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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER: 0-19815
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CAREMATRIX CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3069586
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(State of other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
197 FIRST AVENUE, NEEDHAM, MA 02494
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(Address of principal executive offices) (Zip Code)
(781) 433-1000
(Registrant's telephone number, including area code)
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /X/
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
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CLASS OUTSTANDING AT AUGUST 10, 1999
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Common Stock, $.05 par value 18,032,697 shares
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CAREMATRIX CORPORATION
TABLE OF CONTENTS
PART I--FINANCIAL INFORMATION
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PAGE
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FINANCIAL STATEMENTS
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998......................... 3
Consolidated Statements of Earnings for the three and six months ended June 30, 1999 and June
30, 1998...................................................................................... 4
Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and June 30,
1998.......................................................................................... 5
Notes to Consolidated Financial Statements.................................................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................................................... 10
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.................................... 15
PART II--OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS............................................................... 16
ITEM 2: CHANGES IN SECURITIES........................................................... 16
ITEM 3: DEFAULTS UPON SENIOR SECURITIES................................................. 16
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............................. 16
ITEM 5: OTHER INFORMATION............................................................... 16
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K................................................ 17
</TABLE>
2
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CAREMATRIX CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
<TABLE>
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JUNE 30, 1999 DECEMBER 31, 1998
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(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents................................................... $ 28,695,793 $ 28,217,373
Restricted cash............................................................. 5,315,824 22,305,371
Receivables:
Accounts receivable, net.................................................. 33,180,636 25,334,127
Accounts receivable-related party......................................... 31,517,086 21,662,515
Prepaid expenses and other current assets................................... 7,147,488 4,875,075
-------------- -----------------
Total current assets.................................................... 105,856,827 102,394,461
Lease acquisition costs, net.................................................. 19,358,569 15,792,315
Property and equipment, net................................................... 162,798,086 147,938,997
Other long-term assets, net................................................... 62,898,208 41,023,981
Goodwill, net................................................................. 40,192,376 42,496,693
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Total assets............................................................ $ 391,104,066 $ 349,646,447
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt........................................... $ 989,032 $ 848,600
Accounts payable............................................................ 8,693,275 9,315,591
Accrued compensation and benefits........................................... 2,975,855 2,262,161
Accrued liabilities......................................................... 11,153,723 14,800,794
Other current liabilities................................................... 1,210,844 1,246,007
-------------- -----------------
Total current liabilities................................................. 25,022,729 28,473,153
Mortgages and notes payable................................................... 77,141,585 43,029,548
Borrowings under line of credit............................................... 22,863,687 20,863,687
Convertible subordinated notes................................................ 115,000,000 115,000,000
Other long-term liabilities................................................... 7,135,496 7,859,818
Commitments and contingencies
Shareholders' equity.......................................................... 143,940,569 134,420,241
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Total liabilities and shareholders' equity.............................. $ 391,104,066 $ 349,646,447
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</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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CAREMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
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<S> <C> <C> <C> <C>
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- -------------- -------------
Revenues:
Resident operations.............................. $ 40,015,624 $ 24,987,107 $ 78,416,036 $ 46,149,087
Resident operations--related party............... 5,798,257 3,255,423 11,679,957 5,841,809
Development fee income........................... 97,244 714,091 583,748 1,688,293
Development fee income--related party............ 7,668,338 5,210,025 13,617,556 10,133,160
------------- ------------- -------------- -------------
Total revenue.................................. 53,579,463 34,166,646 104,297,297 63,812,349
------------- ------------- -------------- -------------
Expenses:
Facility operating expenses...................... 29,020,943 17,542,988 55,347,773 33,009,898
Facility lease expense........................... 213,348 595,124 373,446 1,177,698
Facility lease expense--related party............ 4,709,007 3,430,910 9,791,853 6,548,203
General and administrative....................... 5,114,130 5,087,304 10,288,915 9,551,440
Depreciation and amortization.................... 2,517,139 865,386 4,689,284 1,600,844
------------- ------------- -------------- -------------
Total expenses................................. 41,574,567 27,521,712 80,491,271 51,888,083
------------- ------------- -------------- -------------
Earnings from operations........................... 12,004,896 6,644,934 23,806,026 11,924,266
Other income (expense):
Interest income--related party................... 949,819 376,999 1,649,639 718,473
Interest and other income........................ 1,148,390 1,785,405 1,911,193 3,772,873
Interest expense................................. (3,672,270) (1,828,582) (7,187,814) (3,666,710)
------------- ------------- -------------- -------------
Total other income (expense)................... (1,574,061) 333,822 (3,626,982) 824,636
------------- ------------- -------------- -------------
Earnings before income taxes and preferred
dividends........................................ 10,430,835 6,978,756 20,179,044 12,748,902
Income taxes....................................... 4,120,179 2,826,396 7,970,722 5,226,777
------------- ------------- -------------- -------------
Earnings before preferred dividends................ 6,310,656 4,152,360 12,208,322 7,522,125
Preferred dividends................................ 1,775 1,825 3,600 6,400
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Net earnings....................................... $ 6,308,881 $ 4,150,535 $ 12,204,722 $ 7,515,725
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Basic shares outstanding........................... 17,938,288 17,665,463 17,975,224 17,521,463
------------- ------------- -------------- -------------
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Basic earnings per share........................... $ 0.35 $ 0.23 $ 0.68 $ 0.43
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Diluted shares outstanding......................... 21,980,216 18,106,195 22,182,101 18,095,732
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Diluted earnings per share......................... $ 0.34 $ 0.23 $ 0.66 $ 0.42
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</TABLE>
The accompanying notes are an integral part of the financial statements.
4
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CAREMATRIX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998
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SIX MONTHS ENDED
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JUNE 30, 1999 JUNE 30, 1998
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Cash flows from operating activities:
Net earnings................................................................... $ 12,204,722 $ 7,515,725
Noncash items included in net earnings:
Depreciation of fixed assets................................................. 2,479,201 651,821
Amortization of intangible assets............................................ 1,735,726 707,917
Amortization of lease acquisition costs...................................... 474,357 241,106
Increase in accounts receivable................................................ (17,612,647) (7,091,316)
Changes in current assets...................................................... (1,403,799) (1,578,635)
Increase (decrease) in current liabilities..................................... (3,976,068) 6,076,248
Other noncash items............................................................ -- 56,700
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Net cash provided (used) by operating activities............................. (6,098,508) 6,579,566
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Cash flows from investing activities:
Additions to property and equipment............................................ (3,184,007) (1,768,636)
Purchase of SeniorCare Group, Ltd. Facility.................................... (5,780,000) --
Additions to lease deposits and other long-term assets......................... (12,048,783) (5,470,385)
Increase in prepaid rent....................................................... (8,300,000) --
Change in restricted cash...................................................... 16,989,547 (17,193,233)
Lease acquisition costs........................................................ (4,040,611) (7,810,051)
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Net cash used by investing activities........................................ (16,363,854) (32,242,305)
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Cash flows from financing activities:
Exercise of stock options and warrants......................................... 199,651 4,243,988
Repurchase of common shares.................................................... (2,884,045) --
Borrowings under the line of credit............................................ 2,000,000 --
Net proceeds from mortgage refinancing......................................... 25,474,266 --
Repayment of debt, net......................................................... (1,849,090) (310,680)
Other, net..................................................................... -- 60,454
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Net cash provided by financing activities.................................... 22,940,782 3,993,762
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Increase (decrease) in cash and cash equivalents................................. 478,420 (21,668,977)
Cash and cash equivalents, beginning of period................................... 28,217,373 152,619,435
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Cash and cash equivalents, end of period......................................... $ 28,695,793 $ 130,950,458
-------------- --------------
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Other noncash items:
Conversion of convertible debentures into equity............................... $ 2,000,000
--------------
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</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
CareMatrix Corporation (the "Company") develops, manages, owns, and operates
assisted living facilities and various other health care facilities.
The accompanying interim unaudited financial statements have been prepared
by the Company pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to such regulations. The
financial statements reflect all adjustments and disclosures which are, in the
opinion of management, necessary for a fair presentation of the financial
position and results of operations for the periods presented. All such
adjustments are of a normal recurring nature. The interim financial statements
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, for additional disclosures. The results of
operations for the interim periods presented are not necessarily indicative of
the results that may be achieved for the full year. Certain reclassifications
have been made on the prior year's financial statements to conform to the
current year's presentations.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
2. RESTRICTED CASH
CASH COLLATERAL. Under the terms of an agreement to fix interest rates on
future leases with Chancellor Senior Housing Group, Inc. and certain affiliated
companies, the Company is required to maintain specified levels of cash
collateral with a financial institution. Interest on the funds held accrues to
the benefit of the Company. At June 30, 1999, the amount held as collateral was
approximately $2.5 million as one agreement was terminated during the second
quarter. At December 31, 1998, the amount held as collateral was approximately
$19.1 million.
3. RELATED PARTY TRANSACTIONS
As used herein, "Chancellor" or "Chancellor Entity" refers to Chancellor
Senior Housing Group, Inc., Abraham D. Gosman (Chief Executive Officer and
Chairman of the Board of the Company) or companies in which Mr. Gosman and
certain current and former members of the Company's senior management exercise
significant control.
The Company has entered into management and marketing agreements with
Chancellor Entities which provide for fees to be earned by the Company during
the fill-up and upon the initial move-in of residents into new facilities up to
the maximum occupancy of a facility and for fees based upon the revenues of a
facility. For the six months ended June 30, 1999, the Company recognized revenue
of $11.7 million for marketing and management services provided to various
Chancellor Entities under the terms of these agreements compared to revenue of
$12.8 million for the year ended December 31, 1998.
During the quarter ended June 30, 1999, the Company paid a Chancellor Entity
$4.2 million to purchase, at estimated fair market value, an interest in a
limited partnership. The investment is being accounted for under the equity
method, accordingly, the Company has recorded its share of the income earned on
the investment in other income. The Chancellor Entity has guaranteed the value
of the investment at $4.2 million.
6
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CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. RELATED PARTY TRANSACTIONS (CONTINUED)
During 1999, the Company paid certain Chancellor Entities $4.0 million for
the right to receive the Chancellor Entity's share of cash flow for two
facilities which are owned 50% by a Chancellor Entity and 50% by third parties.
The rights are being amortized over the term of the related agreement. In
addition, the Company paid various Chancellor Entities $8.3 million related to
lease rights and deposits for five facilities. These lease rights are being
amortized over the terms of the related leases.
During the quarter ended March 31, 1999, the Company paid a Chancellor
Entity $2.0 million for development and management rights related to a senior
community in New Jersey. The development rights are being amortized as the
related fees are earned.
During 1999, the Company purchased, at cost, three parcels of land from
certain Chancellor Entities for approximately $4.5 million.
4. PURCHASE OF SENIORCARE GROUP, LTD. FACILITY
The Company completed the acquisition of the tenth SeniorCare Group, Ltd.
("SeniorCare") facility in January 1999 (see Note 3 of Notes to Financial
Statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998). In connection with the acquisition of this facility,
the Company recorded the related fixed assets and debt at their estimated fair
market values of $18.5 million and $8.1 million, respectively.
5. DEBT REFINANCING
During the quarter ended June 30, 1999, the Company refinanced certain
mortgage debt assumed in the SeniorCare acquisition. The new loans have an
aggregate principal amount of $38.0 million and bear interest at 7.53%. The
loans mature June 2009 and payments of principal and interest begin July 1999.
The proceeds from the loan were used primarily for working capital. In
connection with the refinancing, the Company reduced goodwill by approximately
$1.5 million, which represents the net excess of the fair value of the debt
retired over its historical cost basis.
During the quarter ended March 31, 1999, the Company refinanced certain
mortgage debt assumed in the SeniorCare acquisition. The new mortgage has a
principal amount of $16.7 million, bears interest at 30 day LIBOR plus 3% and
matures January 31, 2002. Interest payments are due monthly beginning in March
1999. The proceeds from the loan were used primarily to complete the acquisition
of SeniorCare and to repay the existing mortgage.
7
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CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. EARNINGS PER SHARE
Earnings per share has been computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings per share."
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THREE MONTHS ENDED JUNE 30, 1999
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BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- --------------------------------------------------------------------------- ------------ ------------ -----------
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Earnings available to common shareholders.................................. $ 6,308,881 17,938,288 $ 0.35
Effect of dilutive securities:
Stock options and warrants............................................. -- 52,982 --
6.25% Convertible Debentures........................................... 1,164,571 3,982,684 --
Conversion of preferred stock.......................................... 1,775 6,262 --
------------ ------------ -----
Diluted earnings per share................................................. $ 7,475,227 21,980,216 $ 0.34
------------ ------------ -----
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</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
----------------------------------------
BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- ------------------------------------------------------------------------- ------------- ------------ -----------
<S> <C> <C> <C>
Earnings available to common shareholders................................ $ 12,204,722 17,975,224 $ 0.68
Effect of dilutive securities:
Stock options and warrants........................................... -- 217,931 --
6.25% Convertible Debentures......................................... 2,329,142 3,982,684 --
Conversion of preferred stock........................................ 3,548 6,262 --
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Diluted earnings per share............................................... $ 14,537,412 22,182,101 $ 0.66
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</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1998
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BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- --------------------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Earnings available to common shareholders.................................. $ 4,150,535 17,665,463 $ 0.23
Effect of dilutive securities:
Stock options and warrants............................................. -- 440,732 --
------------ ------------ -----
Diluted earnings per share................................................. $ 4,150,535 18,106,195 $ 0.23
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</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------
BASIC EARNINGS PER SHARE EARNINGS SHARES PER SHARE
- --------------------------------------------------------------------------- ------------ ------------ -----------
<S> <C> <C> <C>
Earnings available to common shareholders.................................. $ 7,515,725 17,521,463 $ 0.43
Effect of dilutive securities:
Stock options and warrants............................................. -- 538,714 --
8.5% Convertible Debentures -- 35,555 --
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Diluted earnings per share................................................. $ 7,515,725 18,095,732 $ 0.42
------------ ------------ -----
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</TABLE>
7. COMMON STOCK
In February 1999, the Company announced that its Board of Directors has
authorized a share repurchase program. The Company was authorized to purchase up
to one million shares of its outstanding common stock from time to time in open
market transactions. As of June 30, 1999, the Company had
8
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CAREMATRIX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. COMMON STOCK (CONTINUED)
repurchased 181,400 shares at an average price of $15.84. Pending resolution of
the Company's review of strategic alternatives (see Note 8), the Company has
suspended purchases under the program.
