Facility similar to one that it uses for any other facility which it owns
and/or manages, whether or not such name is registered with any federal or state
agency, then Manager hereby grants to Owner and Owner accepts, a non-exclusive
right to use Manager's chosen name at this Facility only. Upon the termination
of this Agreement for any reason whatsoever, Owner shall immediately cease all
use of Manager's chosen name for the Facility, including any items which carry
said name, such as menus, supplies, signage, stationery, etc. Owner shall
immediately direct all telephone companies and their Yellow Pages advertising
affiliates which identify Owner's Facility under Manager's chosen name, to
cease, effective with their next published edition, all references to the
Facility as such under Manager's chosen name and, at the request of Manager,
shall provide Manager with written confirmation from such third parties of
receipt of such direction. Any intentional post-termination usage by Owner of
Manager's chosen name shall be a willful infringement of Manager's trademark and
other rights.
14. (Intentionally Deleted)
15. MISCELLANEOUS.
(a) SHARED EXPENSES. If Manager, with Owner's prior
approval, shall combine any advertising, public relations, or other activities
with similar activities at other facilities owned or operated by Manager or its
Affiliates, the cost of such activities shall be shared proportionately by Owner
and Manager or its Affiliates, as the case may be. Manager shall exclusively
handle all public relations matters for the Facility either through available
in-house support or from outside sources.
(b) RELATIONSHIP OF PARTIES. Nothing contained this
Agreement shall constitute or be construed to be or create a partnership, joint
venture or lease between Owner and Manager with respect to the Facility, it
being understood that Manager's status shall be that of an independent
contractor.
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(c) COSTS AND EXPENSES OF FACILITY; INDEMNITY. All fees,
costs, expenses and purchases arising out of, relating to, or incurred in the
operation of the Facility, shall be the sole responsibility of Owner. Manager,
by reason of the execution of this Agreement and the performance of its services
hereunder, shall not be liable for or deemed to have assumed any liability for
such fees, costs and expenses, or any other liability or debt of Owner
whatsoever, arising out of or relating to the Facility or incurred in its
operation. Owner agrees to indemnify, defend, pay on behalf on, and hold
Manager and its officers, directors, agents and employees harmless from and
against all losses, claims, damages and other liabilities arising out of or
relating to the ownership or operation of the Facility (except those resulting
from the willful misconduct or gross negligence of Manager), including, without
limitation, any liabilities asserted against Manager or any of its officers,
directors, employees or agents by reason of any action or inaction taken by any
of the foregoing while performing the duties of Manager hereunder on behalf of
Owner. Manager agrees to indemnify, defend, pay on behalf of, and hold Owner
and its officers, directors, agents and employees harmless from and against all
losses, claims, damages and other liabilities arising out of the gross
negligence or willful misconduct of Manager. The terms of this Section 15(c)
shall survive the expiration or earlier termination of this Agreement.
(d) BOOKS AND RECORDS. All books, records, forms and
reports prepared by Manager in connection with the operation of the Facility are
Owner's property and Owner may examine and audit same at any time at Owner's
expense.
(e) COOPERATION UPON TERMINATION. Upon the expiration or
earlier termination of this Agreement, Manager shall cooperate with Owner in
effecting an orderly transition to any new manager of the Facility in order to
avoid any interruption in the rendering of services to Owner and, in connection
therewith, shall surrender to Manager all contracts, documents, books, records,
forms and reports in the possession of Manager regarding the operation of the
Facility.
(f) FORCE MAJEURE. Manager's and Owner's obligations
under this Agreement are subject to strikes and/or labor disturbances THAT
WOULD RESULT IN THE DISCONTINUANCE OF OPERATION, casualty, arbitrary and
capricious action by third parties, Owner's compliance with and observance of
the terms of this Agreement (including, without limitation, Owner's obligation
to provide Minimum Fees, Management Fees and/or Incentive Fees and sufficient
working capital for the operation of the Facility and funding for the capital
improvements projected in the Annual Budget), changes in laws, statutes,
ordinances, regulations or orders of governmental authorities or tribunals, war
or other state of national emergency, terrorism, acts of God and other factors
beyond the control of Manager collectively, ("Force Majeure"). Manager and
Owner shall not be responsible or liable in any way for its inability to
discharge any of its obligations hereunder due to Force Majeure.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon the parties hereto and their respective successors and assigns.
Manager may only assign this Agreement to an affiliated entity whose majority
and controlling interest, is held by the current
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ownership of the Manager. Owner may assign this Agreement to any affiliate or
purchaser of Owner's interest.
(h) NOTICES. All notices, demands and requests to be made
hereunder by one party to other shall be in writing, and shall be delivered by
hand, mailed by certified mail, return receipt requested, or sent by overnight
courier service, with postage prepaid, to the addresses listed at the beginning
of this Agreement.
All notices shall be deemed to be effective (i) upon receipt, if hand delivered,
(ii) three (3) days after mailing, if mailed by certified mail, or (iii) the
next business day after sending, if sent by overnight courier service.
(i) ENTIRE AGREEMENT: AMENDMENTS. This Agreement contains
the entire agreement between the parties hereto with respect to the subject
matter hereof, and no prior oral OR WRITTEN representations, covenants or
agreements between the parties with respect to the subject matter hereof shall
be in force or effect. Any amendments or modifications to this Agreement shall
be of no force or effect unless in writing and signed by both Owner and Manager.
(j) GOVERNING LAW. This Agreement has been executed and
delivered in the State of New York, and all the terms and provisions hereof and
the rights and obligations of the parties hereto shall be construed and enforced
in accordance with the laws thereof, and the Courts sitting therein.
(k) D E L E T E.
(l) SECTION HEADINGS. The section headings throughout
this Agreement are provided for convenience of reference only, and the words
contained therein shall not in any way be held to explain, modify or otherwise
affect the interpretation, construction or meaning of the provisions of this
Agreement.
(m) SEVERABILITY. If any term or provision of this
Agreement or the application thereof to any person or circumstances shall, to
any extent, be invalid or unenforceable, the remainder of this Agreement or the
application of such term or provision to persons or circumstances other than
those to which it is held invalid or unenforceable shall not be affected
thereby, and each term and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
(n) WAIVERS. No waiver of any term, provision or
condition of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be or construed as a further and continuing waiver
of any such term, provision or condition of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Management
Agreement through their duly authorized representatives as of the day and year
first above written.
OWNER: PENSUN ASSOCIATES
BY:
MANAGER: SENIOR QUARTERS MANAGEMENT CORP.
BY:
EVAN A. KAPLAN, President
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MANAGEMENT AGREEMENT
This agreement is dated as of July 1, 1996, by and between NATIONAL
HEALTHPLEX INC., a Pennsylvania nonprofit public benefit corporation
("Company") having an office at 5 East 22nd Street, Apt. 19T, New York, NY
10011 and KAPSON MANAGEMENT CORP., a New York corporation ("Manager") having
an office at 242 Crossways Park West, Woodbury, New York 11797.
A. The Glen Cove Industrial Development Agency "Issuer") entered into that
certain Ground Lease, ("Ground Lease") by and between the Regency at Glen
Cove, Inc. ("Land Owner", as Land Owner, and Issuer as Tenant, pursuant to
which Issuer is leasing certain real property in Glen Cove, New York.
B. The Company and Issuer entered into that certain Installment Sale
Agreement, dated as of January 1, 1992 (the "Sale Agreement"), by and
between Issuer and Company providing for, among other things, the
assignment of Issuer's rights and obligations under the Ground Lease to
company.
C. In conjunction with the Sale Agreement, company obtained financing for the
"Project" (as hereinafter defined) through the sale of Glen Cove
Industrial Development Agency Civic Facility Revenue Bonds (The Regency at
Glen Cove) 1992 Series A, 1992 Series B and 1992 Taxable Series C
(hereinafter collectively referred to as the "Bonds"). The proceeds from
the sale of the Bonds will be administered and disbursed pursuant to that
certain Trust Indenture, dated as of January 1, 1992 ("the Indenture"), by
and between Issuer and First Interstate Trust Company of New York
("Trustee").
D. Repayment of the Series A bonds and Taxable Series C Bonds is secured by
that certain First Mortgagee and Security Agreement dated as of January 1,
1992 (the "First Mortgage"), made by Issuer in favor of Trustee.
Repayment of the Series B Bonds is secured by that certain Second Mortgage
and Security Agreement dated as of January 15, 1992 (the "Second
Mortgage"), made by Issuer in favor of Trustee (the First Mortgage and
Second Mortgage together with any amendments, supplements, consolidations
or extensions thereof and any other deed of trust or mortgage securing any
Additional Bonds, Alternative Indebtedness or obligations issued or
incurred in accordance with the Indenture, on parity with or to refund
such Bonds or Additional Bonds are collectively referred to herein as the
"Mortgages"). Issuer's interest in the Sale Agreement (other than certain
rights to indemnification, notices, fees and expenses) has been assigned
to the Trustee pursuant to the terms of the Sale Agreement and the
Indenture.
E. The Indenture, Sale Agreement, Mortgages, Notes and all other documents
entered into in connection with the Bond or Refinancing Bonds as they may
be amended from time to time, are collectively referred to herein as the
"Loan Documents".
NOW THEREFORE, in consideration of the mutual promises and agreements
between the parties and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, company and Manager do hereby
mutually agree as follows:
1. APPOINTMENT AND ACCEPTANCE. Company appoints Manager as exclusive
manager for the management of the Project described in Section 2 of this
Agreement, and Manager accepts the appointment, subject to the terms and
conditions set forth in this Agreement.
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2. DESCRIPTION OF PROJECT AND PROJECT CONTROL. The project to be
managed by Manager under this Agreement (the "Project") is comprised of an adult
home facility licensed by the New York State Department of Social Services
Bureau of Certification for Adult Services ("Adult Home Units") consisting of
land, buildings and other improvements. The Project is further described as
follows:
Name: The Regency at Glen Cove
Location: Street Address: 94 School Street
City: Glen Cove
County: Nassau
State: New York
Number of units: 96 Adult Home Units.
Manager will be responsible to oversee, operate and manage all of the
Adult Home Units. It is Manager's responsibility to ensure that the operation
of the Project complies with all federal, New York State and Glen Cove laws and
regulations, including all applicable Adult Care Facility laws. Notwithstanding
any authority granted to Manager herein, Company shall, at all times, retain
sole authority and control over the operations of the Project (including
compliance with all applicable laws and regulations) and shall establish
reasonable general management policies from time to time to be adhered to by
Manager in the performance of Manager's services hereunder. All powers and
duties not specifically delegated to Manager herein shall remain the sole
responsibility of Company.
3. DEFINITIONS. As used in this Agreement:
(a) "MORTGAGES" means the Mortgages and any "Fee Mortgage" or
"Leasehold Mortgage" (as such terms are defined in the Ground Lease).
(b) "MORTGAGEE" means any holder of the Mortgages including the
trustee and any "Fee Mortgagee" or "Leasehold Mortgagee" (as such terms are
defined in the Ground Lease).
(c) "PROJECT REVENUE" shall have the meaning as set forth in the
Indenture.
All other terms capitalized and not otherwise defined herein shall
have the meaning set forth for the same in the indenture.
4. MANAGEMENT PLAN.
Attached hereto as exhibit "A" and hereby incorporated herein, is a copy
of the management plan for the Project which provides a comprehensive and
detailed description of the policies and procedures to be followed initially in
the management of the Project (the "Management Plan"). In many of its
provisions this agreement briefly defines the nature of the Manager's
obligations, with the intention that reference be made to the Management Plan
for more detailed policies and procedures.
Accordingly, Company and Manager shall comply with all applicable
provisions of the Management Plan, regardless of whether or not specific
reference is made thereto in any particular provision of this Agreement.
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5. MANAGEMENT INPUT DURING LOAN DOCUMENT PROCESSING.
Manager will advise and assist Company with respect to management input in
connection with Company's compliance with the Loan Documents and the Company's
Tax Certificate during the term of this Agreement. Manager's specific tasks
will be as follows:
(a) Preparation and submission to Company for its approval of a
recommended operating budget for each operating year of the Project.
(b) Preparation and submission to Company of the monthly statement
of income and expenses throughout the term of this Agreement.
(c) Obtain and maintain any and all licenses, certificates,
permits and approvals, as more fully described in Section 23 hereof.
(d) Continuing review of the Management Plan, for the purpose of
keeping Company advised if necessary of desirable changes.
6. BASIC INFORMATION.
Company has furnished Manager with a complete set of plans and
specification as finally approved and copies of all guarantees and warranties
pertinent to construction, fixtures and equipment. With the aid of this
information and inspection by competent personnel, manager will thoroughly
familiarize itself with the character, location, construction, layout, plan and
operation of the Project and especially of the electrical, heating, plumbing,
air-conditioning and ventilating systems, the elevators and all other mechanical
equipment, as applicable. Manager shall maintain direct liaison with Company's
Design Architect and Contractor following completion of construction. Manager
agrees to provide Company no later than March 1 of each year all information
necessary for Company's accountants to prepare Company's tax returns and
filings.
7. ADMISSIONS AGREEMENT.
Manager will offer the Adult Home Units and the Administrator of the
Project will enter into Admission Agreements ("Admission Agreements") as
Company's representative with residents with respect thereto. Company has
adopted a board resolution authorizing the Administrator to so execute such
Admission Agreements. Incidental to such offerings, the following provisions
will apply:
(a) Manager will show the Project to prospective residents.
(b) Manager will take and process applications for admission. If
an application is rejected, the applicant will be told the reason for rejection,
and the rejected application, with reason for rejection noted thereon, will be
kept on file for such periods as may be necessary to comply with applicable
federal and New York State law. A current list of prospective residents will be
maintained. Manager will, in evaluating applications consider the charitable
nature of the Company's activities.
(c) Manager will prepare all Admission Agreements and parking
permits, and will execute the same in its name, identified thereon as agent for
Company. The terms of all Admission Agreements will comply with all federal,
state and local laws and regulations. Admission Agreements
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will be in a form approved by the New York State Department of Social Services
and by Company. Manager will, in evaluating such applications, consider the
charitable nature of the Company's activities.
(d) Company will furnish Manager with fee schedules describing the
basic monthly charges plus other such schedules from time to time and Manager
will be responsible for the implementation of such updates.