In April 1999, the Company was approved to be listed on the Nasdaq Stock
Market. The Company's common stock began trading under the symbol "CMDC" on
April 23, 1999.
8. SUBSEQUENT EVENTS
On July 22, 1999, the Company announced that the Board of Directors had
instructed management to explore various strategic alternatives to maximize
shareholder value. A member of the Company's Board of Directors has been engaged
by the Company as a consultant to help identify strategic alternatives.
On August 10, 1999, the Company's Board of Directors authorized the
retention of the investment banking firms DeutscheBancAlex.Brown and PaineWebber
Incorporated, to assist in further identifying strategic alternatives. Also, a
special committee of the Board of Directors has been formed with the authority
to engage financial advisors to assist it in considering for the benefit of the
Company and its shareholders any proposal which may arise.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is a provider of assisted living services to the elderly. At
June 30, 1999, the Company operated 61 facilities in 18 states with
approximately 7,400 units. Of the facilities, 32 are owned/leased, and 29 are
managed. The Company provides assistance with the activities of daily living and
other personalized support services in a residential setting for elderly
residents who cannot live independently but who do not need the level of medical
care provided in a skilled nursing facility. The Company also provides
additional specialized care and services to residents with certain low acuity
medical needs and residents with Alzheimer's disease or other forms of dementia.
By offering this full range of services, the Company is able to accommodate the
changing needs of residents as they age within a facility and develop further
physical or cognitive frailties.
The Company derives its revenues from three primary sources: (i) resident
fees for the delivery of independent and assisted living and other long-term
care services; (ii) management services income for management of and marketing
for facilities; and (iii) fee income from the development and construction of
facilities. Resident fees typically are paid monthly by residents, their
families or other responsible parties. Resident fees and management fees are
recognized as revenues when services are provided. Development fee revenue is
recognized on the percentage of completion basis using the achievement of
specific milestones in the development process.
The Company has made forward-looking statements in this Report (and in
documents that are incorporated by reference) that are subject to risks and
uncertainties. Forward-looking statements include information concerning
possible or future results of operations of the Company. Also, when the Company
uses words such as "believes," expects," "anticipates" or similar expressions,
it is often, but not always, making forward-looking statements. Stockholders
should note that many factors could affect our future financial results and
could cause such results to differ materially from those expressed in our
forward-looking statements. Those factors include, but are not limited to, the
following:
- risks related to the Company's operating history and available financing;
- risks related to the Company's anticipated growth and acquisition
strategy;
- risks inherent in the construction and development industry;
- uncertainty about the changing regulatory environment;
- risks related to the Year 2000 problem;
- risks related to competition;
- risks related to the Company's ability to attract and retain key
personnel; and
- risks related to the ability of the Chancellor Entities' (the entities
that own a majority of the facilities the Company develops and operates)
ability to continue to obtain adequate financing to fund the facilities
during start-up and any equity needed, including cash for operating
losses, and to meet bank covenants. Any inability to do so, or any default
by Chancellor under its debt obligations, could have a material adverse
effect on the Company's financial position, results of operations, and
cash flows (see Notes 1 and 3 and Note 13 of the Notes to Consolidated
Financial Statements in the Company's Annual Report on Form 10K for the
year ended December 31, 1998). As used herein "Chancellor" or "Chancellor
Entities" refer to Chancellor Senior Housing Group, Inc., Abraham D.
Gosman (Chief Executive Officer and Chairman of the Board of the Company)
or companies in
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
OVERVIEW (CONTINUED)
which Mr. Gosman and certain current and former members of the Company's
senior management exercise significant control.
All references to "Notes" contained herein refer to Notes to Consolidated
Financial Statements in this Form 10-Q, unless otherwise specified.
THE QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER ENDED JUNE 30, 1998
REVENUES. Resident operations revenue increased by $17.6 million for the
second quarter of 1999 compared to the same period in 1998. The increase is
comprised principally of revenue from facilities leased or owned for less than
one year, including $7.8 million from seven facilities acquired in the
SeniorCare Group, Ltd. ("SeniorCare") acquisition (see Note 3 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998), and from fees related to management
contracts and other services as a result of the increase in the number of
facilities under construction and in operation. Included in resident operations
revenue in the second quarter of 1999 is $2.5 million earned from marketing and
management services provided to facilities under construction per the terms of
existing development agreements compared to $1.9 million in the second quarter
of 1998.
As described in Note 3, during 1999 the Company amended existing management
contracts with certain Chancellor Entities to increase its base management fees.
The impact of this change increased revenue during the quarter by $460,000.
The Company's comparable nursing home revenue declined $2.1 million during
the second quarter of 1999 primarily due to the impact of the implementation of
the Medicare prospective payment system ("PPS"). Under the terms of the
Company's existing leases, it has been indemnified by the various Chancellor
Entity lessors for this change on governmental regulations. Included in facility
operating expenses is a credit of $1.6 million, which represents the
reimbursement for lost revenue due to PPS, to reflect the impact of these
indemnification agreements.
Development fee income was $7.8 million in the second quarter of 1999 versus
$5.9 million in the same period in 1998. As a percentage of operating revenue,
development fee income decreased to 14.5% in 1999 from 17.3% in 1998. The
Company expects that this trend will continue for the remainder of the year.
FACILITY EXPENSES. Facility operating expenses were $29.0 million in the
second quarter of 1999 compared to $17.5 million in the same period of 1998, an
increase of $11.5 million. The increase is primarily due to operating expenses
from facilities leased or owned less than one year.
Facility lease expense was $4.9 million in the second quarter of 1999
compared to $4.0 million in the same period in 1998. The increase of $0.9
million is primarily due to facilities leased less than one year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $5.1
million for both the second quarter of 1999 and 1998. As a percentage of
operating revenue, general and administrative expenses in the second quarter of
1999 declined to 9.5% from 14.9% in the second quarter of 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the second
quarter of 1999 increased $1.7 million compared to the same period in 1998. The
increase is due primarily to $1.0 million of depreciation from facilities open
less than one year and $0.6 million from the amortization of other intangible
assets.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THE QUARTER ENDED JUNE 30, 1999 COMPARED TO THE QUARTER ENDED JUNE 30, 1998
(CONTINUED)
INTEREST AND OTHER INCOME AND INTEREST EXPENSE. Interest and other income
for the second quarter of 1999 was $2.1 million compared to $2.2 million for the
same period in 1998. Included in other income in the second quarter of 1999 is
$0.8 million which reflects the increase in the fair market value of the
Company's investment in a limited partnership (see Note 3). The decrease in
interest income is due to lower average cash balances during 1999 compared to
1998. Interest expense for the second quarter of 1999 increased to $3.7 million
from $1.8 million for the same period in 1998. The increase is primarily due to
interest expense of $1.2 million related to SeniorCare debt assumed or
refinanced and $0.5 million from borrowings under the line of credit.
INCOME TAXES. The Company's effective tax rate during the second quarter of
1999 was 39.5% compared to 40.5% in 1998. The decrease in the effective tax rate
is due to the expected reduction in the effective state tax rate to 4.5% for
1999 from 6.0% for 1998.
THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1998
REVENUES. Resident operations revenue increased by $38.1 million for the six
months ended June 30, 1999, compared to the same period in 1998. The increase is
comprised principally of revenue from facilities leased or owned for less than
one year, including $15.3 million from seven facilities acquired in the
SeniorCare acquisition, and from fees related to management contracts and other
services as a result of the increase in the number of facilities under
construction and in operation. Included in resident operations revenue in the
six months ended June 30, 1999, is $7.0 million earned from marketing and
management services provided to facilities under construction per the terms of
existing development agreements compared to $3.6 million in the comparable
period in 1998.
As described in Note 3, during 1999 the Company amended existing management
contracts with certain Chancellor Entities to increase its base management fees.
The impact of this change increased revenue during the six months ended June 30,
1999, by $740,000.
The Company's comparable nursing home revenue declined $3.0 million during
the six months ended June 30, 1999, primarily due to the impact of the
implementation of PPS. Under the terms of the Company's existing leases, it has
been indemnified by the various Chancellor Entity lessors for this change on
governmental regulations. Included in facility operating expenses is a credit of
$2.8 million, which represents the reimbursement for lost revenue due to PPS, to
reflect the impact of these indemnification agreements.
Development fee income was $14.2 million during the six months ended June
30, 1999 versus $11.8 million in the same period in 1998. As a percentage of
operating revenue, development fee income decreased to 13.6% in 1999 from 18.5%
in 1998. The Company expects that this trend will continue for the remainder of
the year.
FACILITY EXPENSES. Facility operating expenses for the first six months of
1999 increased by $22.3 million compared to the same period in 1998. The
increase is due primarily to operating expenses from facilities leased or owned
less than one year.
Facility lease expense was $10.2 million in the first six months of 1999
compared to $7.7 million in the same period in 1998. The increase of $2.5
million is primarily due to facilities leased less than one year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
first six months of 1999 increased to $10.3 million from $9.6 million in the
same period of 1998. As a percentage of
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
THE SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 30,
1998 (CONTINUED)
operating revenue, general and administrative expenses in the first six months
of 1999 declined to 9.9% from 15.0% in the first six months of 1998. The
increase in expense is primarily due to an increase in salary and benefits
expenses relating to the hiring of additional corporate and regional staff in
anticipation of the Company's growth plans.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first
six months of 1999 increased $3.1 million compared to the same period in 1998.
The increase is due primarily to $1.9 million of depreciation from facilities
open less than one year and $1.0 million from the amortization of other
intangible assets.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE. Interest and other income
for the first six months of 1999 was $3.6 million compared to $4.5 million for
the same period in 1998. Included in other income in the first six months of
1999 is $1.0 million from the Company's investments in two limited partnerships.
The decrease in interest income is due to lower average cash balances during
1999 compared to 1998. Interest expense for the first six months of 1999
increased to $7.2 million from $3.7 million for the same period in 1998. The
increase is primarily due to $2.3 million related to SeniorCare debt assumed or
refinanced and $1.0 million from borrowings under the line of credit.
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and restricted cash at June 30, 1999 were $28.7
million compared to $28.2 million at December 31, 1998, an increase of $0.5
million.
Cash used by operations was $6.1 million in the first six months of 1999.
This is comprised of $16.9 million of net earnings before depreciation and
amortization offset by a $17.6 million increase in accounts receivable,
primarily from new facilities in development and operations, and a $5.4 million
increase in other working capital items.
Cash used in investing activities was $16.4 million in the first six months
of 1999 compared to a use of $32.2 million for the same period in 1998. The use
of cash was due to $5.8 million to complete the SeniorCare acquisition (see Note
4), $12.3 million used for prepaid rent and cash flow rights for seven
facilities (see Note 3), $3.2 million in additions to property and equipment,
$2.0 million used to purchase the development and management rights to a senior
community, $4.5 million used for the purchase of three parcels of land (see Note
3), and $2.4 million used for purchase deposits on four parcels of land. The
Company received $16.6 million from the return of cash held in a cash collateral
account (see Note 2).
Cash flows provided by financing activities were $22.9 million in the first
six months of 1999 compared to $4.0 million for the same period in 1998. The
increase is due primarily to the net proceeds from various mortgage refinancings
(see Note 5) partially offset by $2.9 million used to repurchase the Company's
common shares on the open market (see Note 7) and $1.8 million of debt
repayments, which includes $0.8 million related to assets held for sale (see
Note 5 of Notes to Consolidated Financial Statements in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998).
The Company will require resources in the future to fund the planned
acquisition and development of additional assisted living, independent and
supportive independent and extended care facilities as well as its working
capital requirements and common stock repurchases. The Company expects to
partially fund these resource requirements with its cash on hand, borrowings
under its $35.0 million line of credit (of which $12.1 million was unused at
June 30, 1999) as well as related party or third-party financing of facilities
to be developed. Furthermore, the Company intends to seek bank borrowings and
other debt or
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
equity financings to provide additional sources of capital in the future. The
Company is in the process of refinancing some of the debt assumed in the
SeniorCare acquisition and hopes to raise approximately $8.0 million through
this refinancing.
Although Chancellor continues to seek additional sources of capital to
finance its development pipeline, there can be no assurance that it will be
successful in doing so. If Chancellor cannot obtain adequate capital or reduces
the number and/or size of the projects in its development pipeline, then the
Company's development fee revenue will decline. Currently, the Company expects
that its development fee revenue will decline in the third and fourth quarters
of 1999. If this were to occur, the Company is prepared to reduce its general
and administrative costs as appropriate, although there can be no assurance that
any such reduction in expenses would offset potential lost revenue.
YEAR 2000
The Year 2000 problem concerns the inability of information systems to
recognize properly and process date-sensitive information beyond December 31,
1999. In July 1998, the Company initiated a formal program to identify and
resolve Year 2000 issues. The scope of the program includes the investigation of
all Company functions and services, including embedded systems in what are not
traditionally considered information technology systems.
The Company has identified its resident billing and general ledger as
internal systems that present a high level of risk from a Year 2000 perspective.
The Company has also identified several key external systems that could pose a
significant risk to the Company: those of various governmental agencies,
particularly Medicare and Medicaid, its payroll provider, and its investment
management companies and other financial intermediaries. The Company has also
acquired several facilities and/or utilizes third-party management companies to
provide financial information. These acquired systems must also be brought into
the Company's program.
The Company has completed the planning and awareness and systems inventory
phases of the program. The assessment phase is scheduled to be completed in the
third quarter of fiscal 1999, with the correction phase being completed by the
third quarter of the same year. In April 1999, the Company completed the upgrade
of its general ledger system so that it is now Year 2000 compliant. The Company
is beginning the process of assessing the risk of supplier readiness, and in
selected cases will review the preparedness of individual suppliers for the Year
2000 problem.
The Company currently estimates the cost of the Year 2000 program will
approximate $200,000, with a range of plus or minus twenty-five percent. The
Company's corporate personnel who directly oversee functions at the facility
level will also assist in the Year 2000 program as part of their regular duties.
This is expected to help reduce Year 2000 costs. All costs, except those
incurred for long-lived assets, are expensed as incurred. These costs include
the costs of outside consultants, systems replacements, and other minor
equipment requirements. The costs incurred to date are not material.
Ultimately, the potential impact of the Year 2000 issue will depend not only
on the corrective measures the Company undertakes, but also on the way in which
the Year 2000 issue is addressed by governmental agencies, businesses and other
entities whose financial condition or operational capability is important to the
Company. Communications with significant third parties will be initiated to
determine the extent of risk created by those third parties' failure to
remediate their own Year 2000 issues; however, it is not possible, at present,
to determine the financial effect if their remediation efforts are not completed
in a
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 (CONTINUED)
timely manner. While the Company expects to resolve all Year 2000 risks without
a material adverse impact on its results of operations and financial position,
there can be no assurance as to the ultimate success of the program.
Uncertainties exist as to the Company's ability to detect all Year 2000 problems
as well as its ability to achieve successful and timely resolution of all Year
2000 issues. A "reasonably likely worst case" scenario of Year 2000 risks for
the Company could include the inability to receive reimbursement from Medicare
and Medicaid, and problems involving the inability of the Company's financial
intermediaries to accurately reflect the Company's cash position. The
consequences of these issues may include lost revenue and lower cash receipts.
The Company is unable to quantify the potential effect of these items on its
results of operations, liquidity, and financial position should some or a
combination of these events occur.
In addition, because the Company's day-to-day operations are heavily
dependent on its ability to communicate information throughout its network of
facilities, the Company would be particularly susceptible to any possible
effects that the Year 2000 issue has on local and national communications
systems, including without limitation, telephone and data lines, because of the
difficulty in implementing viable contingency plans. Any interruption or
malfunction of such systems could have a material adverse effect on the Company.
As the correction phase of the program is completed in 1999, the Company
expects to have developed contingency plans, which would augment existing
contingency plans, for the then current risks.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in interest
rates based on its financing, investing and cash management activities. The
Company does not expect changes in interest rates to have a material effect on
income or cash flows for the year ended December 31, 1999, although there can be
no assurances that interest rates will not significantly change.
15
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to litigation in the ordinary course of business. The
Company does not believe that any such litigation will have a material adverse
effect on its business, financial position or results of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
ANNUAL MEETING OF THE STOCKHOLDERS OF THE COMPANY ON JUNE 21, 1999
On June 21,1999, the Company held its annual meeting of shareholders (the
"Annual Meeting") at which it submitted to a vote of its shareholders the
following matters:
ELECTION OF DIRECTORS
The following nominees were elected directors of the Company at the Annual
Meeting to serve until the 2000 annual meeting of shareholders and thereafter
until their successors are duly elected and qualified. The following table sets
forth a summary with respect to the results of the shareholder vote.
<TABLE>
<CAPTION>
NOMINEE FOR AGAINST WITHHELD
- ------------------------------------------------------------ ------------ ----------- ---------
<S> <C> <C> <C>
Abraham D. Gosman........................................... 17,322,237 -- 160,932
Andrew D. Gosman............................................ 17,322,103 -- 161,066
Michael M. Gosman........................................... 17,322,003 -- 161,166
Donald J. Amaral............................................ 17,323,615 -- 159,554
H. Loy Anderson, Jr......................................... 17,320,215 -- 159,954
Rev. Bedros Baharian........................................ 17,320,857 -- 162,312
Robert Cataldo.............................................. 17,321,637 -- 162,532
Stephen E. Ronai............................................ 17,323,515 -- 159,654
</TABLE>
AMENDMENT OF THE 1996 EQUITY INCENTIVE PLAN
The shareholders were asked to approve and adopt the amendment of the
Company's 1996 Equity Incentive Plan (the "1996 Plan") in order to increase
the number of shares available for issuance under the 1996 Plan to
2,900,000.
The number of votes in favor of the amendment of the 1996 Plan was
12,132,703, the number of votes against was 3,201,926, the number of
abstentions was 8,523.
ITEM 5. OTHER INFORMATION
None.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this report:
3.01 Corrected Third Restated Certificate of Incorporation of CareMatrix
Corporation(2)
3.02 By-laws of CareMatrix Corporation, as amended through December 9,
1996(1)
10.00 Management Agreement dated March 5, 1999 between CareMatrix of
Massachusetts ("CMM") and Chancellor of Mt. Prospect, LLC(*)
10.01 Management Agreement dated June 29, 1999 between CMM and Chancellor
of Middletown, LLC(*)
10.02 Amended and restated management agreement dated January 19, 1999
between CMM and Chancellor of Plantation, Inc.(*)
10.03 Amended and restated management agreement dated April 1, 1999
between CMM and Chancellor of Deerfield Beach, Inc. (*)
10.04 Amended and restated management agreement dated April 1, 1999
between CMM and Chancellor of Naples, Inc. (*)
10.05 Amended and restated management agreement dated April 1, 1999
between CMM and Chancellor of Bonita Springs, Inc. (*)
10.06 Amended and restated management agreement dated April 1, 1999
between CMM and Chancellor of Stuart, Inc.
27 Financial Data Schedule(*)
(b) Reports on Form 8-K
None.
- ------------------------
(*) Filed herewith.
(1) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
(2) Filed as an Exhibit to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or Section 15(d) of the
Securities and Exchange Act of 1934, as amended, the Registrant has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C> <C>
CAREMATRIX CORPORATION
By: /s/ ABRAHAM D. GOSMAN
-----------------------------------------
Abraham D. Gosman
Chief Executive Officer
By: /s/ MICHAEL J. ZACCARO
-----------------------------------------
Michael J. Zaccaro
Chief Accounting Officer
</TABLE>
Dated: August 16, 1999
18
<PAGE>
Exhibit 10.00
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (this "Agreement") is dated as of the 5th day of
March, 1999, by and between CareMatrix of Massachusetts, Inc., a Delaware
corporation, with its principal place of business at 197 First Avenue, Needham,
Massachusetts 02494 (the "Manager"), and Chancellor of Mt. Prospect, LLC, a
Delaware limited liability company, or its designee or assignee, with its
principal place of business at 197 First Avenue, Needham, Massachusetts 02494
(the "Owner").
WHEREAS, the Owner is the operator of a 74 unit assisted/independent living
facility to be located in Mount Prospect, Illinois (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company to
provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Manager has represented that it is experienced in the
management of similar facilities, is knowledgeable as to the state and federal
requirements governing the operation of senior housing facilities and that the
owners and employees of Manager are qualified management professionals;
WHEREAS, based upon the Manager's representations set forth herein, the
Owner has determined that the hiring of the Manager is cost-effective and
consistent with the Owner's desire to provide quality care to the residents at
the Facility at the lowest cost;
WHEREAS, the Owner has determined that the services provided by Manager
will augment the services provided by it and the employees of the Facility so as
to increase productivity;
WHEREAS, the Owner has determined that the hiring of the Manager on the
terms and conditions hereinafter set forth will not prevent the Owner from
exercising ultimate control over the policies and operations of the Facility;
and
WHEREAS, the Manager is willing to manage the day-to-day operations of the
Facility on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. GENERAL DUTIES. The Owner engages the Manager to manage and supervise
the Facility with the objective of providing quality care and services to
residents of the Facility and to carry out the general duties with respect to
the Facility under the general supervision and direction of the Owner which
include, but are not limited to, the following:
Supervise on behalf of the Owner, the performance of all such
administrative functions as may be necessary in the management of the Facility;
select, hire (or contract with), train, supervise, monitor the performance of,
and discipline, promote, terminate or fire (subject to the rights of the Owner
under Section 2.1 of this Agreement to approve the hiring, disciplining and
termination of the Executive Director, the Assistant Administrator and Director
of Resident Services) all personnel involved in the administration and
day-to-day operation of the Facility,
<PAGE>
including, without limitation, management, resident assistance and other related
personnel, custodial, food service, cleaning, maintenance and other operational
personnel, and secretarial or bookkeeping personnel; supervise the accounting,
billing, purchasing and bill payment functions for the Facility; establish
systems of accounts and supervise the maintenance of ledgers and other primary
accounting records by the personnel of the Facility; supervise the financial
affairs of the Facility; establish and supervise the implementation of operating
and capital budgets, including those required to establish reimbursement rates,
if any, with respect to state or federal entitlement programs as well as
self-pay rates; prepare and maintain true, complete and accurate records
necessary for the preparation of such operating budgets; determine which items
of cost and expense properly relate to resident care; establish and administer
financial controls over the operation of the Facility, develop and establish
financial standards and norms by which the income, costs and operations of the
Facility may be evaluated; serve as advisor and consultant in connection with
policy decisions to be made by the Owner; furnish reports to the Owner as the
Owner may reasonably request and provide the Owner with economic and statistical
data in connection with or relative to the operations of the Facility; represent
the Facility in its day-to-day dealings with creditors, residents, personnel,
agents for collection, and insurers; act as agent for the Owner in disbursing or
collecting the funds of the Facility and in paying the debts and fulfilling the
obligations of the Facility; coordinate and supervise a marketing plan for the
Facility to insure that the Facility obtains full occupancy as soon as possible
and, after the Facility has achieved full occupancy, assist in the development
of an annual marketing plan and budget to maintain the resident census at a
proper level; and do all other things necessary or proper for the daily
operation and management of the Facility, including everything necessary to
ensure compliance with all applicable local, state and federal laws governing or
applicable to senior housing facilities. In addition, in order to plan for
future operations and to establish long range policies and goals for the
Facility, the Manager will, under the general supervision of the Owner, meet on
at least a monthly basis with Owner's representatives and the Executive Director
to review financial and operational statistics of the Facility. The Executive
Director also will attend monthly regional administrator meetings and
educational programs.
The Manager further agrees that it will:
(a) perform its duties and responsibilities hereunder in compliance with
all applicable laws;
(b) supervise and direct the management and operation of the Facility,
exercising the degree of care used by an experienced management company, given
the financial resources available to the Facility, the location of the Facility,
the restrictions of applicable laws, and other existing circumstances; and
(c) consult with the Owner and keep the Owner advised as to all major
policy and business matters relating to the Facility.
2. SPECIFIC DUTIES. Without limiting the generality of the foregoing, the
Manager shall have the following specific duties:
2.1 EMPLOYEES. The Manager shall recruit, evaluate, select, and
hire a qualified and properly licensed Executive Director who shall be
responsible for the functional operation of the Facility and supervision of
personnel at the Facility on a day-to-day basis, as well as all resident
assistance, custodial, food service, cleaning, maintenance, secretarial and
bookkeeping
2
<PAGE>
personnel for the day-to-day operations of the Facility. Prior to the Conversion
Date (hereinafter defined) all personnel, including, without limitation, the
Executive Director, shall be employees of the Owner, and the Owner shall retain
full responsibility for payment of wages, salaries and other compensation and
benefits for the Executive Director and such other personnel. Effective as of
the Conversion Date, all such personnel, including, without limitation, the
Executive Director, shall be employees of the Manager, and the Manager shall
have full responsibility for payment of wages, salaries and other compensation
and benefits of the Executive Director and such other personnel. The Manager
shall, subject to approval by the Owner, establish necessary and desirable
personnel policies and procedures, wage structures and staff schedules. The
Manager, subject to approval by Owner, shall have authority to hire, discipline,
promote and discharge employees of the Owner who participate in the day-to-day
operation and administration of the Facility. Both the Manager and the Owner
must approve the hiring and/or firing of the Executive Director, Assistant
Administrator and the Director of Resident Services, which approval shall not be
unreasonably withheld or delayed. The Manager shall: (a) maintain or cause to be
maintained payroll records and prepare weekly and monthly payrolls, withholding
taxes and Social Security taxes; (b) prepare and submit all required state and
federal tax or benefit returns required with respect to employees, including,
without limitation, the returns required by FICA, FUTA and all applicable
unemployment compensation laws; (c) maintain in force all required levels of
workers' compensation insurance; and (d) prepare and submit to the Owner any
certificates of payroll expenses as may be reasonably requested. Prior to the
Conversion Date, the Manager shall not be liable to any employee of the Facility
for wages, salaries and other compensation and benefits, or to the Owner, unless
the Manager was specifically required to obtain the approval of the Owner before
committing to a salary or benefit and such approval was not obtained. The
Manager shall not be liable to the Owner or others for any action or omission on
the part of any employee of the Owner of the Facility, unless the employee was
acting under the express direction of the Manager or unless such employee was
following an express policy or procedure of the Manager and such direction,
policy or procedure is subsequently determined to be the result of gross
negligence. The Manager shall provide the Owner with quarterly reports of all
hiring, disciplinary actions, promotions and firings at the Facility for the
month.
2.2 PURCHASING. The Manager shall purchase, for the account of the
Owner, all necessary foodstuffs, supplies, materials, appliances, tools and
equipment necessary for the operation of the Facility. The Manager shall arrange
contracts on behalf of the Owner for electricity, gas, telephone, cable
television and any other utility or service necessary for the operation of the
Facility. The Manager shall, on behalf of the Owner, contract for and supervise
the making of any necessary repairs, alterations, and improvements to the
Facility; provided that in the case of any capital expenditure, alteration or
improvement, the cost of which exceeds Ten Thousand ($10,000) Dollars, the
Manager shall obtain the prior written approval of the Owner; and provided
further, that no such prior written approval shall be required if the
expenditure is made under circumstances reasonably requiring emergency action
(so long as the Manager attempts to notify the Owner on a concurrent basis). The
Manager shall prepare and submit to the Owner any certificates of purchasing
expenses incurred for the Facility as may be reasonably requested.
2.3 COLLECTION OF ACCOUNTS. The Manager shall supervise the
Facility bookkeeping personnel who shall prepare and submit bills and collect
for the account of the Owner any and all moneys owing to the Owner from
residents.
3
<PAGE>
2.4 BOOKKEEPING. The Manager shall establish and maintain a record
and bookkeeping system for the operation and conduct of business of the Facility
in accordance with generally accepted accounting principles consistently
applied. Books and records at the Facility may be maintained by an employee of
the Owner under the supervision of the Manager. Full books of account with
entries of all receipts and expenditures related to the operation of the
Facility shall be maintained at the offices of the Manager and shall at all
times during normal business hours be open for inspection by representatives of
the Owner.
2.5 FINANCIAL REPORTS. The Manager shall furnish to the Owner the
following financial reports:
(a) as soon as possible and not later than 30 days after the close
of each calendar month, a balance sheet as of the end of the month and a
statement of income and retained earnings for the month and for the
year-to-date, together with a comparison to the budget and a detailed statement
of receipts, disbursements, accounts payable and accounts receivable as of the
end of such monthly period; provided, however, that the computer services
charges connected with the preparation of such information shall not be an
expense of the Owner;
(b) as soon as possible, and not later than 60 days after the
close of each fiscal year, a year-end compilation report, including a balance
sheet as of the end of such year and a statement of income and retained
earnings; and
(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set forth in
any financing agreements executed in connection with any Facility Financing
(hereinafter defined) (any such financing agreement or agreements are
collectively referred to herein as a "Financing Agreement").