8. COLLECTION OF SERVICE FEES AND OTHER RECEIPTS.
Manager will use its best efforts to collect when due all monthly service
fees, charges and other amounts receivable on Company's account in connection
with the management and operation of the Project. Such receipts will be
deposited (a) so long as the Loan Documents are in force, in the Revenue Fund
and in accordance with the requirements of the Loan Documents and (b)
thereafter, in accounts insured by the United States Government (These Accounts
are collectively referred to herein as the "Admission Account"). Manager will
be a permitted signatory on the Admission Account. All funds in the Admission
Account shall be transferred by Manager to the Trustee weekly. The Operating
and Expense account shall not be commingled with any other funds collected by
Manager, as agent for other third parties or otherwise.
9. RESIDENT COMPLIANCE. Manager will use its best efforts to secure
full compliance by each resident with the terms of his or her Admission
Agreement. Voluntary compliance will be emphasized and Manager will counsel
residents and make referrals to community agencies in cases of financial
hardship or under other circumstances deemed appropriate by Manager, to the end
that involuntary termination of residencies may be avoided to the maximum extent
consistent with sound management of the Project and the charitable purposes of
Company. Nevertheless, subject to the pertinent procedures prescribed in the
Management Plan, Manager may lawfully terminate any Admission Agreement when, in
Manager's judgment and in compliance with policies adopted by Company from time
to time, sufficient cause (including, but not limited to, the nonpayment of the
monthly service fee) for such termination occurs under the terms of such
resident's Admissions Agreement. In the event that Manager determines there is
cause for termination of an Admission Agreement, Manager shall take such steps
as prescribed by the New York State Social Services Law. For these purposes,
Manager is authorized to consult with legal counsel of its choice, to be
approved by Company, to bring actions to terminate admission agreements and
judicial pleading incident to such actions; provided however that Manager will
keep Company informed of such actions and will follow State law applicable to
any such action. Attorney's fees and other necessary costs incurred in
connection with such actions will be paid out of the Admission Account as
operating expenses of the Project.
Manager shall undertake involuntary termination proceedings only after
receipt of Company's express written authorization and instruction to do so.
Notwithstanding the authority granted to Manager herein, Manager will
comply with Company's reasonable policies of maintaining in residence any
residents who, subsequent to their initial acceptance into the Project, become
unable to pay the regular charges; provided, however, that all residents must be
able to pay the monthly fees at the time being accepted into the Project and
satisfy reasonable requirements established by Company with respect to their
ability to pay future fees and charges.
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Manager will further refrain from adopting any admission, collection or
termination policy that would jeopardize the status of Company under Section 501
(c) (3) of the Internal Revenue code of 1986, as amended, or violate any
provision of New York Social Services Laws.
10. MAINTENANCE AND REPAIR.
Manager will cause the Project to be maintained and repaired in accordance
with the Management Plan and state and local codes including, but not limited
to, cleaning, painting, decorating, plumbing, electrical, HVAC, appliances,
carpentry, grounds care and such other maintenance and repair work as may be
necessary, subject to any reasonable limitations imposed by Company in addition
to those contained herein.
Incident thereto, the following provisions will apply:
(a) Special attention will be given to preventive maintenance and
to the greatest extent feasible, the services of regular maintenance employees
will used.
(b) Subject to Company's prior approval, which approval shall not
be unreasonably withheld, Manager will contract with qualified independent
contractors for the maintenance and repair of HVAC systems and elevators, and
for extraordinary repairs beyond the capability of regular maintenance
employees.
(c) Manager will systematically and promptly receive and
investigate all service requests from residents, take such action thereon as may
be justified, and will keep records of the same. Emergency requests will be
received and serviced on a twenty-four (24) hour basis. Complaints of a serious
nature will be reported to Company after investigation.
(d) Manager is authorized to purchase all materials, equipment,
tools, appliances, supplies and services necessary for proper maintenance and
repair of the Project.
(e) Notwithstanding any of the foregoing provisions, the prior
approval of Company will be required for any expenditures which exceed Ten
Thousand Dollars ($10,000) in any one instance for labor, materials, or
otherwise in connection with the maintenance and repair of the Project, except
for recurring expenses within the limits of the operating budget or emergency
repairs involving manifest danger to persons or property or required to avoid
the violation of any applicable building code or law or suspension of any
necessary service license or permit relating to the Project. In the latter
event Manager will inform Company of the facts as promptly as possible. Unless
disclosed in writing to the Company in advance, an agreement for goods and
services shall be made with third parties not affiliated with Manager. Manager
must obtain Company's prior written consent for any agreements for goods or
services made by Manager with Manager's affiliates.
11. DINING/DIETARY SERVICES
Manager shall supervise and provide for the operation of dining/dietary
services as follows:
(a) Direct and supervise the Project's dining/dietary operations
in accordance with all standards to which such operations are subject. Manager
shall secure and keep in effect on behalf of
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and at the expense of Company all necessary licenses and permits required for
the conduct of its dining/dietary operations.
(b) Prepare all menus to be used at the Project. Said menus shall
be designed so as to comply with New York State's nutritional requirements and
the Project's budgetary guidelines as well as being nutritionally balanced and,
to the extent possible, consistent with the stated food preferences of the
Project residents.
(c) Through Manager's supervisory personnel and employees of
Company, provide and implement cleaning and maintenance schedules of the food
preparation, serving and dining areas of the Project and maintain same in a
proper and sanitary condition so as to comply with all appropriate federal,
state and local regulatory agency requirements.
Provide prior to the commencement of the initial Fiscal Year, a
projected dining/dietary operating budget for the ensuing Fiscal Year. Said
budget shall include all information necessary to allow same to be integrated
into Company's next annual budget forecast for the Project's cost of operations.
Provide to Company on a monthly basis a statement of dining dietary
service operations which shall include the number of meals served, cost of
operations, and cost analysis on a per-meal-served basis, and any additional
reports as may be agreed upon by Company and Manager.
12. UTILITIES AND SERVICES
In accordance with the Management Plan and the operating budget, Manager
will make arrangements for water, electricity, gas, fuel oil, sewage and trash
disposal, vermin extermination, laundry facilities, and telephone service.
Manager will make such contracts as may be necessary to secure such utilities
and services.
13. EMPLOYEES
The Management Plan generally prescribes the number of personnel to be
regularly employed in the management of the Project, including an Administrator,
an Activities Director, a Case Manager, Resident Care Attendants and
maintenance, bookkeeping, clerical and other managerial employees. All such
personnel are employees of the Company and not the Manager, and will be hired,
supervised and discharged for the Company by the Manager, subject to the
Company's prior approval, as follows:
(a) The Administrator will have duties of the type usually
associated with such position and will coordinate Project activities in the
interest of good overall management.
(b) The compensation (including fringe benefits, as reasonably
approved by Company) of the Administrator, the Program Director, and the other
employees will be as generally prescribed in the Management Plan. All
compensation paid by Company shall be subject to Company's prior review and
approval.
(c) Company will be responsible for compensation (including fringe
benefits) payable to the management and maintenance employees, as prescribed in
the Management Plan, and for all local, state, and federal taxes and assessments
(including, but not limited to, Social Security taxes, unemployment insurance,
and worker's compensation insurance) incidental to the employment of such
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personnel. Such compensation will be paid out of the Operating and Expense
Account and will be treated as Project expenses.
(d) Compensation (including fringe benefits, as reasonably
approved by Company) payable to the Administrator, Program Director, and all
bookkeeping, clerical, and other managerial personnel, plus all the employment
of such personnel will be paid by Company from the Operating and Expense Account
and will not be paid out of the Manager's fee.
(e) Manager represents that it is, and, at all times during the
term hereof, will be, an equal opportunity employer, in compliance with all
federal, state and local legal requirements. Manager further represents that it
will comply with all applicable wage and hour and similar laws relating to the
employment of personnel at the project.
(f) Understanding that it constitutes a material inducement to
Company for entering into this Amendment, Manager represents that upon the
termination of this Management Agreement (whether pursuant to paragraph 29
hereof or due to the expiration of the Initial Term or the Initial Term as
extended hereby) Manager shall take all steps reasonably necessary to retain the
employment of all personnel at the Project as Company employees so that Company
shall become the employer of all said personnel after Manager's termination.
14. SERVICE CONTRACTS
Manager shall represent Company with respect to negotiation, execution,
termination and administration of all significant service contracts. All such
contracts shall be upon such terms and for such rates of compensation as Manager
and Company shall preapprove. As used herein, a "significant service contract"
means a contract which either expires more than one (1) year from the execution
of the contract or contemplates payments on average in excess of $1,000 per
month.
15. IMPROVEMENTS TO THE PROJECT.
Manager shall make recommendations to Company with respect to physical
additions and expansions of the Project which may in Manager's discretion, be
deemed to be in the best interest of the Project together with recommendations
regarding expansion of services within the existing physical Project; provided
however, that no proposed addition or expansion shall be undertaken or
implemented without prior approval of Company.
16. DISBURSEMENTS
(a) So long as the Loan Documents are in force, Manager shall
receive and disburse Project Revenues in accordance with Section 5.10 (a) of the
Indenture and in accordance with the requirements of the Loan Documents.
(b) After termination of the Loan Documents, Manager shall
disburse Project Revenues as follows:
(i) From the funds collected and deposited by Manager in the
Admission Account pursuant to Section 9 above, Manager will make the
following disbursements promptly when payable:
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A. Compensation payable the employees as specified in
Subsection 13 (c) above, and for the taxes and assessments payable to
local, state and federal governments in connection with the employment of
such personnel.
B. All sums otherwise due and payable by Company as
expenses of the Project authorized to be incurred by Manager under the
terms of this Agreement, including compensation payable to Manager (and
all accrued and deferred compensation) pursuant to Section 27, below, for
its services hereunder.
(ii) Except for the disbursements mentioned in Subsections 16
(a) and (b) (i), above funds will be disbursed or transferred from the
Admission Account only as Company may from time to time direct in writing.
(c) In the event that the balance in the Admission Account or the
respective Funds under the Indenture is at any time insufficient to pay
disbursements due and payable under Subsections 16 (a) and (b) above, Manager
will inform Company of that fact and Company will then remit to Manager
sufficient funds to cover the deficiency within five (5) business days of such
request. In no event will Manager be required to use its own funds to pay such
disbursements.
(d) Except with respect to emergencies described in Section 10 (e)
of this Agreement, all disbursements shall require the signature of an
authorized representative of Manager and the signature of an authorized
representative of Company.
17. BUDGETS.
Annual operating budgets for the Project must be approved or disapproved
by Company within thirty (30) Business Days of Company's receipt of such
budgets. Except as permitted under Subsection 10 (e) above, annual
disbursements for each type of operating expenses itemized in the Project Budget
will not exceed the lesser of $5,000 or twenty (20%) percent the amount
authorized for that category by the approved Project Budget without the written
consent of Manager and Company, except for utilities, real estate taxes, and any
other extraordinary expenses. In addition to preparation and submission of a
recommended Project Budget for the initial Fiscal Year, Manager will prepare a
recommended Project Budget for each subsequent Fiscal Year, which shall commence
during the term of the Agreement, and will submit the same to Company at least
sixty (60) days before the beginning of such Fiscal Year. Company will promptly
inform Manager of changes, if any, incorporated in the approved Project Budget,
and Manager will keep Company informed of any anticipated deviation from the
receipts or disbursements stated in the approved Project Budget.
Notwithstanding anything to the contrary stated herein, in consultation with
Manager, Company shall retain the power to amend budgets to the extent not
inconsistent with the Loan Documents.
18. RECORDS.
In addition to any requirements specified in the Management Plan or other
provisions of this Agreement, Manager will have the following responsibilities
with respect to records and reports:
(a) Manager, in coordination with Company, will establish and
maintain a comprehensive system of records, books and accounts in a manner
conforming to any requirements of
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New York State, the Issuer or Trustee. All records, books, and accounts will be
subject to examination at reasonable hours by any authorized representative of
Manager, Company, the Issuer or Trustee.
(b) With respect to each Fiscal Year ending during the term of
this Agreement, Company will cause an annual financial report to be prepared by
a certified accountant or other person based upon the preparer's examination of
the books and records of Company and Manager relating to the Project. The
report will be certified by the preparer and Manager and will be submitted to
Company within ninety (90) days after the end of the Fiscal Year, for Company's
further certification and submission to the Issuer and/or Trustee in accordance
with Section 4.08 (b) of the Indenture Compensation for the preparer's services
will be paid (i) so long as the Loan Documents are in force, as provided therein
and (ii) thereafter, out of the Admission Account as an expense of the Project.
(c) Manager will prepare a monthly report comparing actual and
budgeted figures of receipts and disbursements and will submit each report to
Company within twenty (20) days after the end of the month covered.
(d) Manager will furnish Company and the Issuer and/or Trustee
from time to time information or reasonable reports requested by either, with
respect to the financial, physical, or operational condition of the Project.
(e) By the twenty fifth (25th) day of each month, Manager will
furnish Company with an itemized list of all delinquent accounts, including
Admission Accounts as of the tenth (10th) day of the same month.
(f) By the twenty fifth (25th) day of each month, Manager will
furnish Company with a statement of receipts and disbursements during the
previous month, with a schedule of accounts receivable and payable, and
reconciled bank statements for the Admission Account as of the end of the
previous month.
(g) For so long as the Loan Documents are in force, Manager shall
prepare or have prepared all reports required by the Loan Documents from Company
in connection with the Project.
(h) Except as otherwise provided in this Agreement, all
bookkeeping, clerical, and other management overhead expenses (including, but
not limited to costs of office supplies and equipment, data processing services,
postage, transportation of managerial personnel, and telephone services) will be
treated as Project expenses provided that such expenses are customary and
reasonable.
19. BIDS AND PURCHASE DISCOUNTS, REBATES OR COMMISSIONS.
(a) Company and Manager agree to obtain contract materials,
supplies and services at competitive costs and on the terms most advantageous to
the Project and to secure and credit to the Project all discounts, rebates or
commissions obtainable with respect to purchases, service contracts, and all
other transactions on behalf of the Project.
(b) Manager shall solicit written cost estimates (i.e., bids) from
at least three contractors or suppliers for any work item which Manager or
Company estimates will cost $10,000 or more and for any contract or ongoing
supply or service arrangement which is estimated to exceed $100,000 per year.