2.6 RESIDENTS. In accordance with the provisions of all applicable
state and federal statutes, as amended from time to time, the Manager shall use
its best efforts to maintain the resident census at the Facility in such numbers
and in such a manner as, in the Manager's judgment, will tend to maintain the
financial stability of the Facility and will comply with the covenants in any
Financing Agreement.
2.7 BUDGETS. The Manager shall prepare and submit for approval by
the Owner the following: (a) as soon as possible and not later than 30 days
before the close of each fiscal year, or on such earlier date as may be required
under any Financing Agreement, a detailed written capital and operating budget
for the next succeeding fiscal year, broken down by month and showing projected
expenditures and projected revenues for such budget period; and (b) such other
budgets as may be reasonably required of the Owner under any Financing Agreement
or by regulatory authorities showing, inter alia, projected ordinary and
extraordinary expenditures and protected revenues for such budget period.
2.8 INSURANCE. The Manager shall obtain, at the Owner's expense,
on behalf of the Owner and with the Owner's prior approval, all necessary
liability, fire and extended coverage, workers' compensation, and malpractice
insurance covering the Facility, its equipment, the employees of the Owner, and
the employees of Manager, if any, who relate to the operations of the Facility,
which policies of insurance shall name the Owner and the Manager as coinsured
and
4
<PAGE>
which policies shall comply with the terms of any Financing Agreement. The Owner
shall bear the expense of the above with respect to the Owner's employees,
equipment and the Facility. The Manager shall bear the expense of the above with
respect to the Manager's employees, if any. Such insurance shall be written by a
responsible insurance company or companies reasonably satisfactory to the Owner
in kinds and amounts and a certificate of insurance shall by provided to the
Owner. The Owner shall retain the right to designate any insurance agent or
agency of its choice through which such insurance shall be obtained.
2.9 TECHNICAL AND PROFESSIONAL SERVICES. The Manager may, with the
prior approval of the Owner and at the Owner's expense, secure such engineering,
legal, and other specialized technical and professional services as may be
necessary to advise or represent the Owner in connection with any matter
involving or arising out of the ownership and operation of the Facility or the
conduct of affairs of the Facility.
2.10 MARKETING. The Manager shall agree to coordinate and
supervise the agreed upon marketing plan for the Facility during the fill-up
phase (the "Marketing Plan"). Monthly statistical census analysis reports will
be generated by the Manager and delivered to the Owner. The Manager will
recommend adjustments in the Marketing Plan as needed to achieve full occupancy.
For purposes of this Agreement, the Facility will be considered to have achieved
full occupancy when ninety percent (90%) of its units have been occupied for a
continuous 90 day period. The Manager will assist the management staff in the
continued development and coordination of advertising and promotional materials,
internal and external public relations programs, sales and staff development
programs, and customer satisfaction programs. The Manager shall assist the
Facility's management staff to develop a yearly Marketing Plan and budget based
upon the Facility's yearly census program and image.
2.11 ADMINISTRATIVE. The Manager shall recommend the establishment
of, and implement and supervise procedures to provide staff review of all
operational areas, which status shall be reviewed in regularly scheduled
quarterly meetings and at other meetings as may be deemed necessary or desirable
by the Owner.
2.12 PLANT AND MAINTENANCE.
(a) attention shall be given to preventive maintenance
(this item may be provided by outside parties if economically feasible) and, to
the extent deemed feasible by the Manager and the Owner, the services of regular
Facility maintenance employees shall be used; and
(b) the Manager shall make recommendations to the Owner
regarding entering into contracts with qualified independent contractors for the
maintenance and repair of air conditioning systems and laundry equipment and for
extraordinary repairs beyond the capability of regular Facility maintenance
employees.
5
<PAGE>
3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the Manager
shall pay itself, at its principal office as set forth above (or at such other
place as the Manager may from time to time designate in writing), and at the
times hereinafter specified, a monthly base management fee (the "Base Management
Fee") (i) for the period commencing on the beginning of the Term and continuing
until the date (the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate of
occupancy permitting operation of the Facility for its intended purpose, or (y)
such date as is designated by the Manager in its sole discretion, equal to the
greater of (I) Ten Thousand Dollars ($10,000) Dollars per month, or (II) five
percent (5%) of Net Revenues (as hereinafter defined), and (i) for the period
commencing on the Conversion Date and continuing through the remainder of the
Term, equal to the sum of (x) all Facility Expenses (hereinafter defined), and
(y) the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II) five
percent (5%) of Net Revenues. In addition to the Base Management Fee, as
additional compensation for the services to be rendered by the Manager during
the Term, the Manager shall pay itself, at its principal office as set forth
above (or at such other place as the Manager may from time to time designate in
writing), and at the times hereinafter specified, a monthly incentive management
fee (the "Incentive Management Fee") equal to eighty five percent (85%) of Net
Cash Flow (as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month in which
services were rendered. The Manager hereby acknowledges and agrees that any and
all Management Fees due hereunder shall be subordinate to any Facility
Financing, as well as to any preferred returns to equity investors of the Owner.
The Owner hereby represents and warrants that as of the date hereof, there
exists no Facility Financing, and that there are no preferred returns payable to
equity investors of the Owner. The Owner hereby covenants and agrees with the
Manager that at no time during the Term of this Agreement shall (i) the total
Facility Financing exceed the sum of (x) all costs incurred by the Owner in
connection with the acquisition, development, construction and fill-up of the
Facility, plus (y) all costs incurred by the Owner in connection with any
capital improvements to the Facility, and (ii) the preferred returns payable to
equity investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues (defined below)
less contractual adjustments for uncollectible accounts.
"Gross Revenues" as used herein shall mean and include all revenues
received or receivable from or by reason of the operation of the Facility,
including, without limitation, all revenue of the Facility for or on account of
any and all goods provided and services rendered or activities during the period
from the date of this Agreement and thereafter, the gross dollar amount of all
such billings by the Facility to or on behalf of residents directly or
indirectly connected with the Facility or the provision of all such goods and
services.
"Facility Expenses" as used herein shall mean and include all personnel and
other expenses incurred in connection with the operation of the Facility,
including, without limitation, all expenses described in Section 4 below, but
specifically excluding any Management Fees and all Facility Financing.
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"Net Cash Flow" as used herein shall mean the excess of (i) all Net
Revenue, over (ii) the sum of (x) all Facility Expenses, (y) all Base Management
Fees, and (z) all Facility Financing.
4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and properties of the
Facility:
(a) Salary and expenses (including, without limitation,
payroll taxes, costs of employee benefit plans, travel, insurance, and fidelity
bonds) of all personnel employed by the Manager to carry out all
responsibilities detailed above.
(b) Salary and expenses (including, without limitation,
payroll taxes, cost of employee benefit plans, travel, insurance and fidelity
bonds) of all of the Manager's home office personnel and overhead.
(c) From and after the Conversion Date, all expenses
described in Section 4.2 below, but specifically excluding any Management Fees
and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided in this
Agreement, the Owner shall bear all of the expenses of operating and financing
the Facility and rendering resident services not expressly assumed by the
Manager, including, without limitation, the following:
(a) Fees and expenses of independent professional persons
expressly retained by the Owner, or retained by the Manager for the account of
the Owner with the prior permission of the Owner, for any purpose; salary, other
compensation or benefits and expenses of all staff employed at the Facility by
the Owner, including, without limitation, all administrative, medical, resident
assistance and other health care personnel and the Executive Director;
custodial, food service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations of the
Facility and to perform health care and related services in the day-to-day
operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition, development,
construction and fill-up of Facility ("Facility Financing").
(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner, provided,
however, that all interest and penalties incurred as a result of the Manager's
failure to timely file all returns which the Manager is required to file
pursuant to this Agreement, or to make timely payment of all taxes, levies,
imposts, or other charges, to the extent that sufficient funds were available to
the Manager as of the date such payments were due, shall be the responsibility
of the Manager.
(d) Medical supplies and equipment, food, fuel, kitchen
and food service equipment, linens, beds, furniture, clothing and all other
supplies and equipment used in supplying services to residents.
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(e) Expenses connected directly or indirectly with the
design, acquisition, disposition or ownership of real and personal property
devoted, used, or consumed in the business of the Facility, including, without
limitation, purchase and/or construction of the land and buildings used for such
purpose, maintenance, repair and improvement of property, all real estate and
personal property taxes assessed, premiums for property and liability insurance
on property owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is a party.
However, such fees shall not include those fees resulting from or arising out of
the gross negligence by the Manager and the Owner shall provide such necessary
funds to the Manager within 10 days after receipt of such notice.
In the event that there are insufficient funds available to the Manager to pay
expenses which the Manager is authorized to incur and pay hereunder, including,
without limitation, any taxes to be paid on behalf of the Owner by the Manager,
the Manager shall promptly notify the Owner of the amount necessary to cure and
the reason for such deficit and the Owner shall provide such necessary funds to
the Manager within 10 days after receipt of such notice.
4.3 DEPOSIT AND DISBURSEMENT OF FUNDS.
(a) The Manager shall establish and administer the overall
rate structure of the Facility and shall supervise the issuance of bills and the
collection of accounts as the true and lawful attorney-in-fact for the Owner.
The Manager shall take possession of and endorse the name of the Owner on all
notes, checks, money orders, insurance payments, and any other instruments
received in payment of accounts described below.
(b) The Manager shall establish such accounts for the
Facility in the Owner's name, separate from all other accounts and funds of the
Manager, with a bank or banks whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") or with a savings and loan institution or
institutions whose deposits are insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") as it deems necessary or desirable. The Manager,
on behalf of the Owner, shall use reasonable efforts to collect (using legal
counsel approved by the Owner, if necessary) all sums due and owing to Owner in
connection with the operation of the Facility. The Manager and the Owner shall
deposit into such accounts all monies furnished by the Owner as working funds
and all receipts and monies arising from the operation of the Facility or
otherwise received by the Owner or by the Manager for or on the behalf of the
Owner.
(c) Draws on such accounts may be made by the sole
signature of an authorized representative of the Manager (or by wiring
instructions from such authorized representative of the Manager) and shall be
paid to the Manager to reimburse the Manager for payments made pursuant to this
Agreement by the Manager from its own accounts. The Owner hereby appoints the
Manager, for the term of this Agreement, as the Owner's true and lawful
attorney-in-fact to withdraw, by writing checks against such accounts, funds for
reimbursement of all amounts payable pursuant to this Agreement in connection
with the operation of the
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Facility. The Owner agrees to execute from time to time any additional documents
required by any bank wherein such documents are held to effectuate all powers of
attorney referred to herein. The Manager shall make disbursements and payments
from such accounts, on behalf and in the name of the Owner, in such amounts and
at such times as are deemed by the Manager to be appropriate or required in
connection with, first, payments required by any Financing Agreement, and
second, payments of ownership, maintenance and operating expenses of the
Facility and the other costs, expenses and expenditures provided for in this
Agreement including the Management Fee.
5. DUTY OF MANAGER. The Manager shall render the services called for
hereunder in the utmost good faith and the Manager acknowledges that it is
acting in a fiduciary capacity with respect to the Owner and owes the Owner the
highest duty of care.
6. RELATIONSHIP OF THE PARTIES. The Owner and the Manager are neither
partners nor joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose on any
of them any liability as partners or joint venturers. All dealings between the
Owner and the Manager are at arms length as between non-related parties.
7. TERM AND TERMINATION.
7.1 TERM. (a) This Agreement shall continue for a term (as the
same may be extended, the "Term") commencing on the date which is 12 months
prior to the anticipated date (as mutually agreed to by the Owner and the
Manager) for the opening of the Facility and continuing for a period of 15 years
after the date on which the Facility receives its certificate of occupancy
permitting the operation of the Facility for its intended use. The Owner and
Manager agree to execute a certificate setting forth the date on which the Term
commences promptly after such opening.
(b) On the conditions that (i) the Manager is not
in default of its obligations hereunder beyond any applicable notice, cure or
grace period at the time of exercise, and (ii) the Facility has had positive
cash flow for each of the three years prior to the commencement of the Extension
Exercise Period (hereinafter defined), the Manager shall have the option (each,
an "Extension Option") to extend the Term for three additional periods of five
years each on the same terms and conditions as set forth in this Agreement. Each
Extension Option shall be exercised in writing by the Manager to the Owner
during the six month period (the "Extension Exercise Period") commencing on the
first day of the then last year of the Term.
7.2 TERMINATION FOR CAUSE. Either party may terminate this
Agreement by delivering 30 days written notice (a "Termination Notice") to the
other party in the event that any of the following occurs:
(a) any illegal act engaged in by any party in the
operation of the Facility;
(b) if any party files or has a petition or complaint in
receivership or bankruptcy filed against it which has not been dismissed within
90 days of such filing; or
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(c) the breach by any party (the "Breaching Party") of any
other material provision in, or obligation imposed by, this Agreement which
violation shall have not been cured to the reasonable satisfaction of the other
party (the "Claiming Party") within 30 days following the date on which the
Claiming Party delivers notice to the Breaching Party describing with
specificity both the claimed breach and the actions required to be taken in
order to cure the claimed breach; PROVIDED that in the event that the claimed
breach is not reasonably susceptible of being cured within 30 days, the cure
period shall be extended for such additional time as may be reasonably required,
PROVIDED FURTHER that in the event that the Claiming Party delivers a
Termination Notice and the Breaching Party commences legal proceedings
contesting the termination within 30 days following delivery of the Termination
Notice, then this Agreement shall not terminate unless and until a final
judicial resolution of such legal proceedings beyond the expiration of any
appeal period has been issued upholding said termination.
7.3 TERMINATION FOR FAILURE TO PAY FEE ON A TIMELY BASIS. In
addition to the provisions of Section 7.2 above, the Manager may terminate this
Agreement upon thirty (30) days written notice of the Owner's failure to pay the
Management Fee when due unless the Owner cures the payment default within 10
days after receiving written notice from the Manager.
8. INDEMNIFICATION. The Owner shall indemnify the Manager and hold it
harmless of, for, and against all costs, claims, damages or expenses, including
reasonable attorney's fees (collectively "Costs"), incurred or suffered by the
Manager and arising out of acts performed within the scope of this Agreement.
Notwithstanding the foregoing, the Owner shall not have any obligation to
indemnify the Manager or hold it harmless of, from, and against Costs incurred
or suffered by the Manager as a result of the Manager's fraud, willful
misconduct, or gross negligence, or for Costs incurred or suffered by the
Manager as a result of the Manager's failure to keep true, accurate and complete
records. The Manager shall indemnify the Owner and hold it harmless of, from and
against all Costs incurred or suffered by the Owner as a result of any of the
Manager's fraud, willful misconduct, or gross negligence, or as a result of the
Manager's failure to submit proper reports to the appropriate regulatory
agencies or to keep true, accurate and complete records.