Manager agrees to accept the bid which represents the lowest price, subject to
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Company's reasonable approval, taking into consideration all qualified bidders
based upon each bidder's reputation for quality of workmanship or materials and
timely performance and the time frame within which the service or goods are
needed. For any contract or ongoing supply or service arrangement obtainable
from more than one source and estimated to cost less than $100,00, Manager shall
solicit verbal or written cost estimates as necessary to assure that the Project
is obtaining services supplies and make a written record of any verbal
estimates, as necessary to assure that the Project is obtaining services
supplies and purchases at the lowest possible cost. Manager will make a written
record of any verbal estimates obtained. Copies of all required bids and
documentation of all other written and verbal cost comparisons made by Manager
shall be made part of the Project's financial records and shall be retained for
such periods as are necessary to comply with federal and New York State law.
Unless disclosed in writing to the Company in advance, all agreements for goods
and services shall be made with third parties not affiliated with Manager.
Manager must obtain Company's prior written consent for any agreements for goods
or services made by Manager with Manager's affiliates.
(c) Manager agrees to make available to Company and the Issuer
and/or Trustee all records of Manager which relate to the provision of goods or
services to the Project whenever Project funds have been used to pay for such
goods and/or services.
20. RESIDENT SERVICES PROGRAM.
Manager will be responsible to Company for carrying out the Project's
Resident services program.
21. RESIDENT-MANAGEMENT RELATIONS.
Manager will encourage and assist residents of the Project in forming and
maintaining representative organizations to promote their common interests, and
will maintain good-faith communication with such organizations to the end result
that problems affecting the Project and its residents may be avoided or solved
on the basis of mutual self-interest.
22. INSURANCE.
Company will inform Manager of insurance to be carried with respect to the
Project and its operations, and Manager will cause such insurance to be placed
and kept in effect at all times. Manager shall not be responsible for any
unavailability of insurance due to reasons beyond Manager's control. Manager
will pay premiums out of the Admission Account, and Premiums will be treated as
operating expenses. All insurance will be placed with such companies, on
such conditions, in such amounts, and with such beneficial interest appearing
thereon as shall be acceptable to Company, and shall be otherwise in conformity
with the terms of the Loan Documents and Ground Lease; provided that the same
will include public liability coverage with Manager designated as an additional
insured, in amounts acceptable to Manager as well as Company, Manager will
investigate and furnish Company with full reports to all accidents, claims and
potential claims for damages relating to the Project, and potential claims for
damages relating to the Project, and will cooperate with Company's insurers in
connection therewith. In addition, Manager shall carry such insurance as shall
be required from time to time by the Loan Documents, Mortgages and Ground Lease
premiums for which shall likewise be treated as operating expenses of the
Project. Manager further agrees to carry, as an operating expense of the
Project, errors and omissions insurance for the benefit of both Company and
Manager and a bond protecting respective officers, employees and contractors,
which insurance and bond shall be in such amounts and with such
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carriers and sureties as shall be mutually agreed upon by company and Manager.
Manager shall add Company as a named insured on its errors and omissions
insurance policy.
23. LAWS, REGULATIONS, LICENSES, ENVIRONMENTAL AND LOAN DOCUMENT
COMPLIANCE.
(a) Manager shall obtain any and all licenses, certificates,
permits or approvals that may be required by any governing local, state, or
federal law, ordinances, rules and regulations to operate the Project. Manager
shall not be responsible for the unavailability of licenses, certificates,
permits or approvals due to reasons beyond Manager's control. This will
include, but is not limited to, preparing and submitting the applications and
associated exhibits for such licenses, certificates, permits or approvals, and
meeting with licensing personnel. Any and all such licenses, certificates,
permits or approvals shall be obtained in the name of Company. Company shall
pay for all fees incurred and any related preapproved company expenses in
obtaining and maintaining any and all such licenses, certificates, permits or
approvals, based upon the Project's budget agreed to by Company and Manager.
Manager agrees to use its best efforts to obtain such licenses, certificates,
permits or approvals.
(b) Manager shall comply with and use its best efforts to maintain
any and all such licenses, certificates, permits and approvals described in
Subsection 23 (a) above. Manager agrees that Manager's management of the
Project, including, but not limited to Manager's maintenance, alteration and
operation of the Project, shall at all times conform to all applicable local,
state and federal laws, ordinances, rules and regulations. Manager agrees to
consult with Company prior to taking any action on any matter affecting the
applicability, validity or legality of any such law, ordinance, rule or
regulation or of any licensure or certification decision. Company agrees to pay
the cost of maintaining such licenses, certificates, permits or approvals,
including all license fees.
(c) Manager covenants and agrees that: (i) Manager will comply
with any reasonable requirements of Company from time to time to implement or
facilitate the administration or enforcement of any or all of the provisions of
this Section 23; and (ii) Manager will certify annually, if so requested by
Company, that to Manager's knowledge it is in compliance with all Environmental
Laws.
(d) Manager shall provide all information required by the New York
State Department of Social Services. Manager shall also cooperate and carry-out
inspection and enforcement activities relating to the Project.
(e) Notwithstanding any other provision of this Agreement, the
Company will remain responsible for operation of the Project in compliance with
all applicable laws and regulations.
(f) In carrying out its activities and responsibilities under this
Management, Manager shall assist Company to comply with all of its obligations
under the terms of the Sale Agreement, the Mortgages, the Indenture and the
Bonds.
(g) Manager covenants and agrees that while it is acting as
Manager (i) it will never intentionally cause or to the extent within Manager's
control permit any "Hazardous Material" (as hereinafter defined) ever to be
placed, held, located or disposed of on, under or at the Project or any part
thereof or disposed of or discharged from the Project into the atmosphere or any
watercourse, body of water or wetlands, except to the extent and in the manner
permitted by applicable law and (ii) to the extent within Manager's control,
Manager will not permit any Hazardous Material ever to be placed or used on the
Project or any part thereof, except to the extent and in the manner permitted by
applicable
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law. For purposes of this Agreement, the term "Hazardous Material" means any
hazardous or toxic substance material or waste which is or becomes regulated by
the laws of any local governmental authority, the State of New York or the
United States Government (all collectively referred to as "Environmental Laws").
(h) Pursuant to Paragraph 23 (g) above, Manager hereby indemnifies
Company and agrees to defend and hold Company harmless from and against any and
all losses, liabilities, damages, injuries, costs (including, without
limitation, court costs and reasonable attorneys' fees), expenses and claims of
any and every kind whatsoever caused by Manager or any of its employees which at
any time or from time to time may be paid, incurred or suffered by, or asserted
against Company for, with respect to or as a direct or indirect result of, the
presence on or under, or the escape, seepage, leakage spillage, discharge,
disposal, emission or release from, the Project or into or upon any land, the
atmosphere, or any watercourse, body of water or wetland, of any Hazardous
Material (except any Hazardous Materials (A) located on, at or under the Project
as of the commencement of or subsequent to the termination of the term of this
Agreement, and (B) first discovered at the Project after the commencement of or
subsequent to the termination of the term of this Agreement), including, without
limitation, any losses resulting from a diminution in the value of the Project
and any losses, liabilities, damages, injuries, costs, expenses, liabilities,
damages, injuries, costs, expenses or claims asserted or arising under any
Environmental Laws, provided, however, that this indemnity shall not cover any
claim relating to Hazardous Material, which claim arises or accrues prior to the
commencement of or subsequent to the termination of the term of this Agreement
(except to the extent such claims relate to any act or omission of Manager, its
employees or consultants on the Project prior to the commencement of or
subsequent to the termination of this Agreement).
(i) Company hereby indemnifies Manager and agrees to defend and
hold Manager harmless from and against any and all losses, liabilities, damages,
injuries, costs (including, without limitation, court costs and reasonable
attorneys fees), expenses and claims of any and every kind whatsoever caused by
Company or any of its employees which at any time or from time to time may be
paid, incurred or suffered by, or asserted against Manager for, with respect to
or as a direct or indirect result of, the presence on or under, or escape,
seepage, leakage, spillage, discharge, disposal, emission or release from, the
Project or into or upon any land, the atmosphere, or any watercourse, body of
water or wetland, of any Hazardous Material (A) located on, at or under the
Project as of the commencement of or subsequent to the termination of the term
of this Agreement, and (B) first discovered at the Project after the
commencement of or subsequent to the termination of the term of this Agreement,
including, without limitation, any losses resulting from a diminution in the
value of the Project, and any losses, liabilities, damages, injuries, costs,
expenses or claims asserted or arising under any Environmental Laws.
24. TAXES.
Any taxes or other governmental obligations properly imposed on the
Project are the obligations of the Project, not the Manager, and shall be paid
from Project Revenues. With Company's written consent, Manager may contest the
validity or amount of any such tax or imposition on the Project, subject to the
terms and conditions of the Ground Lease. Company hereby agrees that it shall
cooperate fully in any such contest of taxes or impositions by Manager.
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25. COMPANY'S REPRESENTATIVE.
In any situation in which, pursuant to the terms hereof, Company shall be
required or permitted to take any action, or to give any approval, Manager shall
be entitled to rely upon the statement of Company, or ITS EXECUTIVE DIRECTOR.
In the event Company does not respond to a written request by Manager for any
approval or consent under this Agreement within ten (10) days, or other time
frame specifically set forth in this Agreement, after receipt of such a request
same shall be deemed to be approved.
26. NON-DISCRIMINATION.
In the performance of its obligations under this Agreement, Manager shall
comply with the provisions of any federal, state or local law prohibiting
discrimination in housing on the grounds of race, color, creed or national
origin including Title VI of the Civil Rights Act of 1965, executive Order
11063, and Title VIII of the 1968 Civil Rights Act, and all regulations
implementing those laws.
27. MANAGER'S COMPENSATION.
Manager's compensation shall be treated as an expense of the Project and
shall be paid subject to the terms of Article V of the Indenture. The amount
and payment terms of Manager's compensation hereunder are as follows:
(a) Company shall pay Manager a base management fee in arrears on
or before the last day of each month in the amount of $16,600 per month (the
"Base Fee"), commencing with the month in which the contract is executed. All
amounts due hereunder which are deferred under the Loan Documents shall bear
interest at the rate of the greater of (i) 10% per annum or (ii) 1% per annum
over Prime Rate as defined in the Indenture, compounded annually.
(b) The Base Fee shall be increased on July 1, 1997 and each July
1 thereafter, at the option of Manager, during the term of this Agreement in
accordance with the percentage increase, if any, in the Consumer Price Index for
the New York City - Northern New Jersey - Long Island, New York - New Jersey-
Connecticut Area (All Urban Consumers, All Items) the United States Department
of Labor, Bureau of Labor Statistics (the "Bureau"). The Index for January 1 of
the then current year during the term of this Agreement in which Manager elects
to increase the Base Fee shall be compared with the Index for January 1 of the
last year in which the Base Fee was increased (or, in the event of the first
increase, the first year of the term of this Agreement) and the Base Fee then in
effect shall be increased, in accordance with the percentage increase, if any,
between such Indexes. In no event shall the Base Fee, as adjusted, be less then
the Base Fee in effect immediately prior to the adjustment. Manager shall give
company written notice of any such increase in the Base Fee by April 15 of each
year and Company shall pay the increased Base Fee commencing July 1 of each
year. Should the Bureau discontinue the publication of the Index, or publish
the same less frequently, or alter the same in some other manner, Manager shall
adopt a reasonable substitute index or procedure that reasonably reflects and
monitors consumer prices as then customarily used in the Nassau County area.
(c) The management fee set forth above shall, subject to the above
terms, be paid to Manager (i) so long as the Loan Documents are in force, as
provided therein and (ii) thereafter, for each month on the last day of each
month.
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28. TERMS AND TERMINATION.
(a) The term of this Agreement shall commence on the date hereof
and shall continue for twelve (12) months after the Project's opening date, such
twelve (12) month period being referred to herein as the "Initial Term".
(b) The Initial Term may be extended on the same terms and
conditions at the option of Company for two additional twelve (12) month terms
by written notice of such extension, which notice shall be given not less than
90 days prior to the end of the current term. Manager hereby agrees to accept
any extension of the Initial Term exercised by Company.
(c) This Agreement may also be terminated by the Company upon the
occurrence of an event of default on the part of the Manager as hereinafter
defined.
(d) This Agreement may be terminated on the conditions, set forth
in section 8.04 of the Indenture, if directed by a Majority Interest.
29. EVENTS OF DEFAULT TERMINATION.
(a) Any of the following shall be an event of default hereunder on
the part of the Company:
(i) If Company shall apply for or consent to the appointment
of a receiver, trustee or liquidation of Company of all or a substantial
part of its assets, file a voluntary petition of bankruptcy, make general
assignment for the benefit of creditors file a petition or an answer
seeking reorganization or arrangement with creditors or to take advantage
of any insolvency law, or if an order, judgment or decree shall be entered
by any court of competent jurisdiction on the application of a creditor
adjudicating Company a bankrupt or insolvent or approving a petition
seeking reorganization of Company or appointing a receiver, trustee or
liquidation of Company or of all or a substantial part of its assets, and
such order, judgment or decree shall continue unstayed and in effect for
any period of ninety (90) consecutive days.
(ii) If Company shall fail to keep, observe, pay or perform
any material covenant, obligation, agreement, term of provision of this
Agreement to be kept, observed, paid or performed by Company, and such
default shall continue for a period of thirty (30) days after notice
thereof by Manager to Company.
(b) If any event of default by Company shall occur, Manager shall
have the following remedies in law or equity on account of such event of default
to which Manager may resort cumulatively or in the alternative:
(i) If the event of default shall be failure to make any
payment to Manager as provided in this Agreement, Manager shall, in
addition to recovery of the amount unpaid, be entitled to reasonable
attorney's fees and costs of collection.
(ii) In addition to recovery of the amount provided for in
subparagraph b(i) above, Manager may, if any event of default by Company
shall occur forthwith terminate this Agreement on a minimum of twenty (20)
days' notice to Company and remove from
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the Project Manager's employees and all Manager's systems, manuals,
procedures and equipment. In the event of termination, Company shall
within twenty (20) days of the effective date of such termination, pay to
Manager all sums, fees, notes or other amounts then due, payable or
outstanding to Manager or guaranteed or endorsed by Manager. All sums,
fees, notes or other amounts due to Manager hereunder, but deferred or not
payable at the date of termination shall be a continuing obligation of
Company to be paid to Manager as monies become available in the priority
set forth in section 5.10 (a) (10) of the Indenture.
(c) Any of the following shall be an event of default hereunder on
the part of Manager:
(i) If Manager shall apply for or consent to the appointment
of a receiver, trustee or liquidator of Manager of all or a substantial
part of its assets, file a voluntary petition of bankruptcy, make a
general assignment for the benefit of creditors, file a petition or an
answer seeking reorganization or arrangement with creditors or to take
advantage of any insolvency law, or if an order, judgment or decree shall
be entered by any court of competent jurisdiction on the application of a
creditor adjudicating Manager a bankrupt or insolvent or approving a
petition seeking reorganization of Manager or appointing a receiver,
trustee or liquidator of Manager of all or substantial part of its assets,
and such order, judgment or decree shall continue unstayed and in effect
for any period of ninety (90) consecutive days.
(ii) If Manager shall fail to keep, observe, pay or perform
any material covenant, obligation, agreement, term or provision of this
Agreement to be kept, observed, paid or performed by Manager, and such
default shall continue for a period of thirty (30) days after notice
thereof by company to Manager.
(d) If any event of default by Manager shall occur, Company shall
have the following remedies in addition to any other remedies available to it in
law or equity on account of such event of default to which Company may resort
cumulatively or in the alternative:
(i) If the event of default shall be failure of Manager to
make any payment to Company as provided in this Agreement, Company shall,
in addition to recovery of the amount unpaid, be entitled to reasonable
attorney's fees and costs of collection;
(ii) In addition to recovery of the amount provided for in
subparagraph d (1) above, Company may, if any event of default by Manager
shall occur, forthwith terminate this Agreement on ninety (90) days'
notice to Manager provided Company is able to replace Manager with another
Manager/Operator licensed and preapproved by the State of New York, and
remove from the Project Manager's employees and all Manager's systems,
manuals, procedures and equipment. In the event of such termination,
manager shall within ten (10) days of such termination pay to Company or
to Trustee, if required
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by the Loan Documents, Project funds related to the Project then held by
Manager, and Company shall within ten (10) days of the effective date of
such termination, pay to Manager all sums, fees, notes or other amounts
then due, payable or outstanding to Manager or guaranteed or endorsed by
Manager. All sums, fees, notes or other amounts related to the Project
due to Manager hereunder, but deferred or not payable at the date of
termination shall be a continuing obligation of Company to be paid to
Manager as monies become available in priority set forth in Section 5.10
(a) of the Indenture.
30. REPRESENTATIONS.
(a) Company represents and warrants that it is a corporation
exempt from federal income taxes under Section 501 (c) (3) of the Internal
Revenue Code and applicable state law, is duly formed, validly existing and in
good standing under the laws of the States of California and New York and is
duly qualified to do business in every jurisdiction in which it is so engaged,
and that it has full authority to enter this Agreement.
(b) Manager shall not share in either the profit or losses of the
Project and nothing in this Agreement shall be deemed to make Manager an
ownership participant in the business of Company or a partner or joint venture
of or with Company.
(c) Manager represents that it will take no action which would
cause the Company to fail to be characterized as exempt from federal income tax
under section 501 (c) (3) of the Internal Revenue Code of 1986 as amended.
31. MANAGER LOANS.
Manager and Company acknowledge that, under certain circumstances as set
forth in the Loan Documents, Company is required to employ a Marketing
Consultant or Management Consultant, as defined therein. In the event a
Marketing Consultant or Management Consultant is so employed, the expenses
thereof shall first be paid from available Project Revenues or other available
Funds under the Indenture. In the event Manager, at the written request of the
Company, makes loans for expenses, such loans shall bear interest at the rate of
one percent (1%) per annum over the Prime Rate as defined in the Indenture and
shall be repaid as an operation and Maintenance Expense out of the first
available funds from the Operations Fund or otherwise as provided in the
Indenture.
32. LEGAL COUNSEL.
In furtherance of the performance of Manager's obligations under this
Agreement, Manager is authorized to consult with legal counsel, subject to prior
written approval by the Company and the cost of such counsel incurred in
connection with such performance (other than in the context of a dispute between
Manager and Company, in which event Section 36 shall apply) shall be paid by
Company. Manager shall notify Company of any legal counsel retained pursuant to
this Paragraph 32.
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33. NOTICES.
All notices required hereunder shall be in writing and sent by United
States mail, certified, postage prepaid:
To Company at:
NATIONAL HEALTHPLEX, INC.
5 East 22nd Street, Apt. 19T
New York, N.Y. 10011
Attn: Mr. Larry Morehead, Executive Director
(a) To Manager at:
KAPSON MANAGEMENT CORP.
242 Crossway Park West
Woodbury, N.Y. 11797
Attn: Mr. Evan A. Kaplan, Vice President
34. INTERPRETIVE PROVISIONS.
(a) This Agreement constitutes the entire Agreement between
Company and Manager with respect to the management and operation of the Project,
and not change will be valid unless made by supplemental written agreement
between Company and Manager and, so long as the Loan Documents are in force
there is delivered an opinion of Bond counsel acceptable to the Trustee that
such changes will not adversely affect the tax exempt status of the Bonds.
(b) This Agreement may be executed in several counterparts, each
of which shall constitute a complete original Agreement, which may be introduced
as evidence or used for any other purpose without production of any of the other
counterparts.
(c) For purposes of consistency with the Loan Documents this
Management Agreement is dated as of July 1, 1996.
35. LOAN DOCUMENT PROVISIONS.
For so long as the Loan Documents are in force in the event of a conflict
between the terms of this Agreements and the terms contained in the Loan
Documents the terms of the Loan Documents shall control. Manager hereby
consents to the terms and conditions of the Loan Documents.
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36. LIMITED LIABILITY.
(a) Notwithstanding anything to the contrary set forth herein,
Company shall not have any liability, personal or otherwise in connection with
any obligation of Company to pay monies set forth herein except to the extent of
(i) Project Revenues available and so long as the Bonds are outstanding,
designated pursuant to the Indenture for disbursements relating to such
obligations or (ii) Bond proceeds available and designated pursuant to the
Indenture for disbursements relating to such obligations. Notwithstanding the
foregoing limitation, the same shall not affect or limit the liability of
Company with respect to Project Revenues or Bond proceeds received by Company
from which, pursuant to the Indenture or otherwise payments or reimbursements
are to be made to Manager hereunder.
(b) No covenant, obligation, agreement, or stipulation contained
herein shall be deemed to be a covenant, obligation agreement, or stipulation of
any present or future officer, director, member or employee of company in his or
her individual capacity.
37. ASSIGNMENT.
This Agreement shall be binding on each of the party's successors and
assigns. Manager may not assign or otherwise transfer its interest in this
Agreement without Company's prior written consent (which shall not be
unreasonably withheld), except as provided in the Indenture or Sale Agreement,
provided that Company's consent shall not be required for Manager's assignment
to an entity that controls, is controlled by, or is under common control with
Manager.
38. ATTORNEY'S FEES.
If either Party is required to enforce any provision of this Agreement or
becomes a party of any litigation concerning this Agreement or the Project by
reason of any act or omission of the other Party or its authorized
representative's acts or omission, the Party that causes the other Party to
enforce this Agreement or become involved in litigation shall be liable to that
Party for reasonable attorney's fees and court costs incurred by it in
enforcement or litigation.
39. CAPTIONS.
The captions of the various sections and paragraphs of this Agreement are
for convenience and ease of reference only and do not define, limit, augment, or
describe the scope, content, or intent of this Agreement of any Party to or
parts of this Agreement.
40. UNAVOIDABLE DEFAULT OR DELAY.
Any prevention, delay, nonperformance or stoppage due to any of the
following causes shall excuse nonperformance for a period equal to any such
prevention, delay, nonperformance or stoppage, except the obligations imposed by
this Agreement to pay money. The causes referred to above are strikes lockouts,
labor disputes, failure of power, acts of God, acts of public
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enemies of this state or of the United States, riots, insurrections, civil
commotion, inability to obtain labor materials or reasonable substitutes for
either, governmental restrictions or regulations or control (except those
unreasonably foreseeable in connection with the uses contemplated by this
Agreement), or other causes beyond the reasonable control of the Party obligated
to perform.
41. WAIVER.
No waiver of any default shall constitute a waiver of any other breach or
default, whether of the same or any other covenant or condition. No waiver,
benefit, privilege, or service voluntarily given or performed by either Party
shall give the other any contractual right by custom, estoppel or otherwise.
42. EXHIBITS INCORPORATED.
All exhibits to which reference is made herein are deemed incorporated in
this Agreement.
43. SEVERABILITY.
If any provision of this Agreement or the application thereof to any
person or circumstances shall be invalid or unenforceable to any extent, the
remainder of this Agreement and the application of such provisions to other
persons or circumstances shall not be affected thereby and shall be enforceable
to the greatest extent permitted by law.
44. CONSULTANTS.
Manager may retain consultants in connection with the performance of
Manager's duties hereunder, provided that such consultants act in accordance
with the terms of this Agreement, and provided further that all consulting fees
or other payments paid to any such consultant shall be paid by Manager at its
sole cost and expense, with the exception of any consultant required in
accordance with the terms of the Indenture, any licensing consultant, and any
other consultant such as architect, engineer or appraiser not normally carried
as part of the staff of Project Manager's similar to Manager.
45. THIRD PARTIES.
Except as specifically set forth herein, nothing herein is intended or
shall be construed to confer upon or give to any person or entity (other than
Company and Manager and their respective successors and permitted assigns) any
rights or remedies under or by reason of this Agreement.
46. NON-COMPETITION.
Manager, and the individuals comprising Manager, agree not to directly or
indirectly operate or otherwise act as a consultant, or similar capacity, with
respect to any existing or
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proposed facility within a 2.5 mile radius of The Regency at Glen Cove. The
Manager represents that in respect to The Mayfair and any other projects managed
by the Manager:
(a) No residents at The Regency will be solicited by the Manager
to move to any other project, including The Mayfair;
(b) No persons currently on The Regency's prospect or waiting
lists will be solicited by the Manager on behalf of other projects, including
The Mayfair.
(c) The Manager will not seek to transfer any Regency employees to
The Mayfair;
(d) When joint advertising is used by the Manager, enquirers will
be told about and sent literature on each Project;
(e) No proprietary information (including information about
prospective residents) concerning The Regency will be disclosed to other owners
or employees except as reasonably necessary to provide services to The Regency;
and
(f) All actions undertaken by the Manager will be fair and
equitable to the interests of The Regency and the Company.
IN WITNESS WHEREOF, the parties hereto (by their duly authorized
officers) have executed this Agreement.
COMPANY
NATIONAL HEALTHPLEX, INC.
a Pennsylvania nonprofit public benefit
Wcorporation
By: _____________________________
Larry Morehead, Executive Director
MANAGER
KAPSON MANAGEMENT CORP.
a New York Corporation
By: _____________________________
Evan A. Kaplan, Vice President
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EXHIBIT "A"
MANAGEMENT PLAN
KAPSON MANAGEMENT CORP.
MANAGEMENT PLAN
NATIONAL HEALTHPLEX INC.
New York, N.Y.
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Kapson Management Corp.
MANAGEMENT PLAN
National Healthplex, Inc.
New York, N.Y.
22
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INDEX
Section
-------
Role and Responsibility of Retirement
Housing Corporation of New York and Its
Management Staff 1
Regulatory Compliance 2
Personal Policy and Staffing Arrangements 3
Plans and Procedures for Publicizing and
Achieving Early Occupancy 4
Qualifications for Applicant Tenant Approval 5
Plans for Carrying Out an Effective
Maintenance and Repair Program 6
Monthly Service Fee Collection Policies and
Procedures 7
Program for Maintaining Adequate Accounting
Records and Handling Necessary Forms
and Vouchers 8
Plans for Resident - Management Relations 9
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Kapson Management Corp.
MANAGEMENT PLAN
1. ROLE AND RESPONSIBILITY OF KAPSON MANAGEMENT CORP., AND ITS MANAGEMENT
STAFF.
(a) Kapson Management Corp. ("KMC") through the Project's on-site
Administrator, shall be responsible for the day-to-day operations of
the Project. The department supervisors are responsible for the
operations of their specific areas and report directly to the
Administrator. Department supervisors include: Dietary Supervisor;
Case Manager; Activities Director; Bookkeeper; and Lead Care
Attendant. The Administrator shall be directly responsible to KMC.
(b) KMC management staff shall prepare and submit a detailed preliminary
budget of Project operations to the Owner three (3) months prior to
the beginning of each fiscal year. This budget will include all
costs of operations, including any expenditures for capital
equipment of major expendable inventory replacement. After
review/adjustment and approval, the Administrator shall have the
responsibility for the operation of the Project in conformance with
the Project policies and budget established by the Owner and KMC.
Subsequent to budget approval, the Administrator shall be
responsible for the purchase of all goods and services related to
the effective operations of the Project, including capital
equipment. In any case involving the need for acquiring
non-budgeted equipment, the Administrator will first obtain the
approval for the expenditure from KMC. In addition, the
Administrator shall immediately notify KMC of any incident at or
away from the Project which involves the injury or death of a
Project employee or resident, the damage of Project property, any
incident which requires the filing of a report to the Department of
Social Services or any situations with legal implications.
(c) Except as outlined in 1.b. above, the Administrator may make
decisions without consulting KMC only in life threatening or other
emergency situations, and only when all attempts to contact KMC key
personnel (1.d. below) have been exhausted.
(d) In emergency situations, the Administrator will contact the
President of KMC on matters related to operational policy and/or the
Controller on matters related to expenditures.
(e) The Administrator shall be responsible for the establishment of a
Social Services referral system and its implementation. The
Administrator shall revise and evaluate the referral system annually
so as to insure its effectiveness.
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2. REGULATORY COMPLIANCE
(a) The Project will be licensed by the State of New York Department of
Social Services as an Adult Home. The Administrator under the
direction of KMC (which is acting on behalf of the operator), shall
be directly responsible for compliance with all aspects of
licensing.
(b) KMC staff will prepare the part one, two and licensing application
on behalf of the Owner. The Owner will be the applicant for the
license and will sign all required forms. The application process
will begin approximately 18 months prior to the projected Project
opening.
(c) Upon completion of the Project, the Administrator and KMC will
participate in the initial licensing visit. A copy of the report
will be forwarded to the Owner for review and approval.
(d) After each subsequent licensing visit, the Administrator shall
forward the copies of the licensing report within 24 hours to the
Vice President of Assisted Living and the Owner. Within 3 days, the
Administrator will prepare a plan of correction, if necessary, for
review with the Vice President of Assisted Living and the Owner.
3. PERSONNEL POLICY AND STAFFING ARRANGEMENTS
(a) Both the Initial hiring and the ongoing replacement hiring of the
Project shall be carried out in complete conformance with all local,
state and federal equal employment opportunity guidelines and law.