9. ACCESS TO BOOKS AND RECORDS. As a subcontractor that may be subject to
Section 1861(v) (1) (i) of the Social Security Act (the "Act"), the Manager
shall, upon written request and in accordance with the above-mentioned section
of the Act and regulations promulgated pursuant thereto, make available to the
Comptroller General, the Secretary of Health and Human Services, and their duly
authorized representatives, a copy of this Agreement and access to the Manager's
books, documents, and records necessary to verify the nature and extent of the
costs of services provided to the Owner. Such access will be available until the
expiration of four years after the services to which the costs are related have
been furnished.
The provisions of this Section shall apply only if this Agreement is
covered by the Act and such provisions shall become void and shall be of no
further force or effect if, at the time a request is made, this Agreement is not
subject to the Act. The Manager agrees that if it carries out any of the duties
of this Agreement through a subcontract with a related organization which
subcontract has a value or cost of $10,000 or more over a 12 month period, the
Manager will obtain an identical access requirement in such subcontract.
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10. FIDELITY BOND. The Manager agrees to obtain a fidelity bond, employee
dishonesty insurance policy or other similar coverage, in form and amount
satisfactory to the Owner, covering those employees reasonably required to by
covered by the Owner.
11. AMENDMENTS. This Agreement shall not be changed modified, terminated,
or discharged, in whole or in part, except by an instrument in writing signed by
the Owner and the Manager, their respective successors or assigns, or otherwise
as provided herein. Such modifications shall be in writing and signed by the
Owner and the Manager.
12. GOVERNING LAW. The provisions of this Agreement shall be governed by,
construed, and interpreted in accordance with the laws of the Commonwealth of
Massachusetts. Any change in any applicable law which has the effect of
rendering any part of this Agreement invalid, illegal, or unenforceable shall
not render the remainder of this Agreement invalid, illegal, or unenforceable,
and the parties hereto agree that in the event that any part of this Agreement
is rendered invalid, illegal, or unenforceable, that they shall negotiate in
good faith to amend any such part of this Agreement so as to comply with any
such law, as amended, and further the respective objectives of the parties
hereto.
13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager will assign
its interests in this Agreement, without the prior written consent of the other;
provided that (a) the Manager may assign (i) its interests hereunder to an
affiliate, and (ii) its Management Fees to a lender as security for any
financing arrangement of Manager, and (b) the Owner may assign its interests
hereunder to a lender as security with respect to any Financing Agreement.
Subject to the foreoging, this Agreement shall be binding upon and inure to the
benefit of the parties and to their respective successors and assigns.
14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the fee title
holder to the Facility, or the land on which the Facility is located, the
Manager shall have the right to assume from the Owner any option to purchase,
right of first offer or right of first refusal which the Owner may hold with
respect to the Facility or the land on which the Facility is located.
15. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
16. NOTICES. Any notice, demand, consent, or other written instrument to be
given or received under this Agreement ("Notice") required or permitted to be
given shall be in writing signed by the party giving such Notice and/or consent
and shall be hand delivered, sent by nationally recognized overnight carrier or
sent, postage prepaid, by Certified or Registered Mail, Return Receipt
Requested, to the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
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Needham, Massachusetts 02494
Attention: General Counsel
As to Owner: Chancellor of Mt. Prospect, LLC
197 First Avenue
Needham, Massachusetts 02494
Attention: President
Any party shall have the right to change the place to which such notice shall be
sent or delivered by similar notice sent in like manner to all other parties
hereto. All notices sent by certified mail or are hand delivered shall be deemed
received upon delivery or when delivery is refused to the office or address of
the addressee.
17. PROPERTY: Trade names, marketing material, marketing ideas and
development material and records developed specifically for and related to this
Facility shall be the property of the Owner. Trade names, ideas and documents,
forms and development material not developed specifically for this Facility are
to be considered proprietary and will remain the property of the Manager. All
operational forms and documents including, but not limited to, policy and
procedure manuals, operational forms, level of care determination systems,
management policy books, inspection control manuals, and nursing management
books are and will remain the property of the Manager. All financial management
forms, documents and software systems including, but not limited to, bookkeeping
manuals, financial forms, financial spreadsheets, database or word processing
forms, financial accounting packages and outcome information systems are and
will remain the property of the Manager. Upon termination of this Agreement, the
Owner shall have the option to purchase operational material belonging to the
Manager, except for the financial accounting packages and outcome information
systems, at a mutually agreed upon price.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
[signatures on following page]
[remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Management Agreement as
of the date first set forth above.
Witness: CAREMATRIX OF MASSACHUSETTS, INC.
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
Name: Elizabeth Derrico Name: David B. Currie
Title: Vice President
WITNESS: CHANCELLOR OF MT. PROSPECT, LLC
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
Name: Elizabeth Derrico Name: David B. Currie
Title: Vice President
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Exhibit 10.01
MANAGEMENT AGREEMENT
This MANAGEMENT AGREEMENT (this "Agreement") is dated as of the 29th day of
June, 1999, by and between CareMatrix of Massachusetts, Inc., a Delaware
corporation, with its principal place of business at 197 First Avenue, Needham,
Massachusetts 02494 (the "Manager"), and Chancellor of Middletown, LLC, a
Delaware limited liability company, or its designee or assignee, with its
principal place of business at 197 First Avenue, Needham, Massachusetts 02494
(the "Owner").
WHEREAS, the Owner is the operator of a 103 unit assisted living facility
to be located in Middletown, New Jersey (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company to
provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Manager has represented that it is experienced in the
management of similar facilities, is knowledgeable as to the state and federal
requirements governing the operation of senior housing facilities and that the
owners and employees of Manager are qualified management professionals;
WHEREAS, based upon the Manager's representations set forth herein, the
Owner has determined that the hiring of the Manager is cost-effective and
consistent with the Owner's desire to provide quality care to the residents at
the Facility at the lowest cost;
WHEREAS, the Owner has determined that the services provided by Manager
will augment the services provided by it and the employees of the Facility so as
to increase productivity;
WHEREAS, the Owner has determined that the hiring of the Manager on the
terms and conditions hereinafter set forth will not prevent the Owner from
exercising ultimate control over the policies and operations of the Facility;
and
WHEREAS, the Manager is willing to manage the day-to-day operations of the
Facility on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. GENERAL DUTIES. The Owner engages the Manager to manage and supervise
the Facility with the objective of providing quality care and services to
residents of the Facility and to carry out the general duties with respect to
the Facility under the general supervision and direction of the Owner which
include, but are not limited to, the following:
Supervise on behalf of the Owner, the performance of all such
administrative functions as may be necessary in the management of the Facility;
select, hire (or contract with), train, supervise, monitor the performance of,
and discipline, promote, terminate or fire (subject to the rights of the Owner
under Section 2.1 of this Agreement to approve the hiring, disciplining and
termination of the Executive Director, the Assistant Administrator and Director
of Resident Services) all personnel involved in the administration and
day-to-day operation of the Facility,
<PAGE>
including, without limitation, management, resident assistance and other related
personnel, custodial, food service, cleaning, maintenance and other operational
personnel, and secretarial or bookkeeping personnel; supervise the accounting,
billing, purchasing and bill payment functions for the Facility; establish
systems of accounts and supervise the maintenance of ledgers and other primary
accounting records by the personnel of the Facility; supervise the financial
affairs of the Facility; establish and supervise the implementation of operating
and capital budgets, including those required to establish reimbursement rates,
if any, with respect to state or federal entitlement programs as well as
self-pay rates; prepare and maintain true, complete and accurate records
necessary for the preparation of such operating budgets; determine which items
of cost and expense properly relate to resident care; establish and administer
financial controls over the operation of the Facility, develop and establish
financial standards and norms by which the income, costs and operations of the
Facility may be evaluated; serve as advisor and consultant in connection with
policy decisions to be made by the Owner; furnish reports to the Owner as the
Owner may reasonably request and provide the Owner with economic and statistical
data in connection with or relative to the operations of the Facility; represent
the Facility in its day-to-day dealings with creditors, residents, personnel,
agents for collection, and insurers; act as agent for the Owner in disbursing or
collecting the funds of the Facility and in paying the debts and fulfilling the
obligations of the Facility; coordinate and supervise a marketing plan for the
Facility to insure that the Facility obtains full occupancy as soon as possible
and, after the Facility has achieved full occupancy, assist in the development
of an annual marketing plan and budget to maintain the resident census at a
proper level; and do all other things necessary or proper for the daily
operation and management of the Facility, including everything necessary to
ensure compliance with all applicable local, state and federal laws governing or
applicable to senior housing facilities. In addition, in order to plan for
future operations and to establish long range policies and goals for the
Facility, the Manager will, under the general supervision of the Owner, meet on
at least a monthly basis with Owner's representatives and the Executive Director
to review financial and operational statistics of the Facility. The Executive
Director also will attend monthly regional administrator meetings and
educational programs.
The Manager further agrees that it will:
(a) perform its duties and responsibilities hereunder in compliance with
all applicable laws;
(b) supervise and direct the management and operation of the Facility,
exercising the degree of care used by an experienced management company, given
the financial resources available to the Facility, the location of the Facility,
the restrictions of applicable laws, and other existing circumstances; and
(c) consult with the Owner and keep the Owner advised as to all major
policy and business matters relating to the Facility.
2. SPECIFIC DUTIES. Without limiting the generality of the foregoing, the
Manager shall have the following specific duties:
2.1 EMPLOYEES. The Manager shall recruit, evaluate, select, and
hire a qualified and properly licensed Executive Director who shall be
responsible for the functional operation of the Facility and supervision of
personnel at the Facility on a day-to-day basis, as well as all resident
assistance, custodial, food service, cleaning, maintenance, secretarial and
bookkeeping
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personnel for the day-to-day operations of the Facility. Prior to the Conversion
Date (hereinafter defined) all personnel, including, without limitation, the
Executive Director, shall be employees of the Owner, and the Owner shall retain
full responsibility for payment of wages, salaries and other compensation and
benefits for the Executive Director and such other personnel. Effective as of
the Conversion Date, all such personnel, including, without limitation, the
Executive Director, shall be employees of the Manager, and the Manager shall
have full responsibility for payment of wages, salaries and other compensation
and benefits of the Executive Director and such other personnel. The Manager
shall, subject to approval by the Owner, establish necessary and desirable
personnel policies and procedures, wage structures and staff schedules. The
Manager, subject to approval by Owner, shall have authority to hire, discipline,
promote and discharge employees of the Owner who participate in the day-to-day
operation and administration of the Facility. Both the Manager and the Owner
must approve the hiring and/or firing of the Executive Director, Assistant
Administrator and the Director of Resident Services, which approval shall not be
unreasonably withheld or delayed. The Manager shall: (a) maintain or cause to be
maintained payroll records and prepare weekly and monthly payrolls, withholding
taxes and Social Security taxes; (b) prepare and submit all required state and
federal tax or benefit returns required with respect to employees, including,
without limitation, the returns required by FICA, FUTA and all applicable
unemployment compensation laws; (c) maintain in force all required levels of
workers' compensation insurance; and (d) prepare and submit to the Owner any
certificates of payroll expenses as may be reasonably requested. Prior to the
Conversion Date, the Manager shall not be liable to any employee of the Facility
for wages, salaries and other compensation and benefits, or to the Owner, unless
the Manager was specifically required to obtain the approval of the Owner before
committing to a salary or benefit and such approval was not obtained. The
Manager shall not be liable to the Owner or others for any action or omission on
the part of any employee of the Owner of the Facility, unless the employee was
acting under the express direction of the Manager or unless such employee was
following an express policy or procedure of the Manager and such direction,
policy or procedure is subsequently determined to be the result of gross
negligence. The Manager shall provide the Owner with quarterly reports of all
hiring, disciplinary actions, promotions and firings at the Facility for the
month.
2.2 PURCHASING. The Manager shall purchase, for the account of the
Owner, all necessary foodstuffs, supplies, materials, appliances, tools and
equipment necessary for the operation of the Facility. The Manager shall arrange
contracts on behalf of the Owner for electricity, gas, telephone, cable
television and any other utility or service necessary for the operation of the
Facility. The Manager shall, on behalf of the Owner, contract for and supervise
the making of any necessary repairs, alterations, and improvements to the
Facility; provided that in the case of any capital expenditure, alteration or
improvement, the cost of which exceeds Ten Thousand ($10,000) Dollars, the
Manager shall obtain the prior written approval of the Owner; and provided
further, that no such prior written approval shall be required if the
expenditure is made under circumstances reasonably requiring emergency action
(so long as the Manager attempts to notify the Owner on a concurrent basis). The
Manager shall prepare and submit to the Owner any certificates of purchasing
expenses incurred for the Facility as may be reasonably requested.
2.3 COLLECTION OF ACCOUNTS. The Manager shall supervise the
Facility bookkeeping personnel who shall prepare and submit bills and collect
for the account of the Owner any and all moneys owing to the Owner from
residents.
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2.4 BOOKKEEPING. The Manager shall establish and maintain a record
and bookkeeping system for the operation and conduct of business of the Facility
in accordance with generally accepted accounting principles consistently
applied. Books and records at the Facility may be maintained by an employee of
the Owner under the supervision of the Manager. Full books of account with
entries of all receipts and expenditures related to the operation of the
Facility shall be maintained at the offices of the Manager and shall at all
times during normal business hours be open for inspection by representatives of
the Owner.
2.5 FINANCIAL REPORTS. The Manager shall furnish to the Owner the
following financial reports:
(a) as soon as possible and not later than 30 days after the close
of each calendar month, a balance sheet as of the end of the month and a
statement of income and retained earnings for the month and for the
year-to-date, together with a comparison to the budget and a detailed statement
of receipts, disbursements, accounts payable and accounts receivable as of the
end of such monthly period; provided, however, that the computer services
charges connected with the preparation of such information shall not be an
expense of the Owner;
(b) as soon as possible, and not later than 60 days after the
close of each fiscal year, a year-end compilation report, including a balance
sheet as of the end of such year and a statement of income and retained
earnings; and
(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set forth in
any financing agreements executed in connection with any Facility Financing
(hereinafter defined) (any such financing agreement or agreements are
collectively referred to herein as a "Financing Agreement").
2.6 RESIDENTS. In accordance with the provisions of all applicable
state and federal statutes, as amended from time to time, the Manager shall use
its best efforts to maintain the resident census at the Facility in such numbers
and in such a manner as, in the Manager's judgment, will tend to maintain the
financial stability of the Facility and will comply with the covenants in any
Financing Agreement.
2.7 BUDGETS. The Manager shall prepare and submit for approval by
the Owner the following: (a) as soon as possible and not later than 30 days
before the close of each fiscal year, or on such earlier date as may be required
under any Financing Agreement, a detailed written capital and operating budget
for the next succeeding fiscal year, broken down by month and showing projected
expenditures and projected revenues for such budget period; and (b) such other
budgets as may be reasonably required of the Owner under any Financing Agreement
or by regulatory authorities showing, inter alia, projected ordinary and
extraordinary expenditures and protected revenues for such budget period.
2.8 INSURANCE. The Manager shall obtain, at the Owner's expense,
on behalf of the Owner and with the Owner's prior approval, all necessary
liability, fire and extended coverage, workers' compensation, and malpractice
insurance covering the Facility, its equipment, the employees of the Owner, and
the employees of Manager, if any, who relate to the operations of the Facility,
which policies of insurance shall name the Owner and the Manager as coinsured
and
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which policies shall comply with the terms of any Financing Agreement. The
Owner shall bear the expense of the above with respect to the Owner's employees,
equipment and the Facility. The Manager shall bear the expense of the above with
respect to the Manager's employees, if any. Such insurance shall be written by a
responsible insurance company or companies reasonably satisfactory to the Owner
in kinds and amounts and a certificate of insurance shall by provided to the
Owner. The Owner shall retain the right to designate any insurance agent or
agency of its choice through which such insurance shall be obtained.
2.9 TECHNICAL AND PROFESSIONAL SERVICES. The Manager may, with the
prior approval of the Owner and at the Owner's expense, secure such engineering,
legal, and other specialized technical and professional services as may be
necessary to advise or represent the Owner in connection with any matter
involving or arising out of the ownership and operation of the Facility or the
conduct of affairs of the Facility.
2.10 MARKETING. The Manager shall agree to coordinate and
supervise the agreed upon marketing plan for the Facility during the fill-up
phase (the "Marketing Plan"). Monthly statistical census analysis reports will
be generated by the Manager and delivered to the Owner. The Manager will
recommend adjustments in the Marketing Plan as needed to achieve full occupancy.
For purposes of this Agreement, the Facility will be considered to have achieved
full occupancy when ninety percent (90%) of its units have been occupied for a
continuous 90 day period. The Manager will assist the management staff in the
continued development and coordination of advertising and promotional materials,
internal and external public relations programs, sales and staff development
programs, and customer satisfaction programs. The Manager shall assist the
Facility's management staff to develop a yearly Marketing Plan and budget based
upon the Facility's yearly census program and image.
2.11 ADMINISTRATIVE. The Manager shall recommend the establishment
of, and implement and supervise procedures to provide staff review of all
operational areas, which status shall be reviewed in regularly scheduled
quarterly meetings and at other meetings as may be deemed necessary or desirable
by the Owner.
2.12 PLANT AND MAINTENANCE.
(a) attention shall be given to preventive maintenance
(this item may be provided by outside parties if economically feasible) and, to
the extent deemed feasible by the Manager and the Owner, the services of regular
Facility maintenance employees shall be used; and
(b) the Manager shall make recommendations to the Owner
regarding entering into contracts with qualified independent contractors for the
maintenance and repair of air conditioning systems and laundry equipment and for
extraordinary repairs beyond the capability of regular Facility maintenance
employees.
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3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the Manager
shall pay itself, at its principal office as set forth above (or at such other
place as the Manager may from time to time designate in writing), and at the
times hereinafter specified, a monthly base management fee (the "Base Management
Fee") (i) for the period commencing on the beginning of the Term and continuing
until the date (the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate of
occupancy permitting operation of the Facility for its intended purpose, or (y)
such date as is designated by the Manager in its sole discretion, equal to the
greater of (I) Ten Thousand Dollars ($10,000) Dollars per month, or (II) five
percent (5%) of Net Revenues (as hereinafter defined), and (i) for the period
commencing on the Conversion Date and continuing through the remainder of the
Term, equal to the sum of (x) all Facility Expenses (hereinafter defined), and
(y) the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II) five
percent (5%) of Net Revenues. In addition to the Base Management Fee, as
additional compensation for the services to be rendered by the Manager during
the Term, the Manager shall pay itself, at its principal office as set forth
above (or at such other place as the Manager may from time to time designate in
writing), and at the times hereinafter specified, a monthly incentive management
fee (the "Incentive Management Fee") equal to eighty five percent (85%) of Net
Cash Flow (as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month in which
services were rendered. The Manager hereby acknowledges and agrees that any and
all Management Fees due hereunder shall be subordinate to any Facility
Financing, as well as to any preferred returns to equity investors of the Owner.
The Owner hereby represents and warrants that as of the date hereof, there
exists no Facility Financing, and that there are no preferred returns payable to
equity investors of the Owner. The Owner hereby covenants and agrees with the
Manager that at no time during the Term of this Agreement shall (i) the total
Facility Financing exceed the sum of (x) all costs incurred by the Owner in
connection with the acquisition, development, construction and fill-up of the
Facility, plus (y) all costs incurred by the Owner in connection with any
capital improvements to the Facility, and (ii) the preferred returns payable to
equity investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues (defined below)
less contractual adjustments for uncollectible accounts.
"Gross Revenues" as used herein shall mean and include all revenues
received or receivable from or by reason of the operation of the Facility,
including, without limitation, all revenue of the Facility for or on account of
any and all goods provided and services rendered or activities during the period
from the date of this Agreement and thereafter, the gross dollar amount of all
such billings by the Facility to or on behalf of residents directly or
indirectly connected with the Facility or the provision of all such goods and
services.
"Facility Expenses" as used herein shall mean and include all personnel and
other expenses incurred in connection with the operation of the Facility,
including, without limitation, all expenses described in Section 4 below, but
specifically excluding any Management Fees and all Facility Financing.
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"Net Cash Flow" as used herein shall mean the excess of (i) all Net
Revenue, over (ii) the sum of (x) all Facility Expenses, (y) all Base Management
Fees, and (z) all Facility Financing.
4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and properties of the
Facility:
(a) Salary and expenses (including, without limitation,
payroll taxes, costs of employee benefit plans, travel, insurance, and fidelity
bonds) of all personnel employed by the Manager to carry out all
responsibilities detailed above.
(b) Salary and expenses (including, without limitation,
payroll taxes, cost of employee benefit plans, travel, insurance and fidelity
bonds) of all of the Manager's home office personnel and overhead.
(c) From and after the Conversion Date, all expenses
described in Section 4.2 below, but specifically excluding any Management Fees
and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided in this
Agreement, the Owner shall bear all of the expenses of operating and financing
the Facility and rendering resident services not expressly assumed by the
Manager, including, without limitation, the following:
(a) Fees and expenses of independent professional persons
expressly retained by the Owner, or retained by the Manager for the account of
the Owner with the prior permission of the Owner, for any purpose; salary, other
compensation or benefits and expenses of all staff employed at the Facility by
the Owner, including, without limitation, all administrative, medical, resident
assistance and other health care personnel and the Executive Director;
custodial, food service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations of the
Facility and to perform health care and related services in the day-to-day
operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition, development,
construction and fill-up of Facility ("Facility Financing").
(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner, provided,
however, that all interest and penalties incurred as a result of the Manager's
failure to timely file all returns which the Manager is required to file
pursuant to this Agreement, or to make timely payment of all taxes, levies,
imposts, or other charges, to the extent that sufficient funds were available to
the Manager as of the date such payments were due, shall be the responsibility
of the Manager.
(d) Medical supplies and equipment, food, fuel, kitchen
and food service equipment, linens, beds, furniture, clothing and all other
supplies and equipment used in supplying services to residents.
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(e) Expenses connected directly or indirectly with the
design, acquisition, disposition or ownership of real and personal property
devoted, used, or consumed in the business of the Facility, including, without
limitation, purchase and/or construction of the land and buildings used for such
purpose, maintenance, repair and improvement of property, all real estate and
personal property taxes assessed, premiums for property and liability insurance
on property owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is a party.
However, such fees shall not include those fees resulting from or arising out of
the gross negligence by the Manager and the Owner shall provide such necessary
funds to the Manager within 10 days after receipt of such notice.
In the event that there are insufficient funds available to the Manager to pay
expenses which the Manager is authorized to incur and pay hereunder, including,
without limitation, any taxes to be paid on behalf of the Owner by the Manager,
the Manager shall promptly notify the Owner of the amount necessary to cure and
the reason for such deficit and the Owner shall provide such necessary funds to
the Manager within 10 days after receipt of such notice.
4.3 DEPOSIT AND DISBURSEMENT OF FUNDS.
(a) The Manager shall establish and administer the overall
rate structure of the Facility and shall supervise the issuance of bills and the
collection of accounts as the true and lawful attorney-in-fact for the Owner.
The Manager shall take possession of and endorse the name of the Owner on all
notes, checks, money orders, insurance payments, and any other instruments
received in payment of accounts described below.
(b) The Manager shall establish such accounts for the
Facility in the Owner's name, separate from all other accounts and funds of the
Manager, with a bank or banks whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") or with a savings and loan institution or
institutions whose deposits are insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") as it deems necessary or desirable. The Manager,
on behalf of the Owner, shall use reasonable efforts to collect (using legal
counsel approved by the Owner, if necessary) all sums due and owing to Owner in
connection with the operation of the Facility. The Manager and the Owner shall
deposit into such accounts all monies furnished by the Owner as working funds
and all receipts and monies arising from the operation of the Facility or
otherwise received by the Owner or by the Manager for or on the behalf of the
Owner.
(c) Draws on such accounts may be made by the sole
signature of an authorized representative of the Manager (or by wiring
instructions from such authorized representative of the Manager) and shall be
paid to the Manager to reimburse the Manager for payments made pursuant to this
Agreement by the Manager from its own accounts. The Owner hereby appoints the
Manager, for the term of this Agreement, as the Owner's true and lawful
attorney-in-fact to withdraw, by writing checks against such accounts, funds for
reimbursement of all amounts payable pursuant to this Agreement in connection
with the operation of the
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Facility. The Owner agrees to execute from time to time any additional documents
required by any bank wherein such documents are held to effectuate all powers of
attorney referred to herein. The Manager shall make disbursements and payments
from such accounts, on behalf and in the name of the Owner, in such amounts and
at such times as are deemed by the Manager to be appropriate or required in
connection with, first, payments required by any Financing Agreement, and
second, payments of ownership, maintenance and operating expenses of the
Facility and the other costs, expenses and expenditures provided for in this
Agreement including the Management Fee.
5. DUTY OF MANAGER. The Manager shall render the services called for
hereunder in the utmost good faith and the Manager acknowledges that it is
acting in a fiduciary capacity with respect to the Owner and owes the Owner the
highest duty of care.
6. RELATIONSHIP OF THE PARTIES. The Owner and the Manager are neither
partners nor joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose on any
of them any liability as partners or joint venturers. All dealings between the
Owner and the Manager are at arms length as between non-related parties.
7. TERM AND TERMINATION.
7.1 TERM. (a) This Agreement shall continue for a term (as the
same may be extended, the "Term") commencing on the date which is 12 months
prior to the anticipated date (as mutually agreed to by the Owner and the
Manager) for the opening of the Facility and continuing for a period of 15 years
after the date on which the Facility receives its certificate of occupancy
permitting the operation of the Facility for its intended use. The Owner and
Manager agree to execute a certificate setting forth the date on which the Term
commences promptly after such opening.
(b) On the conditions that (i) the Manager is not
in default of its obligations hereunder beyond any applicable notice, cure or
grace period at the time of exercise, and (ii) the Facility has had positive
cash flow for each of the three years prior to the commencement of the Extension
Exercise Period (hereinafter defined), the Manager shall have the option (each,
an "Extension Option") to extend the Term for three additional periods of five
years each on the same terms and conditions as set forth in this Agreement. Each
Extension Option shall be exercised in writing by the Manager to the Owner
during the six month period (the "Extension Exercise Period") commencing on the
first day of the then last year of the Term.
7.2 TERMINATION FOR CAUSE. Either party may terminate this
Agreement by delivering 30 days written notice (a "Termination Notice") to the
other party in the event that any of the following occurs:
(a) any illegal act engaged in by any party in the
operation of the Facility;
(b) if any party files or has a petition or complaint in
receivership or bankruptcy filed against it which has not been dismissed within
90 days of such filing; or
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(c) the breach by any party (the "Breaching Party") of any
other material provision in, or obligation imposed by, this Agreement which
violation shall have not been cured to the reasonable satisfaction of the other
party (the "Claiming Party") within 30 days following the date on which the
Claiming Party delivers notice to the Breaching Party describing with
specificity both the claimed breach and the actions required to be taken in
order to cure the claimed breach; PROVIDED that in the event that the claimed
breach is not reasonably susceptible of being cured within 30 days, the cure
period shall be extended for such additional time as may be reasonably required,
PROVIDED FURTHER that in the event that the Claiming Party delivers a
Termination Notice and the Breaching Party commences legal proceedings
contesting the termination within 30 days following delivery of the Termination
Notice, then this Agreement shall not terminate unless and until a final
judicial resolution of such legal proceedings beyond the expiration of any
appeal period has been issued upholding said termination.
7.3 TERMINATION FOR FAILURE TO PAY FEE ON A TIMELY BASIS. In
addition to the provisions of Section 7.2 above, the Manager may terminate this
Agreement upon thirty (30) days written notice of the Owner's failure to pay the
Management Fee when due unless the Owner cures the payment default within 10
days after receiving written notice from the Manager.
8. INDEMNIFICATION. The Owner shall indemnify the Manager and hold it
harmless of, for, and against all costs, claims, damages or expenses, including
reasonable attorney's fees (collectively "Costs"), incurred or suffered by the
Manager and arising out of acts performed within the scope of this Agreement.
Notwithstanding the foregoing, the Owner shall not have any obligation to
indemnify the Manager or hold it harmless of, from, and against Costs incurred
or suffered by the Manager as a result of the Manager's fraud, willful
misconduct, or gross negligence, or for Costs incurred or suffered by the
Manager as a result of the Manager's failure to keep true, accurate and complete
records. The Manager shall indemnify the Owner and hold it harmless of, from and
against all Costs incurred or suffered by the Owner as a result of any of the
Manager's fraud, willful misconduct, or gross negligence, or as a result of the
Manager's failure to submit proper reports to the appropriate regulatory
agencies or to keep true, accurate and complete records.