In this regard, it is projected that the minority composition of the
Project staff will be representative of other area employment and
the general minority population composition of the community. Equal
employment consideration shall be made at all employment levels,
including management, non-management skilled and semi-skilled
positions.
(b) Notwithstanding any other provisions of this Management Plan, the
Owner shall have the absolute right to terminate any employee,
provided Owner does so through Manager.
4. PLANS AND PROCEDURES FOR PUBLICIZING AND ACHIEVING EARLY OCCUPANCY
(a) The Project's targeted prospective resident is a frail elderly
individual who is no longer capable of living independently. Very
often the elderly individual's need for assisted living services is
sudden, resulting in an immediate need for this level of services.
As a result, unlike independent living, premarketing
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activities which are directed toward the prospective resident are
largely ineffective more than three months prior to the facility
opening.
(b) Many of the prospective residents will come to the facility at least
in part, as a referral from various individuals or institutions
within the community. In an effort to establish this referral base,
a number of individuals and institutions within the primary and
secondary markets have been contacted. These include hospital
discharge planners, skilled nursing centers, senior centers and
independent living facilities.
(c) Approximately six months prior to the Project's anticipated opening
date, KMC staff will undertake the development of marketing
materials. This will include brochures for prospective residents,
direct mail pieces and media advertising. This will be done under
the direction of KMC.
(d) Marketing staff will be recruited and hired approximately three
months prior to the anticipated Project opening date. The marketing
staff will report to KMC. The staff will work out temporarily in a
leased office space which will be located near the Project. The
marketing staff will move to the facility after a Certificate of
Occupancy has been issued. The leasing office will open Monday
through Friday 9:00 AM To 5:00 PM and by appointment on Saturday and
Sunday.
(e) The process of approving the residents will include an initial
Screening by the on-site marketing staff with final approval by the
Administrator and KMC. The Approval process will include a revise
of the residents' ability to meet financial, physical and mental
requirements of the Project.
(f) The leasing staff may remain on-site until the Project achieves 95%
occupancy factor. Thereafter, the Administrator will be responsible
for the on-going marketing activities.
5. QUALIFICATIONS FOR APPLICANT RESIDENT APPROVAL
(a) The Administrator shall screen all resident applicants prior to
accepting as a prospective resident in the facility. This screening
shall consist of a review of the applicant's current physical and
mental condition to insure that they are able to live in the
Project's assisted living units without the level of supportive care
which may only be provided in a licensed convenient hospital.
(b) The Administrator may also recommend rejection of an applicant if
that applicant displays obvious and flagrant emotional and mental
instability that would likely lead to bizarre or extraordinary
behavior should the applicant take residency in the facility.
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(c) In no instance, however, shall the Administrator screen residents on
the basis of race, color, religion, sex or national origin.
(d) In all cases of rejection, the Administrator must first seek the
approval of KMC. If KMC concurs with the recommended rejection, the
leasing personnel shall make every attempt to first contact the
applicant's next of kin, responsible party or medical doctor to
discuss the reasons for rejection. If willing to do so, the person
will be asked to make the notification to the applicant. This then
will be followed up by a formal notice through written
correspondence to the applicant with copies to the next of kin,
responsible party or medical doctor.
6. PLANS FOR CARRYING OUT AN EFFECTIVE MAINTENANCE AND REPAIR PROGRAM
(a) KMC shall establish equipment inventory controls from the initial
acquisition purchase orders and delivery statements. After
construction completion, but prior to the Owner's acceptance of the
building from the general contractor, all equipment installed by the
general contractor, including all mechanical and electrical systems
shall be inspected by KMC and the Project's inspecting architect.
Any deficiencies shall be noted and corrected by the general
contractor prior to acceptance by KMC. To insure compliance with
this process, estimates of specific equipment costs, provided by the
inspecting architect, shall be withheld from payment to the general
contractor. The Administrator will insure that, to the extent
possible, the terms of manufacturer's warranties on all fixed and
moveable equipment will be enforced. All equipment suppliers shall
be required to provide the Project complete specification, routine
maintenance and "trouble shooting" manuals, for the use by Project
maintenance personnel. Further, when cost effective, KMC will take
advantage of extended service contracts offered by equipment
manufacturers.
(b) Residents will be required to pay a security deposit. Upon
move-out, the unit will be inspected for damage in excess of normal
wear and tear. The cost of repair of any excess damage will be
deducted from the resident's security deposit.
(c) Each living unit shall be repainted on a needed basis, at the time
of a new occupancy of the unit. Likewise, each unit will be
scheduled for repainting no less than every three years, at the
expense of the Project. Residents may request painting at any time,
but will be required to reimburse the Project that cost, if painting
is requested and accomplished in less than the three years. All
painting and redecorating of any living unit must be done by the
Project personnel or contractors approved by the Administrator.
27
<PAGE>
(d) To the extent possible, the Administrator will identify and
establish cost estimates of major repairs in accordance with their
budget responsibilities outlined in 1.a. Any unscheduled major
repairs, with the costs of $1,000 or less may be ordered by the
Administrator without the prior approval of KMC. Expenditures above
that amount must first receive approval of KMC. Verbal approval
will suffice, in the case of bonafide emergency situations. The
Administrator shall make special effort to identify any major repair
covered by Project insurance.
(e) Routine upkeep and maintenance shall be performed by project
maintenance personnel. Other required project maintenance such as
exterior pest control and grounds care shall be performed by
qualified subcontractor.
(f) Residents will be instructed to report all maintenance problems to
the Administrator through the means of a prescribed maintenance
request form. The Administrator will insure that, to the extent
possible, any major repairs such as inoperative heating units or
leaks will be repaired within 24 hours of the reported deficiency.
To that end, the Administrator shall insure that a current emergency
repair service telephone list is prepared and kept on file in the
administration offices. Minor repairs shall be made within two
working days of the reported deficiency.
7. MONTHLY SERVICE FEE COLLECTION POLICIES AND PROCEDURES
(a) All monthly service fee payments are due in advance on the first
working day of the month for which the monthly services is payable.
Residents may make payment in person during regular office hours
which are 8:00 AM to 5:00 PM, or by mail, provided payment is
postmarked no later than the first calendar day of the month. There
will be no specific arrangements for after hours deposits of rent
payments.
(b) The Administrator will accept prepayments on monthly service fee,
but shall not accept partial prepayments unless the resident has
requested approval for such an arrangement in advance of the due
date. Approval for partial payment may be granted by the
Administrator at his discretion, but based upon an extraordinary and
non-recurring circumstances of the resident. In the case of an
approved partial payment, the balance of monthly service fee due
will be payable no later than the next month's payment date.
(c) Provision for late fees on delinquent monthly service fees shall be
included in the Admission Agreement. However, the Administrator
will use discretion in actual imposition of such late fees.
28
<PAGE>
(d) The Project Bookkeeper shall credit monthly service fee payments to
individual resident accounts on the working day following the due
date. The Bookkeeper shall then contact each delinquent account by
telephone or in person so as to notify the resident of possible
"oversight". A summary list shall then be prepared and submitted to
the Administrator at KMC. If delinquencies are not corrected by the
seventh (7th), working day of the month, the Administrator shall
again telephone the resident and make written note of the telephone
conversation. The Administrator shall make every effort to collect
delinquent payments by the end of the month due and without the need
for punitive action, which includes late fees. Any matter willful
non-payment or recurring late payment shall be referred to KMC for
possible eviction proceedings in accordance with the New York State
Adult Home Regulations.
(e) KMC shall delegate authority to the Administrator with regard to
referral services for residents and prospective residents with
budget problems.
(f) The Resident Agreement stipulates that the resident may be evicted
for reasons of non payment of the monthly service fee or becoming a
nuisance or hazard to other residents or himself and/or Project
property. Prior to eviction, the Administrator shall notify the
resident and a responsible party by certified letter warning of
possible eviction and the reasons why. A copy of this letter will
be sent to the Department of Social Services (DSS). This letter
shall state that if the resident takes corrective and sustained
action within thirty days of the letter, eviction proceedings will
be suspended. The Administrator will also make every effort to
notify by telephone the resident's next of kin (or other responsible
party) of the proposed action. If corrective and sustained action
does not occur within the prescribed thirty days, the Administrator
shall take steps in accordance with DSS regulations to evict the
resident.
(g) As noted in 5.d. above, each resident will have a separate account
for the purpose of crediting and debiting monthly service fees and
miscellaneous charges.
8. PROGRAM FOR MAINTAINING ADEQUATE ACCOUNTING RECORDS AND HANDLING NECESSARY
FORMS AND VOUCHERS.
(a) KMC shall insure that comprehensive accounting and purchasing
procedures are established for the Project. As a minimum, these
procedures shall be in compliance with the HUD Handbook of FHA
Requirements Governing Fiscal Operations, Accounting and Financial
Reports for Multifamily Housing Projects (Form 2230).
(b) The accounting system for the Project will be consistent with the
chart of accounts and accounting report system established by the
Owner and KMC.
29
<PAGE>
The financial reporting system shall include monthly statements of
operations, statement of receipts and disbursements during the
previous month, a schedule of accounts receivables and payable, and
reconciled bank statements. An annual review of the Project's
financial records shall be conducted by and independent public
accountant within 90 days following the Project's fiscal year end.
9. PLANS FOR RESIDENT-MANAGEMENT RELATIONS
(a) Shortly after Project occupancy, the Administrator shall cause to
have organized a Residents' council. The makeup of this committee
shall be established by the residents, but with the guidance and
direction of the Administrator. The stated purpose of the committee
shall be to provide input to the managing agent related to
recreational activities, but it shall also serve as a vehicle to air
grievances. To that end, its composition shall include a
representative of the managing agent who will be a non-voting
member, but who shall attend all committee meetings. However, the
Residents' council will be given the opportunity during each session
to meet without any staff members present. Further, the
Administrator will maintain an "open door" policy with respect to
resident complaints and suggestions. Likewise, the Administrator
shall schedule quarterly resident meetings so as to report on
project and resident affairs.
(b) The Administrator shall make every effort to comply with resident
request. Should the request be cumbersome or not in compliance with
Project policy or budget, the Administrator shall insure that the
resident making the request is so notified in writing. This letter
shall be cordial, well conceived and should stipulate in detail why
the request cannot be granted.
(c) Each new resident will be provided a residents' handbook, which will
outline the policies and procedures of the Project. In addition,
new residents will receive an orientation tour of the Project prior
to their scheduled move in. Furthermore, the Administrator shall
work with the residents' committee (see 7.a. above) to assign a
"sponsor" resident for each new resident.
Each prospective resident will be provided a Project brochure and a copy
of the Admission Agreement with attachments, to review prior to execution
of the Resident Agreement. After that review and in accordance with the
Admission Agreement, the resident will provide the Administrator with a
completed medical and financial profile form. At that time the
prospective resident may tentatively reserve a specific living unit upon
making a refundable deposit in the amount of one months' monthly service
fee. The Administrator shall review the prospective resident's medical
and financial profile and notify the prospect of their acceptance within
one week of the resident's submission of that information. In the case of
a denial by KMC, any deposits made
30
<PAGE>
by the resident shall be refunded immediately. Assuming acceptance, the
resident will then have one week on which to sign the Admission Agreement
and schedule a move in. Except in the case of preopening lease activity,
residents shall not be permitted to reserve a living unit with a new move
unscheduled greater than 2 weeks from the date of the Admission Agreement
execution.
(d) As a matter of practice, Admission Agreements will not be made
available in foreign languages.
(e) KMC shall, from time to time, review the resident Admission
Agreement to insure it complies with the New York State Model
Admission Agreement and is totally fair and nonpunitive.
(f) The Administrator shall make every effort to cooperate and work with
local and national organizations with which the residents' committee
may wish to establish affiliations.
(g) The Administrator will insure that each resident has ample
opportunity to demonstrate support for the Project and its policies
and to participate in its activities and have an active voice in its
management. It shall do so through the vehicle of the residents'
committee, the "open door" policy and regular meetings with the
resident.
31
<PAGE>
APPROVAL CERTIFICATE
This is an Approval Certificate to the Management Agreement dated as of
July 1, 1996, by and between National Healthplex, Inc. (Company) and Kapson
Management Corp. (Manager).
PARAGRAPH 13: The Manager hereby seeks approval from the Company, and the
Company hereby grants its approval and consent, to have the personnel of the
property be employees of the Manager, and they will be hired, supervised and
discharged by Manager. It is understood that the Company requested and the
Manager accepted this undertaking.
PARAGRAPH 46: The Manager hereby seeks approval from the Company, and the
Company hereby grants its approval and consent, for the Manager to manage and
operate a proposed senior housing project located in Glen Cove, currently owned
by Hassett Belfer Senior Housing, LLC. This Project will be known as The
Mayfair at Glen Cove, and will be located on Glen Street.
All other terms and conditions of the Management Agreement dated July 1, 1996,
shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Approval Certificate
through their duly authorized representatives as of the day of July, 1996.
COMPANY NATIONAL HEALTHPLEX, INC.
By: __________________________
Larry Morehead, Executive Director
MANAGER KAPSON MANAGEMENT CORP.
By: __________________________
Evan A. Kaplan, Vice President
32
<PAGE>
AMENDMENT TO MANAGEMENT AGREEMENT
This amendment dated July 11, 1994 (the "Amendment") by and between
NATIONAL HEALTHPLEX, INC., a Pennsylvania nonprofit public benefit corporation
("NH") having an office at 505 Park Avenue, 19th Floor, New York, New York
10022, Attention: Mr. Larry Morehead, and SENIOR QUARTERS MANAGEMENT CORP., a
New York corporation ("Manager") having an office at 339 Crossways Park Drive,
Woodbury, New York 11997 is made to that certain management agreement dated as
of January 21, 1993 (which has not been amended) by and between United Community
and Housing Development Corporation ("UCHDC") and Manager (the "Management
Agreement").
WHEREAS, UCHDC has agreed pursuant to that certain purchase
agreement between UCHDC and NH dated August 6, 1993 to convey to NH, and NH has
agreed to assume, all of UCHDC's right, title and interest in the Project (as
the term "Project" is defined in the Management Agreement), and
WHEREAS, after the transfer of the Project to NH, NH desires to
continue to employ Manager in connection with the Project pursuant to the
Management Agreement as modified by this Amendment.
NOW, THEREFORE, in consideration of the mutual promises and
agreements between the parties and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, NH and Manager hereby
mutually agree as follows:
1. All references to the "Company" in the Management Agreement
and this Amendment shall hereafter be deemed to mean NH only.