9. ACCESS TO BOOKS AND RECORDS. As a subcontractor that may be subject to
Section 1861(v) (1) (i) of the Social Security Act (the "Act"), the Manager
shall, upon written request and in accordance with the above-mentioned section
of the Act and regulations promulgated pursuant thereto, make available to the
Comptroller General, the Secretary of Health and Human Services, and their duly
authorized representatives, a copy of this Agreement and access to the Manager's
books, documents, and records necessary to verify the nature and extent of the
costs of services provided to the Owner. Such access will be available until the
expiration of four years after the services to which the costs are related have
been furnished.
The provisions of this Section shall apply only if this Agreement is
covered by the Act and such provisions shall become void and shall be of no
further force or effect if, at the time a request is made, this Agreement is not
subject to the Act. The Manager agrees that if it carries out any of the duties
of this Agreement through a subcontract with a related organization which
subcontract has a value or cost of $10,000 or more over a 12 month period, the
Manager will obtain an identical access requirement in such subcontract.
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10. FIDELITY BOND. The Manager agrees to obtain a fidelity bond, employee
dishonesty insurance policy or other similar coverage, in form and amount
satisfactory to the Owner, covering those employees reasonably required to by
covered by the Owner.
11. AMENDMENTS. This Agreement shall not be changed modified, terminated,
or discharged, in whole or in part, except by an instrument in writing signed by
the Owner and the Manager, their respective successors or assigns, or otherwise
as provided herein. Such modifications shall be in writing and signed by the
Owner and the Manager.
12. GOVERNING LAW. The provisions of this Agreement shall be governed by,
construed, and interpreted in accordance with the laws of the Commonwealth of
Massachusetts. Any change in any applicable law which has the effect of
rendering any part of this Agreement invalid, illegal, or unenforceable shall
not render the remainder of this Agreement invalid, illegal, or unenforceable,
and the parties hereto agree that in the event that any part of this Agreement
is rendered invalid, illegal, or unenforceable, that they shall negotiate in
good faith to amend any such part of this Agreement so as to comply with any
such law, as amended, and further the respective objectives of the parties
hereto.
13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager will assign
its interests in this Agreement, without the prior written consent of the other;
provided that (a) the Manager may assign (i) its interests hereunder to an
affiliate, and (ii) its Management Fees to a lender as security for any
financing arrangement of Manager, and (b) the Owner may assign its interests
hereunder to a lender as security with respect to any Financing Agreement.
Subject to the foreoging, this Agreement shall be binding upon and inure to the
benefit of the parties and to their respective successors and assigns.
14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the fee title
holder to the Facility, or the land on which the Facility is located, the
Manager shall have the right to assume from the Owner any option to purchase,
right of first offer or right of first refusal which the Owner may hold with
respect to the Facility or the land on which the Facility is located.
15. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
16. NOTICES. Any notice, demand, consent, or other written instrument to be
given or received under this Agreement ("Notice") required or permitted to be
given shall be in writing signed by the party giving such Notice and/or consent
and shall be hand delivered, sent by nationally recognized overnight carrier or
sent, postage prepaid, by Certified or Registered Mail, Return Receipt
Requested, to the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
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Needham, Massachusetts 02494
Attention: General Counsel
As to Owner: Chancellor of Middletown, LLC
197 First Avenue
Needham, Massachusetts 02494
Attention: President
Any party shall have the right to change the place to which such notice shall be
sent or delivered by similar notice sent in like manner to all other parties
hereto. All notices sent by certified mail or are hand delivered shall be deemed
received upon delivery or when delivery is refused to the office or address of
the addressee.
17. PROPERTY: Trade names, marketing material, marketing ideas and
development material and records developed specifically for and related to this
Facility shall be the property of the Owner. Trade names, ideas and documents,
forms and development material not developed specifically for this Facility are
to be considered proprietary and will remain the property of the Manager. All
operational forms and documents including, but not limited to, policy and
procedure manuals, operational forms, level of care determination systems,
management policy books, inspection control manuals, and nursing management
books are and will remain the property of the Manager. All financial management
forms, documents and software systems including, but not limited to, bookkeeping
manuals, financial forms, financial spreadsheets, database or word processing
forms, financial accounting packages and outcome information systems are and
will remain the property of the Manager. Upon termination of this Agreement, the
Owner shall have the option to purchase operational material belonging to the
Manager, except for the financial accounting packages and outcome information
systems, at a mutually agreed upon price.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
[signatures on following page]
[remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Management Agreement as
of the date first set forth above.
Witness: CAREMATRIX OF MASSACHUSETTS, INC.
By: /s/ Robert A. Arena By: /s/ David B. Currie
Name: Robert A. Arena Name: David B. Currie
Title: Vice President
WITNESS: CHANCELLOR OF MIDDLETOWN, LLC
By: /s/ Robert A. Arena By: /s/ Frederick R. Leathers
Name: Robert A. Arena Name: Frederick R. Leathers
Title: Vice President
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Exhibit 10.02
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
This AMENDED AND RESTATED MANAGEMENT AGREEMENT (this "Agreement") is dated
as of the 19th day of January, 1999, by and between CareMatrix of Massachusetts,
Inc., a Delaware corporation, with its principal place of business at 197 First
Avenue, Needham, Massachusetts 02494 (the "Manager"), and Chancellor of
Plantation, Inc., a Delaware corporation, or its designee or assignee, with its
principal place of business at 197 First Avenue, Needham, Massachusetts 02494
(the "Owner").
WHEREAS, the Owner is the operator of a one hundred thirty-six (136) unit
assisted/independent living facility to be located in Plantation, Florida (the
"Facility");
WHEREAS, the Owner determined that the hiring of a management company to
provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Manager has represented that it is experienced in the
management of similar facilities, is knowledgeable as to the state and federal
requirements governing the operation of senior housing facilities and that the
owners and employees of Manager are qualified management professionals;
WHEREAS, based upon the Manager's representations set forth herein, the
Owner has determined that the hiring of the Manager is cost-effective and
consistent with the Owner's desire to provide quality care to the residents at
the Facility at the lowest cost;
WHEREAS, the Owner has determined that the services provided by Manager
will augment the services provided by it and the employees of the Facility so as
to increase productivity;
WHEREAS, the Owner has determined that the hiring of the Manager on the
terms and conditions hereinafter set forth will not prevent the Owner from
exercising ultimate control over the policies and operations of the Facility;
and
WHEREAS, the Manager is willing to manage the day-to-day operations of the
Facility on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. GENERAL DUTIES. The Owner engages the Manager to manage and supervise
the Facility with the objective of providing quality care and services to
residents of the Facility and to carry out the general duties with respect to
the Facility under the general supervision and direction of the Owner which
include, but are not limited to, the following:
Supervise on behalf of the Owner, the performance of all such
administrative functions as may be necessary in the management of the Facility;
select, hire (or contract with), train, supervise, monitor the performance of,
and discipline, promote, terminate or fire (subject to the rights of the Owner
under Section 2.1 of this Agreement to approve the hiring, disciplining and
termination of the Executive Director, the Assistant Administrator and Director
of Resident Services) all personnel involved in the administration and
day-to-day operation of the Facility, including, without limitation, management,
resident assistance and other related personnel,
<PAGE>
custodial, food service, cleaning, maintenance and other operational personnel,
and secretarial or bookkeeping personnel; supervise the accounting, billing,
purchasing and bill payment functions for the Facility; establish systems of
accounts and supervise the maintenance of ledgers and other primary accounting
records by the personnel of the Facility; supervise the financial affairs of the
Facility; establish and supervise the implementation of operating and capital
budgets, including those required to establish reimbursement rates, if any, with
respect to state or federal entitlement programs as well as self-pay rates;
prepare and maintain true, complete and accurate records necessary for the
preparation of such operating budgets; determine which items of cost and expense
properly relate to resident care; establish and administer financial controls
over the operation of the Facility, develop and establish financial standards
and norms by which the income, costs and operations of the Facility may be
evaluated; serve as advisor and consultant in connection with policy decisions
to be made by the Owner; furnish reports to the Owner as the Owner may
reasonably request and provide the Owner with economic and statistical data in
connection with or relative to the operations of the Facility; represent the
Facility in its day-to-day dealings with creditors, residents, personnel, agents
for collection, and insurers; act as agent for the Owner in disbursing or
collecting the funds of the Facility and in paying the debts and fulfilling the
obligations of the Facility; coordinate and supervise a marketing plan for the
Facility to insure that the Facility obtains full occupancy as soon as possible
and, after the Facility has achieved full occupancy, assist in the development
of an annual marketing plan and budget to maintain the resident census at a
proper level; and do all other things necessary or proper for the daily
operation and management of the Facility, including everything necessary to
ensure compliance with all applicable local, state and federal laws governing or
applicable to senior housing facilities. In addition, in order to plan for
future operations and to establish long range policies and goals for the
Facility, the Manager will, under the general supervision of the Owner, meet on
at least a monthly basis with Owner's representatives and the Executive Director
to review financial and operational statistics of the Facility. The Executive
Director also will attend monthly regional administrator meetings and
educational programs.
The Manager further agrees that it will:
(a) perform its duties and responsibilities hereunder in compliance with
all applicable laws;
(b) supervise and direct the management and operation of the Facility,
exercising the degree of care used by an experienced management company, given
the financial resources available to the Facility, the location of the Facility,
the restrictions of applicable laws, and other existing circumstances; and
(c) consult with the Owner and keep the Owner advised as to all major
policy and business matters relating to the Facility.
2. SPECIFIC DUTIES. Without limiting the generality of the foregoing, the
Manager shall have the following specific duties:
2.1 EMPLOYEES. The Manager shall recruit, evaluate, select, and
hire a qualified and properly licensed Executive Director who shall be
responsible for the functional operation of the Facility and supervision of
personnel at the Facility on a day-to-day basis, as well as all resident
assistance, custodial, food service, cleaning, maintenance, secretarial and
bookkeeping personnel for the day-to-day operations of the Facility. Prior to
the Conversion Date (hereinafter
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defined) all personnel, including, without limitation, the Executive Director,
shall be employees of the Owner, and the Owner shall retain full responsibility
for payment of wages, salaries and other compensation and benefits for the
Executive Director and such other personnel. Effective as of the Conversion
Date, all such personnel, including, without limitation, the Executive Director,
shall be employees of the Manager, and the Manager shall have full
responsibility for payment of wages, salaries and other compensation and
benefits of the Executive Director and such other personnel. The Manager shall,
subject to approval by the Owner, establish necessary and desirable personnel
policies and procedures, wage structures and staff schedules. The Manager,
subject to approval by Owner, shall have authority to hire, discipline, promote
and discharge employees of the Owner who participate in the day-to-day operation
and administration of the Facility. Both the Manager and the Owner must approve
the hiring and/or firing of the Executive Director, Assistant Administrator and
the Director of Resident Services, which approval shall not be unreasonably
withheld or delayed. The Manager shall: (a) maintain or cause to be maintained
payroll records and prepare weekly and monthly payrolls, withholding taxes and
Social Security taxes; (b) prepare and submit all required state and federal tax
or benefit returns required with respect to employees, including, without
limitation, the returns required by FICA, FUTA and all applicable unemployment
compensation laws; (c) maintain in force all required levels of workers'
compensation insurance; and (d) prepare and submit to the Owner any certificates
of payroll expenses as may be reasonably requested. Prior to the Conversion
Date, the Manager shall not be liable to any employee of the Facility for wages,
salaries and other compensation and benefits, or to the Owner, unless the
Manager was specifically required to obtain the approval of the Owner before
committing to a salary or benefit and such approval was not obtained. The
Manager shall not be liable to the Owner or others for any action or omission on
the part of any employee of the Owner of the Facility, unless the employee was
acting under the express direction of the Manager or unless such employee was
following an express policy or procedure of the Manager and such direction,
policy or procedure is subsequently determined to be the result of gross
negligence. The Manager shall provide the Owner with quarterly reports of all
hiring, disciplinary actions, promotions and firings at the Facility for the
month.
2.2 PURCHASING. The Manager shall purchase, for the account of the
Owner, all necessary foodstuffs, supplies, materials, appliances, tools and
equipment necessary for the operation of the Facility. The Manager shall arrange
contracts on behalf of the Owner for electricity, gas, telephone, cable
television and any other utility or service necessary for the operation of the
Facility. The Manager shall, on behalf of the Owner, contract for and supervise
the making of any necessary repairs, alterations, and improvements to the
Facility; provided that in the case of any capital expenditure, alteration or
improvement, the cost of which exceeds Ten Thousand ($10,000) Dollars, the
Manager shall obtain the prior written approval of the Owner; and provided
further, that no such prior written approval shall be required if the
expenditure is made under circumstances reasonably requiring emergency action
(so long as the Manager attempts to notify the Owner on a concurrent basis). The
Manager shall prepare and submit to the Owner any certificates of purchasing
expenses incurred for the Facility as may be reasonably requested.
2.3 COLLECTION OF ACCOUNTS. The Manager shall supervise the
Facility bookkeeping personnel who shall prepare and submit bills and collect
for the account of the Owner any and all moneys owing to the Owner from
residents.
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2.4 BOOKKEEPING. The Manager shall establish and maintain a record
and bookkeeping system for the operation and conduct of business of the Facility
in accordance with generally accepted accounting principles consistently
applied. Books and records at the Facility may be maintained by an employee of
the Owner under the supervision of the Manager. Full books of account with
entries of all receipts and expenditures related to the operation of the
Facility shall be maintained at the offices of the Manager and shall at all
times during normal business hours be open for inspection by representatives of
the Owner.
2.5 FINANCIAL REPORTS. The Manager shall furnish to the Owner the
following financial reports:
(a) as soon as possible and not later than 30 days after the close
of each calendar month, a balance sheet as of the end of the month and a
statement of income and retained earnings for the month and for the
year-to-date, together with a comparison to the budget and a detailed statement
of receipts, disbursements, accounts payable and accounts receivable as of the
end of such monthly period; provided, however, that the computer services
charges connected with the preparation of such information shall not be an
expense of the Owner;
(b) as soon as possible, and not later than 60 days after the
close of each fiscal year, a year-end compilation report, including a balance
sheet as of the end of such year and a statement of income and retained
earnings; and
(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set forth in
any financing agreements executed in connection with any Facility Financing
(hereinafter defined) (any such financing agreement or agreements are
collectively referred to herein as a "Financing Agreement").
2.6 RESIDENTS. In accordance with the provisions of all applicable
state and federal statutes, as amended from time to time, the Manager shall use
its best efforts to maintain the resident census at the Facility in such numbers
and in such a manner as, in the Manager's judgment, will tend to maintain the
financial stability of the Facility and will comply with the covenants in any
Financing Agreement.