2. Paragraph 5(a) of the Management Agreement is hereby deleted
in its entirety and is replaced with the following language:
"a. Preparation and submission to Company FOR ITS APPROVAL
of a recommended operating budget for the initial operating year of
the Project."
3. The following sentence shall be added to the end of paragraph
6 of the Management Agreement:
"Manager agrees to provide Company no later than March 1 of
each year of Manager's employ all information necessary for
Company's accountants to prepare Company's tax returns and filings.'
4. The following sentence is hereby added to the end of paragraph
7(c) of the Management Agreement:
<PAGE>
"Manager will, in evaluating such applications, consider the
charitable nature of the Company's activities."
5. The following language is hereby added to the end of the first
full paragraph of paragraph 8 of the Management Agreement:
"All funds in the Operating and Expense Account shall be
transferred by Manager to the Trustee weekly. The Operating and
Expense Account shall not be commingled with any other funds
collected by Manager, as agent for other third parties or
otherwise."
6. The following language shall be added to the end of paragraph
10(e) of the Management Agreement:
"Unless disclosed in writing to the Company in advance, all
agreements for goods and services shall be made with third parties
not affiliated with Manager. Manager must obtain Company's prior
written consent for any agreements for goods or services made by
Manager with Manager's affiliates."
7. In paragraph 11(c) of the Management Agreement, the misspelled
word "ding" shall be correctly spelled as "dining."
8. Paragraph 13 of the Management Agreement shall be deleted in
its entirety and replaced with the following (additions are underlined):
"13. EMPLOYEES. The Management Plan generally prescribes
the number of personnel to be regularly employed in the management
of the Project, including an Administrator, an Activities Director,
a Case Manager, Resident Care Attendants and maintenance,
bookkeeping, clerical, and other managerial employees. All such
personnel are employees of the Company and not the Manager and will
be hired, supervised and discharged for the Company by the Manager,
subject to the Company's prior approval, as follows:
a. The Administrator will have duties of the type usually
associated with such position and will coordinate Project activities
in the interest of good overall management.
b. The compensation (including fringe benefits, as approved
by Company) of the Administrator, the Program Director, and the
other employees will be as generally prescribed in the Management
Plan. All compensation paid by Company pursuant to the annual
budget shall be subject to Company's prior review and approval.
-2-
<PAGE>
c. Company will be responsible for compensation (including
fringe benefits) payable to the management and maintenance
employees, as prescribed in the Management Plan, and for all local,
state, and federal taxes and assessments (including, but not limited
to, Social Security taxes, unemployment insurance, and worker's
compensation insurance) incidental to the employment of such
personnel. Such compensation will be paid out of the Operating and
Expense Account and will be treated as Project expenses.
d. Compensation (including fringe benefits, as approved by
Company) payable to the Administrator, Program Director, and all
bookkeeping, clerical, and other managerial personnel plus all the
employment of such personnel, will be paid by Company from the
Operating and Expense Account and will not be paid out of the
Manager's fee.
e. Manager represents that it is, and, at all times during
the term hereof, will be, an equal opportunity employer, in
compliance with all federal, state and local legal requirements.
Manager further represents that it will comply with all applicable
wage and hour and similar laws relating to the employment of
personnel at the Project.
f. Understanding that it constitutes a material inducement
to Company for entering into this Amendment, Manager represents that
upon the termination of this Management Agreement (whether pursuant
to paragraph 29 hereof or due to the expiration of the Initial Term
or the Initial Term as extended hereby) Manager shall take all steps
reasonably necessary to retain the employment of all personnel at
the Project as Company employees so that Company shall continue to
be the employer of all said personnel after Manager's termination."
9. The reference in paragraph 16(b)(i)(a) to "Subsection 14(c)"
is hereby corrected to read "13(c)".
10. Paragraph 17 of the Management Agreement is hereby deleted in
its entirety and replaced with the following language (additions are
underlined):
"BUDGETS. Annual operating budgets for the Project must be
APPROVED OR DISAPPROVED by Company within THIRTY (30) Business
Days of Company's receipt of such budgets. Except as permitted
under Subsection 11(e) above, annual disbursements for each type of
operating expenses itemized in the Project Budget will not exceed
the lesser of $5,000 or twenty (20%) percent the amount authorized
for that category by the approved Project Budget without the written
consent of Manager and Company except for utilities, real estate
taxes, any other extraordinary
-3-
<PAGE>
expenses. In addition to preparation and submission of a
recommended Project Budget for the initial Fiscal Year, Manager will
prepare a recommended Project Budget for each subsequent Fiscal
Year, which shall commence during the term of this Agreement, and
will submit the same to Company at least SIXTY (60) days before
the beginning of such Fiscal Year. Company will promptly inform
Manager of changes, if any, incorporated in the approved Project
Budget, and Manager will keep Company informed of any anticipated
deviation from the receipts or disbursements stated in the approved
Project Budget. NOTWITHSTANDING ANYTHING TO THE CONTRARY STATED
HEREIN, IN CONSULTATION WITH MANAGER, COMPANY SHALL RETAIN THE POWER
TO AMEND BUDGETS TO THE EXTENT NOT INCONSISTENT WITH THE LOAN
DOCUMENTS."
11.a. The following language shall be added to the end of paragraph
19(b) of the Management Agreement:
"Unless disclosed in writing to the Company in advance, all
agreements for goods and services shall be made with third parties
not affiliated with Manager. Manager must obtain Company's prior
written consent for any agreements for goods or services made by
Manager with Manager's affiliates."
b. The words "(other than management services)" shall be deleted
from the end of paragraph 19(c) of the Management Agreement.
12. The proviso commencing in the 26th line of paragraph 23(h) of
the Management Agreement shall be added also to the end of paragraph 23(i)
thereof, except that the word "Manager" shall be changed to "Company" in said
paragraph 23(i).
13. Paragraph 24 of the Management Agreement is hereby deleted in
its entirety and replaced with the following language (additions are
underlined):
"Any taxes or other governmental obligations properly imposed
on the Project are the obligations of the COMPANY OR THE Project,
not of Manager, and shall be paid from Project Revenues. AT THE
COMPANY'S WRITTEN REQUEST, Manager shall contest the validity or
amount of any such tax or imposition on the Project, subject to the
terms and conditions of the Ground Lease. Company hereby agrees
that it shall cooperate fully in any such contest of taxes or
impositions by Manager."
14. Paragraph 27(b) of the Management Agreement is hereby deleted
in its entirety and replaced with the following language (additions are
underlined):
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<PAGE>
"AT THE DIRECTION OF THE COMPANY, conduct the interviews and
select the key Project management personnel that will be hired as
employees of the Project prior to the first resident occupancy."
15. Paragraph 28(d) of the Management Agreement shall be deleted
in its entirety.
16. In paragraph 32 of the Management Agreement before the
sentence commencing "Such loans shall . . ." the words "In the event Manager, at
the written request of the Company, makes loans for expenses,".
17. Paragraph 33 of the Management Agreement shall be amended by
adding the words "subject to prior written approval of the Company" after the
words "legal counsel" in the third line thereof. The words "out of the
Admission Account" shall be deleted.
18. Paragraph 34(a) is hereby deleted in its entirety and replaced
with the following language:
"a. To Company at:
National Healthplex, Inc.
505 Park Avenue, 19th Floor
New York, New York 10022
Attention: Mr. Larry Morehead"
b. To Manager at:
Senior Quarters Management Corp.
c/o The Kapson Group
339 Crossways Park Drive
Woodbury, New York 11797
Attention: Mr. Wayne Kaplan
19. Section 1 of the Index to the Management Plan annexed to the
Management Agreement shall be amended to change the words "Retirement Housing
Corporation of New York" to "Senior Quarters Management Corp."
20. Except as modified hereby, the Management Agreement is hereby
ratified by Manager and NH and it shall remain in full force and effect
commencing on the date of transfer of the Project from UCHDC to NH. Manager
hereby acknowledges that there are no defaults under the terms, conditions or
obligations of the Management Agreement and Manager has no claim for damages or
otherwise against UCHDC or NH.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their duly authorized
officers, have executed this Amendment.
COMPANY:
NATIONAL HEALTHPLEX, INC.
By: /S/
------------------------------
Authorized Signatory
Position: EXECUTIVE DIRECTOR
MANAGER:
SENIOR QUARTERS MANAGEMENT CORP.
By: /S/
-------------------------------
Authorized Signatory
Position: VICE PRESIDENT
- 6 -
<PAGE>
AGREEMENT
Agreement made as of the ___ day of __________, 1996, by and between
Kapson Senior Quarters Corp., a Delaware corporation, with its principal place
of business at 242 Crossways Park West, Woodbury, New York 11797 (the
"Company"), and ______________, residing at __________________________________
(the "Executive").
W I T N E S S E T H :
WHEREAS, the Company desires to employ Executive as its Chairman and
Chief Executive Officer and Executive is willing to serve in such capacities;
and
WHEREAS, the Company and Executive desire to set forth the terms and
conditions of such employment.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the Company and Executive agree as
follows:
1. EMPLOYMENT.
(a) The Company hereby agrees to employ Executive, and Executive
agrees to be employed by the Company, on the terms and conditions herein
contained as its _____________________________. Executive shall report to the
Board of Directors of the Company (the "Board") as ___ and shall have such
duties, authority and responsibilities commensurate
<PAGE>
with such position for similarly sized public companies. In addition, if
elected as Chairman of the Board, Executive shall serve in such capacity.
(b) During the Term of Employment, the Company hereby agrees to
recommend Executive to be elected as a member of the Board.
(c) Executive shall devote substantially all of his business time,
energy, skill and efforts to the performance of his duties hereunder and shall
faithfully serve the Company. The foregoing shall not prevent Executive from
participating in not-for-profit activities, from managing his passive personal
investments or from serving on up to two (2) boards of directors of for-profit
entities that do not compete with the Company, provided that these activities
do not materially interfere with Executive's obligations hereunder. In addition,
Executive may spend such time as he reasonably believes required to perform his
obligations to the Company pursuant to any Operating Agreements entered into
between him and the Company. Such activities are not within the scope of this
Agreement and, accordingly, when functioning in connection with any Operating
Agreements, the Executive shall have no fiduciary duty to the Company as a
result of his position with the Company.
(d) Upon the request of the Board, Executive shall also serve as a
director or officer of subsidiaries in positions commensurate with his position
with the Company without additional compensation. If any compensation is paid
Executive by such subsidiaries, they shall be a credit against amounts due
hereunder.
2
<PAGE>
2. TERM OF EMPLOYMENT.
(a) Except for earlier termination as provided in Section 7 hereof or
as extended in this Section 2, Executive's employment under this Agreement (the
"Employment Term") shall be for a term of five years commencing on the
consummation of the initial public offering of the Company's Common Stock (the
"Commencement Date"). The Employment Term shall be automatically renewed for
successive one-year terms unless either party gives written notice to the other
at least six months prior to the expiration of the then Employment Term of such
party's intention to terminate Executive's employment hereunder at the end of
the then current Employment Term.
(b) Notwithstanding anything else herein, the provisions of
Sections 9 and 10 hereof shall survive and remain in effect notwithstanding the
termination of the Employment Term or a breach by the Company or Executive of
this Agreement or any of its terms.
3. COMPENSATION.
(a) As compensation for his services under this Agreement, the
Company shall pay Executive a base salary at a rate of at least $213,000 per
year. Such base salary shall be payable in accordance with the Company's normal
payroll practices. Executive's base salary shall be reviewed annually by the
Company and shall be increased as of the first day of each fiscal year by no
less than the increase in the Consumer Price Index - Urban Wage Earners (or, in
the event such index is no longer published, such other index as is determined
in good faith to be comparable by the Board) from the penultimate month prior to
3
<PAGE>
the beginning of the fiscal year being completed to the penultimate month of the
fiscal year being completed (as so increased, "Base Salary").
(b) In addition to the Base Salary, the Company may, in its sole
discretion, pay Executive bonuses from time to time and provide for additional
compensation.
4. BENEFITS AND FRINGES.
(a) During the Employment Term, Executive shall be entitled to such
benefits and fringes, if any, as are generally provided from time to time by the
Company to its senior executive officers, including pension, retirement,
savings, welfare and other employee benefit plans and arrangements.
(b) The Company shall, during the Employment Term, provide Executive
with a leased automobile at a level and under arrangements commensurate with the
practice of Executive's predecessor employer.
(c) The Company shall, during the Employment Term, pay any initiation
fees, dues or other fees for Executive's membership in a club of Executive's
choice. Executive shall be responsible for any income tax due as a result of
Executive's personal use of such club. The Company, to the extent permitted by
law, shall not treat the business use as compensation to the Executive.
(d) The Company shall, during the Employment Term, provide long term
disability coverage for Executive providing for a benefit of at least sixty-five
(65%) of
4
<PAGE>
Executive's Base Salary based on his own occupation or comparable occupation
level and with a waiting period of not longer than six (6) months ("Long Term
Disability Coverage").
(e) Except as otherwise specifically provided herein, the Executive
shall be responsible for the tax consequences of all benefits and fringes.
5. EXPENSES.
The Company shall reimburse Executive in accordance with its expense
reimbursement policy as in effect from time to time for all reasonable expenses
incurred by Executive in connection with the performance of his duties under
this Agreement upon the presentation by Executive of an itemized account of such
expenses and appropriate receipts.
6. VACATION.
During the Employment Term, Executive shall be entitled to vacation in
accordance with the Company's practices, provided that Executive shall be
entitled to at least four (4) weeks paid vacation in each full calendar year.
7. TERMINATION.
(a) Executive's employment under this Agreement and the
Employment Term shall terminate upon any of the following events:
(i) Automatically on the date of Executive's death.
(ii) Upon written notice given by the Company to
Executive if Executive is unable to substantially perform his material duties
hereunder for one hundred
5
<PAGE>
eighty (180) continuous days during any period of three hundred sixty (360)
consecutive days by reason of physical or mental incapacity.
(iii) Upon written notice by the Company to Executive
for Cause. Cause shall mean (A) Executive being convicted of (or pleading nolo
contendere to) a felony (other than a traffic violation);(B) refusal of the
Executive to attempt to properly perform his obligations under this Agreement,
or follow any direction of the Board consistent with this Agreement, which in
either case is not remedied within ten (10) business days after receipt by
Executive of written notice from the Company specifying the details thereof,
provided the refusal to follow a direction shall not be Cause if Executive in
good faith believes that such direction is not legal, ethical or moral or not
within the scope of his duties pursuant to this Agreement and promptly notifies
the Board in writing of such belief;(C) Executive's gross negligence with regard
to his duties or willful misconduct with regard to the business, assets or
employees of the Company which in either event has a material adverse effect on
the Company and its subsidiaries in the aggregate; or (D) any other breach by
Executive of a material provision of this Agreement that remains uncured for
twenty (20) business days after written notice thereof is given to Executive or
such longer period as may reasonably be required to remedy the default, provided
that the Executive endeavors in good faith to remedy the default.
(iv) Upon written notice by the Company without Cause.
(v) Upon the voluntary resignation of Executive
without Good Reason upon at least sixty (60) days prior written notice to the
Company (which the Company may in its sole discretion make effective earlier),
provided such notice shall not be given by Executive prior to the fifth
anniversary of the Commencement Date.
6
<PAGE>
(vi) Upon the date specified in the written
resignation of Executive for Good Reason stating with specificity the details
of the Good Reason, if the stated Good Reason is not cured within twenty (20)
days of the giving of such notice. Such date of termination shall be not
less than thirty (30) days and not more than ninety (90) days after the date
of notice. Notice of Good Reason shall be given within one hundred eighty
(180) days of occurrence of the Good Reason event. "Good Reason" shall mean
(A) any reduction in title or a material reduction in authority, duties or
responsibilities (except temporarily during any period of physical or mental
illness); (B) failure to elect Executive to the Board of the Board;
(C) relocation of the Company's principal place of business more than
thirty (30) miles from the Company's current principal place of business;
(D) the Company giving the Executive notice of nonrenewal pursuant to Section
2(a) hereof; (E) any other material breach of any provision of this Agreement
by the Company; (F) a Change in Control of the Company (as defined in
Exhibit A hereto); (G) any breach or termination by the Company or its
subsidiaries of any present or future operating or management agreement with
the Executive, as operator of one of the Company's facilities. In addition,
Executive may, by written notice given within thirty days of the date of
Executive's resignation for Good Reason or the termination of his employment
by the Company without Cause, elect to terminate his engagement as one of the
licensed operators (the "Operators") of any adult care facilities pursuant to
any management agreement between the Company and Executive, _______________ and
_______________ (collectively, "Operators"), and Executive shall have no
obligations or liabilities under such agreements with respect to the operation
of such facilities after the date of such election, and shall be entitled to
receive an additional amount hereunder equal to twice his pro rata share of
(i) the aggregate fees earned by Operators in respect of the gross revenues of
such facilities during the twelve months immediately preceding such termination
less (ii) the aggregate amount of such fees that Operators were required to pay
to any subsidiary of the Company for providing management services to Operators
in respect of such facilities. Notwithstanding any other provision of this
Agreement to the contrary, Executive shall be entitled to terminate his
obligations and liabilities under such operating agreements if Executive's
employment under this Agreement terminates for any reason (including, without
limitation, for Cause) other than Good Reason or a termination without Cause;
provided, however, Executive shall not be entitled to the additional
payment provided for in the preceding sentence in such circumstances. Owner
agrees that this provision shall be controlling regardless of any provision
to the contrary in the operating agreements.
(vii) The retirement of Executive by the Company at or
after his sixty-fifth (65th) birthday to the extent such termination would be
legally permissible without violation of applicable age discrimination laws
(provided that if a termination asserted under this subsection (a)(vii) does not
qualify as such it shall be deemed a termination under subsection (a)(vi)
above).
(b) Upon termination of the Employment Term, Executive shall be
promptly paid any unpaid salary and accrued vacation through his date of
termination and reimbursement for any expenses incurred in connection with the
official business of the Company prior to his date of termination which he would
be otherwise entitled to
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<PAGE>
reimbursement for in accordance with the Company's policies on the reimbursement
of business expenses and any benefits or amounts under any benefit or equity
plan in accordance with the terms of said plan and any fringe benefits due for
the period prior to such termination. In addition, he shall be paid any
declared, but unpaid bonus.
(c) If Executive's termination is pursuant to subsection (a)(iv)
or subsection (a)(vi) above, Executive shall receive:
(i) severance pay in an amount equal to (A) two (2)
times Executive's Base Salary on the date of his termination, payable in a lump
sum within thirty (30) days after such termination, plus (B) a bonus payment
equal to the product of (x) a fraction, the numerator of which is the bonus paid
or payable to Executive for the fiscal year prior to the fiscal year of
termination of Executive's employment and the denominator of which is his Base
Salary for such prior fiscal year, (y) his Base Salary for the fiscal year of
the termination (prior to any improper reduction by the Company) and (z) the
percentage of days in the fiscal year which occupied prior to his date of
termination; and
(ii) continued medical coverage for a period of two (2)
years following termination of Executive's employment.
(d) If Executive's termination is pursuant to subsection (a)(i)
above, Executive's Beneficiary (as defined in the next sentence) shall continue
to receive payments of Executive's Base Salary, at the same time such amounts
would have been paid if Executive was still an employee of the Company for a
period of six (6) months following Executive's death. For purposes of this
provision, Executive's Beneficiary shall be
8
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Executive's spouse; if Executive is not married on his date of death,
Executive's children, per stirpes; and otherwise, Executive's estate.
(e) If Executive's termination is pursuant to subsection (a)(ii)
above, Executive shall be entitled to receive for the six (6) month period
following the termination of Executive's employment, at the same time as it
would have been paid if he was an employee of the Company, his Base Salary less
any amounts actually received by him pursuant to Long Term Disability Coverage
for the matching pay period. After such six (6) months, Executive shall only be
entitled to any amounts due him under the Long Term Disability Coverage.
(f) All amounts payable pursuant to this Section 7 shall be
subject to required withholding. The Company shall have no other obligations to
Executive as a result of his termination.
8. NO MITIGATION; NO SET-OFF.
In the event of any termination of employment covered by Section 7(c),
Executive shall be under no obligation to seek other employment and, in such
case, there shall be no offset against any amounts due Executive under this
Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. Any amounts due under Section 7 are
inclusive, and in lieu of, any amounts payable under any other salary
continuation or cash severance arrangement of the Company and to the extent paid
or provided under any other such arrangement shall be offset from the amount due
under Section 7.
9
<PAGE>
9. CONFIDENTIAL INFORMATION AND NON-COMPETITION.
(a) Executive acknowledges that as a result of his employment by
the Company, Executive will obtain secret and confidential information as to the
Company, that the Company will suffer substantial damage, which would be
difficult to ascertain, if Executive shall enter into Competition, as defined
below, with the Company and that because of the nature of the information that
will be known to Executive it is necessary for the Company to be protected by
the prohibition against Competition set forth herein, as well as the
Confidentiality restrictions set forth herein. Executive acknowledges that the
provisions of this Agreement are reasonable and necessary for the protection of
the business of the Company and that part of the compensation paid under this
Agreement is in consideration for the agreements in this Section 9.
(b) Competition shall mean participating directly in any
capacity in the day-to-day direct supervision or operations of any assisted
living facility within a ten (10) mile radius of any facility operated by the
Company.
If any restriction set forth with regard to Competition is found by
any court of competent jurisdiction, or an arbitrator, to be unenforceable
because it extends for too long a period of time or over too great a range of
activities or in too broad a geographic area, it shall be interpreted to extend
over the maximum period of time, range of activities or geographic area as to
which it may be enforceable.
(c) During and after the Employment Term, Executive shall not
use for his own benefit or any other person or entity other than the Company any
secret or
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confidential information, knowledge or data relating to the Company and its
business, (i) obtained by Executive during his employment by the Company and
(ii) not otherwise public knowledge or known within the Company's industry.
Executive shall not, without prior written consent of the Company, unless
compelled pursuant to the order of a court or other governmental or legal body
having jurisdiction over such matter, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In the event Executive is compelled by order of a court or
other governmental or legal body to communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it,
Executive shall promptly notify the Company of any such order and shall
cooperate fully with the Company, at Company expense, in obtaining a protective
order.
(d) Upon termination of Executive's employment with the Company
and its affiliated entities, or at any other time as the Company may request,
Executive will promptly deliver to the Company all documents (whether prepared
by the Company, an affiliated entity, Executive or a third party) relating to
the Company or an affiliated entity or any of their businesses or property which
Executive may possess or have under his direction or control, provided, however,
in the event of a termination by the Company without Cause, the Executive may
continue to have the use of his automobile for thirty (30) days under the then
existing arrangement.
(e) During the period of his actual employment by the Company
and its affiliated entities and for one (1) year thereafter, Executive will not
enter into Competition with the Company or its affiliated entities.
11
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(f) In the event of a breach or threatened breach of this
Section 9, Executive acknowledges that the Company will be caused irreparable
injury and that money damages may not be an adequate remedy and agree that the
Company shall be entitled to injunctive relief (in addition to its other
remedies at law) to have the provisions of this Section 9 enforced.
10. INDEMNIFICATION.
During the Employment Term and thereafter, the Company shall indemnify
Executive to the fullest extent permitted by law against any judgments, fines,
amounts paid in settlement and reasonable expenses (including attorneys' fees),
and advance amounts necessary to pay the foregoing at the earliest time and to
the fullest extent permitted by law, in connection with any claim, action or
proceeding (whether civil or criminal) against Executive as a result of
Executive serving as an officer or director of the Company or in any capacity at
the request of the Company in or with regard to any other entity, employee
benefit plan or enterprise. This indemnification shall be in addition to, and
not in lieu of, any other indemnification Executive shall be entitled to
pursuant to the Company's Certificate of Incorporation or By-laws or otherwise.
Following Executive's termination of employment, the Company shall continue to
cover Executive under the Company's directors and officers insurance for the
period during which Executive may be subject to potential liability for any
claim, action or proceeding (whether civil or criminal) as a result of his
service as an officer or director of the Company at the highest level then
maintained for any then or former officer or director.
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<PAGE>
11. EXECUTIVE REPRESENTATION
Executive represents and warrants that he is under no contractual or
other limitation from entering into this Agreement and performing his
obligations hereunder.
12. ENTIRE AGREEMENT; MODIFICATION.
This Agreement constitutes the full and complete understanding of the
parties hereto and will supersede all prior agreements and understandings, oral
or written, with respect to the subject matter hereof. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, oral or otherwise, have been made by either party, or anyone acting
on behalf of either party, which are not embodied herein and that no other
agreement, statement or promise not contained in this Agreement shall be valid
or binding. This Agreement may not be modified or amended except by an
instrument in writing signed by the party against whom or which enforcement may
be sought.
13. SEVERABILITY.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms of provisions of
this Agreement in any other jurisdiction.
13
<PAGE>
14. WAIVER OF BREACH.
The waiver by any party of a breach of any provisions of this
Agreement, which waiver must be in writing to be effective, shall not operate as
or be construed as a waiver of any subsequent breach.
15. NOTICES.
All notices hereunder shall be in writing and shall be deemed to have
been duly given when delivered by hand, or one (1) day after sending by express
mail or other "overnight mail service," or three (3) days after sending by
certified or registered mail, postage prepaid, return receipt requested. Notice
shall be sent as follows: if to Executive, to the address as listed in the
Company's records; and if to the Company, to the Company at its office as set
forth at the head of this Agreement, to the attention of the Chief Financial
Officer with a copy to Proskauer Rose Goetz & Mendelsohn, at 1585 Broadway, New
York, New York 10036, Attn: Arnold J. Levine, Esq. Either party may change the
notice address by notice given as aforesaid.
16. ASSIGNABILITY; BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of
Executive and Executive's legal representatives, heirs and distributees, and
shall be binding upon and inure to the benefit of the Company, its successors
and assigns. This Agreement may not be assigned by Executive. This Agreement
may not be assigned by the Company except in connection with a merger or a sale
by the Company of all or substantially all of its assets and
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<PAGE>
then only provided the assignee specifically assumes in writing all of the
Company's obligations hereunder.
17. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement, other than injunctive relief under Section 9(f) (provided that
Executive may bring an arbitration to recover legal fees in connection with such
injunctive activities under the last sentence of this Section 17) shall be
settled exclusively by arbitration, conducted before a panel of three
arbitrators in New York, New York, in accordance with the rules of the American
Arbitration Association then in effect, and judgment may be entered on the
arbitrators' award in any court having jurisdiction. The decision of the
arbitrator shall be final and based on the parties. The parties shall equally
divide all costs of the American Arbitration Association and the arbitrator,
except that the arbitrator shall direct the Company to reimburse Executive's
portion of the cost on the same basis as set forth in the next sentence with
regard to legal fees. Each party shall bear its own legal fees in any dispute
except that, in the event the Executive prevails on any material issue, the
arbitrator shall award the Executive his legal fees attributable to all matters
other than frivolous positions taken by the Executive (as determined by the
arbitrator).
18. GOVERNING LAW.
All issues pertaining to the validity, construction, execution
and performance of this Agreement shall be construed and governed in accordance
with the laws
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of the State of New York, without giving effect to the conflict or choice of law
provisions thereof.
19. HEADINGS.
The headings in this Agreement are intended solely for convenience or
reference and shall be given no effect in the construction or interpretation of
this Agreement.
20. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original but all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and Executive has hereunto set his hand as of the date first set forth
above.
KAPSON SENIOR QUARTERS CORP.
By:
-------------------------------------------
Name:
Title:
-------------------------------------------------
[Executive]
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EXHIBIT A
For purposes of this Agreement, a Change in Control of the Company shall be
deemed to have occurred if: (x) any person (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), including a "group" as defined in Section 13(d)(3) of the
Exchange Act, but excluding the group consisting of Executive, his siblings, his
and their spouses and issue, any trusts for the benefit of any of the foregoing
(the "Executive Group"), becomes the beneficial owner of shares of common stock
of the Company having at least thirty percent (30%) of the total number of votes
that may be cast for the election of directors of the Company and which is
greater than the total number of votes (other than through or in connection with
any benefit plan of the Company or its subsidiaries) owned by the Executive
Group; (y) the merger or other business combination of the Company, sale of all
or substantially all of the Company's assets or combination of the foregoing
transactions (a "Transaction"), other than a Transaction immediately following
which the shareholders of the Company immediately prior to the Transaction
continue to have a majority of the voting power in the resulting entity
(excluding for this purpose any shareholder owning directly or indirectly more
than ten percent (10%) of the shares of the other company involved in the
Transaction); or (z) within any twenty-four (24) month period beginning on or
after the date hereof, the persons who were directors of the Company immediately
before the beginning of such period (the "Incumbent Directors") shall cease (for
any reason other than death or the resignation of the Executive or his siblings)
to constitute at least a majority of the Board or the board of directors of any
successor to the Company, provided that, any director who was not a director as
of the date hereof shall be deemed to be
<PAGE>
an Incumbent Director if such director was elected to the Board by, or on the
recommendation of or with the approval of, at least two-thirds of the directors
who then qualified as Incumbent Directors either actually or by prior operation
of this provision, unless such election, recommendation or approval was the
result of an actual or threatened election contest of the type contemplated by
Regulation 14a-11 promulgated under the Exchange Act or any successor provision.
<PAGE>
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT made and entered into this day
of _____, 1996 (the "Agreement"), by and between KAPSON SENIOR QUARTERS CORP., a
Delaware corporation (together with its affiliates, as defined in the federal
securities laws, the "Company"), and ____________________ (the "Indemnitee"):
WHEREAS, highly competent persons are becoming more reluctant to
serve publicly-held corporations as officers or in other capacities unless they
are provided with adequate protection through insurance and indemnification
against inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that
the inability to attract and retain such persons is detrimental to the best
interests of the Company's stockholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the Indemnitee is willing to serve, continue to serve and
to take on additional service for or on behalf of the Company on the condition
that he be so indemnified;
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and the Indemnitee do hereby covenant and agree as
follows:
Section 1. SERVICES BY INDEMNITEE. The Indemnitee agrees to serve as a
director, officer, employee, partner or agent of the Company. The Indemnitee
may at any time and for any reason resign from such position (subject to any
other contractual obligation or other obligation imposed by operation of law),
in which event the Company shall have no obligation under this Agreement to
continue the Indemnitee as a director, officer, employee, partner or agent.
Section 2. INDEMNIFICATION. The Company shall indemnify the
Indemnitee to the fullest extent permitted by applicable law in effect on the
date hereof or as such laws may from time to time be amended. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of the Indemnitee
<PAGE>
provided hereunder shall include but shall not be limited to those rights set
forth hereinafter, except to the extent expressly prohibited by applicable law.
Section 3. ACTION OR PROCEEDING OTHER THAN AN ACTION BY OR IN THE
RIGHT OF THE COMPANY. The Indemnitee shall be entitled to the indemnification
rights provided in this Section 3 if he is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative in nature, other than
an action by or in the right of the Company, by reason of the fact that he is or
was a director, officer, employee, agent, partner or fiduciary of the Company or
is or was serving at the request of the Company as a director, officer,
employee, agent, partner or fiduciary of any other entity or by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
3, the Indemnitee shall be indemnified against all expenses (including
attorneys' fees), costs, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding (including, but not limited to, the investigation,
defense or appeal thereof), if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, he had no
reasonable cause to believe his conduct was unlawful.
Section 4. ACTIONS BY OR IN THE RIGHT OF THE COMPANY. The
Indemnitee shall be entitled to the indemnification rights provided in this
Section 4 if he is a person who was or is made a party or is threatened to be
made a party to any threatened, pending or completed action or suit brought by
or in the right of the Company to procure a judgment in its favor by reason of
the fact that he is or was a director, officer, employee, agent, partner or
fiduciary of the Company or is or was serving at the request of the Company as a
director, officer, employee, agent, partner or fiduciary of any other entity by
reason of anything done or not done by him in any such capacity. Pursuant to
this Section 4, the Indemnitee shall be indemnified against all expenses
(including attorneys' fees) and costs actually and reasonably incurred by him in
connection with such action or suit (including, but not limited to, the
investigation, defense, settlement or appeal thereof) if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company; provided, however, that no such indemnification shall
be made in respect of any claim, issue or matter as to which applicable law
expressly prohibits such indemnification by reason of an adjudication of
liability of the Indemnitee to the Company, unless, and only to the extent that,
the Court of Chancery of the State of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite such
adjudication of liability but in view of all the circumstances of the case, the
Indemnitee is fairly and reasonably entitled to indemnification for such
expenses and costs as such court shall deem proper.
Section 5. INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF
SUCCESSFUL PARTY. Notwithstanding the other provisions of this Agreement and
in addition to the rights to indemnification set forth in Sections 3 and 4
hereof, to the extent that the Indemnitee has served as a witness on behalf of
the Company or has been successful on
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the merits or otherwise, including, without limitation, the dismissal of an
action without prejudice, in defense of any action, suit or proceeding referred
to in Sections 3 and 4 hereof, or in defense of any claim, issue or matter
therein, he shall be indemnified against all costs, charges and expenses
(including attorneys' fees) actually and reasonably incurred by him or on his
behalf in connection therewith.
Section 6. PARTIAL INDEMNIFICATION. In addition to the rights to
indemnification set forth in Sections 3 and 4 hereof, if the Indemnitee is only
partially successful in the defense, investigation, settlement or appeal of any
action, suit, investigation or proceeding described in Section 3 or 4 hereof,
and as a result is not entitled under Section 3, 4 or 5 hereof to
indemnification by the Company for the total amount of the expenses (including
attorneys' fees), costs, judgments, penalties, fines, and amounts paid in
settlement actually and reasonably incurred by him, the Company shall
nevertheless indemnify the Indemnitee, as a matter of right pursuant to Section
5 hereof, to the extent that the Indemnitee has been partially successful.
Section 7. DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION. Upon
written request by the Indemnitee for indemnification pursuant to Section 3 or 4
hereof, the entitlement of the Indemnitee to indemnification pursuant to the
terms of this Agreement shall be determined by the following person or persons
who shall be empowered to make such determination: (a) the Board of Directors
of the Company by a majority vote of a quorum consisting of Disinterested
Directors (as hereinafter defined); or (b) if such a quorum is not obtainable
or, even if obtainable, if the Board of Directors by the majority vote of
Disinterested Directors so directs, by Independent Counsel (as hereinafter
defined) in a written opinion to the Board of Directors, a copy of which shall
be delivered to the Indemnitee; or (c) by the stockholders. Independent Counsel
shall be selected by the Board of Directors and approved by the Indemnitee.
Upon failure of the Board so to select Independent Counsel or upon failure of
the Indemnitee so to approve Independent Counsel, Independent Counsel shall be
selected by the Chancellor of the State of Delaware or such other person as the
Chancellor shall designate to make such selection. Such determination of
entitlement to indemnification shall be made not later than 60 days after
receipt by the Company of a written request for indemnification. Such request
shall include documentation or information which is necessary for such
determination and which is reasonably available to the Indemnitee. Any costs or
expenses (including attorneys' fees) incurred by the Indemnitee in connection
with his request for indemnification hereunder shall be borne by the Company.
The Company hereby indemnifies and agrees to hold the Indemnitee harmless
therefrom irrespective of the outcome of the determination of the Indemnitee's
entitlement to indemnification. If the person making such determination shall
determine that the Indemnitee is entitled to indemnification as to part (but not
all) of the application for indemnification, such person shall reasonably
prorate such partial indemnification among such claims, issues or matters.
Section 8. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS. The
Secretary of the Company shall, promptly upon receipt of the Indemnitee's
request for
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<PAGE>
indemnification, advise in writing the Board of Directors or such other person
or persons empowered to make the determination as provided in Section 7 that the
Indemnitee has made such request for indemnification. Upon making such request
for indemnification, the Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in the
making of any determination contrary to such presumption. If the person or
persons so empowered to make such determination shall have failed to make the
requested indemnification within 60 days after receipt by the Company of such
request, the requisite determination of entitlement to indemnification shall be
deemed to have been made and the Indemnitee shall be absolutely entitled to such
indemnification, absent actual and material fraud in the request for
indemnification. The termination of any action, suit, investigation or
proceeding described in Section 3 or 4 hereof by judgment, order, settlement or
conviction, or upon a plea of NOLO CONTENDERE or its equivalent, shall not,
of itself: (a) create a presumption that the Indemnitee did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Company, and, with respect to any criminal action or
proceeding, that the Indemnitee had reasonable cause to believe that his conduct
was unlawful; or (b) otherwise adversely affect the rights of the Indemnitee to
indemnification except as may be provided herein.
Section 9. ADVANCEMENT OF EXPENSES AND COSTS. All reasonable
expenses and costs incurred by the Indemnitee (including attorneys' fees,
retainers and advances of disbursements required of the Indemnitee) shall be
paid by the Company in advance of the final disposition of such action, suit or
proceeding at the request of the Indemnitee within 20 days after the receipt by
the Company of a statement or statements from the Indemnitee requesting such
advance or advances from time to time. The Indemnitee's entitlement to such
expenses shall include those incurred in connection with any proceeding by the
Indemnitee seeking an adjudication or award in arbitration pursuant to this
Agreement. Such statement or statements shall reasonably evidence the expenses
and costs incurred by him in connection therewith and shall include or be
accompanied by an undertaking by or on behalf of the Indemnitee to repay such
amount if it is ultimately determined that the Indemnitee is not entitled to be
indemnified against such expenses and costs by the Company as provided by this
Agreement or otherwise.
Section 10. REMEDIES OF INDEMNITEE IN CASES OF DETERMINATION NOT
TO INDEMNIFY OR TO ADVANCE EXPENSES. In the event that a determination is made
that the Indemnitee is not entitled to indemnification hereunder or if payment
has not been timely made following a determination of entitlement to
indemnification pursuant to Sections 7 and 8, or if expenses are not advanced
pursuant to Section 9, the Indemnitee shall be entitled to a final adjudication
in an appropriate court of the State of Delaware or any other court of competent
jurisdiction of his entitlement to such indemnification or advance.
Alternatively, the Indemnitee at his option may seek an award in arbitration to
be conducted by a single arbitrator pursuant to the rules of the American
Arbitration Association, such award to be made within 60 days following the
filing of the demand for arbitration. The Company shall not oppose the
Indemnitee's right to seek any such adjudication or award in arbitration or any
other claim, but may oppose the Indemnitee's
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<PAGE>
right to indemnification. Such judicial proceeding or arbitration shall be made
DE NOVO and the Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or Section 8 hereof that the Indemnitee is entitled to
indemnification, the Company shall be bound by such determination and is
precluded from asserting that such determination has not been made or that the
procedure by which such determination was made is not valid, binding and
enforceable. The Company further agrees to stipulate in any such court or
before any such arbitrator that the Company is bound by all the provisions of
this Agreement and is precluded from making any assertion to the contrary. If
the court or arbitrator shall determine that the Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable expenses
(including attorneys' fees) and costs actually incurred by the Indemnitee in
connection with such adjudication or award in arbitration (including, but not
limited to, any appellate proceedings).
Section 11. OTHER RIGHTS TO INDEMNIFICATION. The indemnification
and advancement of expenses (including attorneys' fees) and costs provided by
this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may now or in the future be entitled under any provision of the
by-laws, agreement, provision of the Certificate of Incorporation, vote of
stockholders or disinterested directors, provision of law or otherwise.
Section 12. ATTORNEYS' FEES AND OTHER EXPENSES TO ENFORCE
AGREEMENT. In the event that the Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, the Indemnitee, if he prevails
in whole or in part in such action, shall be entitled to recover from the
Company and shall be indemnified by the Company against, any actual expenses for
attorneys' fees and disbursements reasonably incurred by him.
Section 13. DURATION OF AGREEMENT. This Agreement shall continue
until and terminate upon the later of: (a) 10 years after the Indemnitee has
ceased to occupy any of the positions or have any of the relationships described
in Sections 3 and 4 of this Agreement; and (b) the final termination of all
pending or threatened actions, suits, proceedings or investigations with respect
to the Indemnitee. This Agreement shall be binding upon the Company and its
successors and assigns and shall inure to the benefit the Indemnitee and his
spouse, assigns, heirs, devises, executors, administrators or other legal
representatives.
Section 14. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, all portions of any
paragraphs of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby;
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and (b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this Agreement
containing any such pro vision held to be invalid, illegal or unenforceable,
that are not themselves invalid, illegal or unenforceable) shall be construed so
as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable.
Section 15. IDENTICAL COUNTERPARTS. This Agreement may be
executed in one or more counterparts, each of which shall for all purposes be
deemed to be an original but all of which together shall constitute one and the
same Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
Section 16. HEADINGS. The headings of the Sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
Section 17. DEFINITIONS. For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the
Company who is not or was not a party to the action, suit, investigation or
proceeding in respect of which indemnification is being sought by the
Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member
of a law firm that neither is presently nor in the past five years has been
retained to represent: (i) the Company or the Indemnitee in any matter material
to either such party, or (ii) any other party to the action, suit,
investigation or proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel" shall
not include any person who, under the applicable standards of professional
conduct then prevailing, would have a conflict of interest in representing
either the Company or the Indemnitee in an action to determine the Indemnitee's
right to indemnification under this Agreement.
Section 18. MODIFICATION AND WAIVER. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
Section 19. NOTICE BY THE INDEMNITEE. The Indemnitee agrees
promptly to notify the Company in writing upon being served with any summons,
citation, subpoena, complaint, indictment, information or other document
relating to any matter which may be subject to indemnification covered
hereunder, either civil, criminal or investigative.
Section 20. NOTICES. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly
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given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed or if (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to the Indemnitee, to:
(b) If to the Company to:
KAPSON SENIOR QUARTERS CORP.
242 Crossways Park West
Woodbury, New York 11797
Attn: Glenn Kaplan
or to such other address as may have been furnished to the Indemnitee by the
Company or to the Company by the Indemnitee, as the case may be.
Section 21. GOVERNING LAW. The parties agree that this Agreement
shall be governed by, and construed and enforced in accordance with, the laws of
the State of Delaware, without giving effect to the conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the day and year first above written.
KAPSON SENIOR QUARTERS CORP.
By
---------------
Name:
Title:
______________________________
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports dated June 7, 1996 and June 11, 1996 on our audits of the combined
financial statements of The Kapson Group (the Predecessor) as of December 31,
1994 and 1995 and for each of the years in the three year period ended
December 31, 1995 and the balance sheet of Kapson Senior Quarters Corp. as
of June 10, 1996, respectively. We also consent to the reference to our firm
under the caption "Experts."
/s/ Coopers & Lybrand L.L.P
--------------------------------
Coopers & Lybrand L.L.P.
New York, New York
June 11, 1996
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EXHIBIT 23.2
INDEPENDENT AUDITOR'S CONSENT
We consent to the use in this Registration Statement of Kapson Senior
Quarters Corp. on Form S-1 of our reports dated February 21, 1996 and January
29, 1996 relating to the financial statements of Town Gate East (A Partnership)
and Town Gate Manor (A Partnership), respectively appearing in the Prospectus,
which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Rotenberg & Company, LLP