2.7 BUDGETS. The Manager shall prepare and submit for approval by
the Owner the following: (a) as soon as possible and not later than 30 days
before the close of each fiscal year, or on such earlier date as may be required
under any Financing Agreement, a detailed written capital and operating budget
for the next succeeding fiscal year, broken down by month and showing projected
expenditures and projected revenues for such budget period; and (b) such other
budgets as may be reasonably required of the Owner under any Financing Agreement
or by regulatory authorities showing, inter alia, projected ordinary and
extraordinary expenditures and protected revenues for such budget period.
2.8 INSURANCE. The Manager shall obtain, at the Owner's expense,
on behalf of the Owner and with the Owner's prior approval, all necessary
liability, fire and extended coverage, workers' compensation, and malpractice
insurance covering the Facility, its equipment, the employees of the Owner, and
the employees of Manager, if any, who relate to the operations of the Facility,
which policies of insurance shall name the Owner and the Manager as coinsured
and which policies shall comply with the terms of any Financing Agreement. The
Owner shall bear
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the expense of the above with respect to the Owner's employees, equipment and
the Facility. The Manager shall bear the expense of the above with respect to
the Manager's employees, if any. Such insurance shall be written by a
responsible insurance company or companies reasonably satisfactory to the Owner
in kinds and amounts and a certificate of insurance shall by provided to the
Owner. The Owner shall retain the right to designate any insurance agent or
agency of its choice through which such insurance shall be obtained.
2.9 TECHNICAL AND PROFESSIONAL SERVICES. The Manager may, with the
prior approval of the Owner and at the Owner's expense, secure such engineering,
legal, and other specialized technical and professional services as may be
necessary to advise or represent the Owner in connection with any matter
involving or arising out of the ownership and operation of the Facility or the
conduct of affairs of the Facility.
2.10 MARKETING. The Manager shall agree to coordinate and
supervise the agreed upon marketing plan for the Facility during the fill-up
phase (the "Marketing Plan"). Monthly statistical census analysis reports will
be generated by the Manager and delivered to the Owner. The Manager will
recommend adjustments in the Marketing Plan as needed to achieve full occupancy.
For purposes of this Agreement, the Facility will be considered to have achieved
full occupancy when ninety percent (90%) of its units have been occupied for a
continuous 90 day period. The Manager will assist the management staff in the
continued development and coordination of advertising and promotional materials,
internal and external public relations programs, sales and staff development
programs, and customer satisfaction programs. The Manager shall assist the
Facility's management staff to develop a yearly Marketing Plan and budget based
upon the Facility's yearly census program and image.
2.11 ADMINISTRATIVE. The Manager shall recommend the establishment
of, and implement and supervise procedures to provide staff review of all
operational areas, which status shall be reviewed in regularly scheduled
quarterly meetings and at other meetings as may be deemed necessary or desirable
by the Owner.
2.12 PLANT AND MAINTENANCE.
(a) attention shall be given to preventive maintenance
(this item may be provided by outside parties if economically feasible) and, to
the extent deemed feasible by the Manager and the Owner, the services of regular
Facility maintenance employees shall be used; and
(b) the Manager shall make recommendations to the Owner
regarding entering into contracts with qualified independent contractors for the
maintenance and repair of air conditioning systems and laundry equipment and for
extraordinary repairs beyond the capability of regular Facility maintenance
employees.
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3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the Manager
shall pay itself, at its principal office as set forth above (or at such other
place as the Manager may from time to time designate in writing), and at the
times hereinafter specified, a monthly base management fee (the "Base Management
Fee") (i) for the period commencing on the beginning of the Term and continuing
until the date (the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate of
occupancy permitting operation of the Facility for its intended purpose, or (y)
such date as is designated by the Manager in its sole discretion, equal to the
greater of (I) Ten Thousand Dollars ($10,000) Dollars per month, or (II) five
percent (5%) of Net Revenues (as hereinafter defined), and (i) for the period
commencing on the Conversion Date and continuing through the remainder of the
Term, equal to the sum of (x) all Facility Expenses (hereinafter defined), and
(y) the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II) five
percent (5%) of Net Revenues. In addition to the Base Management Fee, as
additional compensation for the services to be rendered by the Manager during
the Term, the Manager shall pay itself, at its principal office as set forth
above (or at such other place as the Manager may from time to time designate in
writing), and at the times hereinafter specified, a monthly incentive management
fee (the "Incentive Management Fee") equal to eighty five percent (85%) of Net
Cash Flow (as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month in which
services were rendered. The Manager hereby acknowledges and agrees that any and
all Management Fees due hereunder shall be subordinate to any Facility
Financing, as well as to any preferred returns to equity investors of the Owner.
The Owner hereby represents and warrants that as of the date hereof, there
exists no Facility Financing except that certain $1,685,000 mortgage loan made
by Health Care REIT, Inc. to the Owner, and that there are no preferred returns
payable to equity investors of the Owner. The Owner hereby covenants and agrees
with the Manager that at no time during the Term of this Agreement shall (i) the
total Facility Financing exceed the sum of (x) all costs incurred by the Owner
in connection with the acquisition, development, construction and fill-up of the
Facility, plus (y) all costs incurred by the Owner in connection with any
capital improvements to the Facility, and (ii) the preferred returns payable to
equity investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues (defined below)
less contractual adjustments for uncollectible accounts.
"Gross Revenues" as used herein shall mean and include all revenues
received or receivable from or by reason of the operation of the Facility,
including, without limitation, all revenue of the Facility for or on account of
any and all goods provided and services rendered or activities during the period
from the date of this Agreement and thereafter, the gross dollar amount of all
such billings by the Facility to or on behalf of residents directly or
indirectly connected with the Facility or the provision of all such goods and
services.
"Facility Expenses" as used herein shall mean and include all personnel and
other expenses incurred in connection with the operation of the Facility,
including, without limitation, all
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expenses described in Section 4 below, but specifically excluding any Management
Fees and all Facility Financing.
"Net Cash Flow" as used herein shall mean the excess of (i) all Net
Revenue, over (ii) the sum of (x) all Facility Expenses, (y) all Base Management
Fees, and (z) all Facility Financing.
4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and properties of the
Facility:
(a) Salary and expenses (including, without limitation,
payroll taxes, costs of employee benefit plans, travel, insurance, and fidelity
bonds) of all personnel employed by the Manager to carry out all
responsibilities detailed above.
(b) Salary and expenses (including, without limitation,
payroll taxes, cost of employee benefit plans, travel, insurance and fidelity
bonds) of all of the Manager's home office personnel and overhead.
(c) From and after the Conversion Date, all expenses
described in Section 4.2 below, but specifically excluding any Management Fees
and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided in this
Agreement, the Owner shall bear all of the expenses of operating and financing
the Facility and rendering resident services not expressly assumed by the
Manager, including, without limitation, the following:
(a) Fees and expenses of independent professional persons
expressly retained by the Owner, or retained by the Manager for the account of
the Owner with the prior permission of the Owner, for any purpose; salary, other
compensation or benefits and expenses of all staff employed at the Facility by
the Owner, including, without limitation, all administrative, medical, resident
assistance and other health care personnel and the Executive Director;
custodial, food service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations of the
Facility and to perform health care and related services in the day-to-day
operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition, development,
construction and fill-up of Facility ("Facility Financing").
(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner, provided,
however, that all interest and penalties incurred as a result of the Manager's
failure to timely file all returns which the Manager is required to file
pursuant to this Agreement, or to make timely payment of all taxes, levies,
imposts, or other charges, to the extent that sufficient funds were available to
the Manager as of the date such payments were due, shall be the responsibility
of the Manager.
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(d) Medical supplies and equipment, food, fuel, kitchen
and food service equipment, linens, beds, furniture, clothing and all other
supplies and equipment used in supplying services to residents.
(e) Expenses connected directly or indirectly with the
design, acquisition, disposition or ownership of real and personal property
devoted, used, or consumed in the business of the Facility, including, without
limitation, purchase and/or construction of the land and buildings used for such
purpose, maintenance, repair and improvement of property, all real estate and
personal property taxes assessed, premiums for property and liability insurance
on property owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is a party.
However, such fees shall not include those fees resulting from or arising out of
the gross negligence by the Manager and the Owner shall provide such necessary
funds to the Manager within 10 days after receipt of such notice.
In the event that there are insufficient funds available to the Manager to pay
expenses which the Manager is authorized to incur and pay hereunder, including,
without limitation, any taxes to be paid on behalf of the Owner by the Manager,
the Manager shall promptly notify the Owner of the amount necessary to cure and
the reason for such deficit and the Owner shall provide such necessary funds to
the Manager within 10 days after receipt of such notice.
4.3 DEPOSIT AND DISBURSEMENT OF FUNDS.
(a) The Manager shall establish and administer the overall
rate structure of the Facility and shall supervise the issuance of bills and the
collection of accounts as the true and lawful attorney-in-fact for the Owner.
The Manager shall take possession of and endorse the name of the Owner on all
notes, checks, money orders, insurance payments, and any other instruments
received in payment of accounts described below.
(b) The Manager shall establish such accounts for the
Facility in the Owner's name, separate from all other accounts and funds of the
Manager, with a bank or banks whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") or with a savings and loan institution or
institutions whose deposits are insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") as it deems necessary or desirable. The Manager,
on behalf of the Owner, shall use reasonable efforts to collect (using legal
counsel approved by the Owner, if necessary) all sums due and owing to Owner in
connection with the operation of the Facility. The Manager and the Owner shall
deposit into such accounts all monies furnished by the Owner as working funds
and all receipts and monies arising from the operation of the Facility or
otherwise received by the Owner or by the Manager for or on the behalf of the
Owner.
(c) Draws on such accounts may be made by the sole
signature of an authorized representative of the Manager (or by wiring
instructions from such authorized representative of the Manager) and shall be
paid to the Manager to reimburse the Manager for payments made pursuant to this
Agreement by the Manager from its own accounts. The Owner
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hereby appoints the Manager, for the term of this Agreement, as the Owner's true
and lawful attorney-in-fact to withdraw, by writing checks against such
accounts, funds for reimbursement of all amounts payable pursuant to this
Agreement in connection with the operation of the Facility. The Owner agrees to
execute from time to time any additional documents required by any bank wherein
such documents are held to effectuate all powers of attorney referred to herein.
The Manager shall make disbursements and payments from such accounts, on behalf
and in the name of the Owner, in such amounts and at such times as are deemed by
the Manager to be appropriate or required in connection with, first, payments
required by any Financing Agreement, and second, payments of ownership,
maintenance and operating expenses of the Facility and the other costs, expenses
and expenditures provided for in this Agreement including the Management Fee.
5. DUTY OF MANAGER. The Manager shall render the services called for
hereunder in the utmost good faith and the Manager acknowledges that it is
acting in a fiduciary capacity with respect to the Owner and owes the Owner the
highest duty of care.
6. RELATIONSHIP OF THE PARTIES. The Owner and the Manager are neither
partners nor joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose on any
of them any liability as partners or joint venturers. All dealings between the
Owner and the Manager are at arms length as between non-related parties.
7. TERM AND TERMINATION.
7.1 TERM. (a) This Agreement shall continue for a term (as the
same may be extended, the "Term") commencing on the date which is 12 months
prior to the anticipated date (as mutually agreed to by the Owner and the
Manager) for the opening of the Facility and continuing for a period of 15 years
after the date on which the Facility receives its certificate of occupancy
permitting the operation of the Facility for its intended use. The Owner and
Manager agree to execute a certificate setting forth the date on which the Term
commences promptly after such opening.
(b) On the conditions that (i) the Manager is not
in default of its obligations hereunder beyond any applicable notice, cure or
grace period at the time of exercise, and (ii) the Facility has had positive
cash flow for each of the three years prior to the commencement of the Extension
Exercise Period (hereinafter defined), the Manager shall have the option (each,
an "Extension Option") to extend the Term for three additional periods of five
years each on the same terms and conditions as set forth in this Agreement. Each
Extension Option shall be exercised in writing by the Manager to the Owner
during the six month period (the "Extension Exercise Period") commencing on the
first day of the then last year of the Term.
7.2 TERMINATION FOR CAUSE. Either party may terminate this
Agreement by delivering 30 days written notice (a "Termination Notice") to the
other party in the event that any of the following occurs:
(a) any illegal act engaged in by any party in the
operation of the Facility;
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(b) if any party files or has a petition or complaint in
receivership or bankruptcy filed against it which has not been dismissed within
90 days of such filing; or
(c) the breach by any party (the "Breaching Party") of any
other material provision in, or obligation imposed by, this Agreement which
violation shall have not been cured to the reasonable satisfaction of the other
party (the "Claiming Party") within 30 days following the date on which the
Claiming Party delivers notice to the Breaching Party describing with
specificity both the claimed breach and the actions required to be taken in
order to cure the claimed breach; PROVIDED that in the event that the claimed
breach is not reasonably susceptible of being cured within 30 days, the cure
period shall be extended for such additional time as may be reasonably required,
PROVIDED FURTHER that in the event that the Claiming Party delivers a
Termination Notice and the Breaching Party commences legal proceedings
contesting the termination within 30 days following delivery of the Termination
Notice, then this Agreement shall not terminate unless and until a final
judicial resolution of such legal proceedings beyond the expiration of any
appeal period has been issued upholding said termination.
7.3 TERMINATION FOR FAILURE TO PAY FEE ON A TIMELY BASIS. In
addition to the provisions of Section 7.2 above, the Manager may terminate this
Agreement upon thirty (30) days written notice of the Owner's failure to pay the
Management Fee when due unless the Owner cures the payment default within 10
days after receiving written notice from the Manager.
8. INDEMNIFICATION. The Owner shall indemnify the Manager and hold it
harmless of, for, and against all costs, claims, damages or expenses, including
reasonable attorney's fees (collectively "Costs"), incurred or suffered by the
Manager and arising out of acts performed within the scope of this Agreement.
Notwithstanding the foregoing, the Owner shall not have any obligation to
indemnify the Manager or hold it harmless of, from, and against Costs incurred
or suffered by the Manager as a result of the Manager's fraud, willful
misconduct, or gross negligence, or for Costs incurred or suffered by the
Manager as a result of the Manager's failure to keep true, accurate and complete
records. The Manager shall indemnify the Owner and hold it harmless of, from and
against all Costs incurred or suffered by the Owner as a result of any of the
Manager's fraud, willful misconduct, or gross negligence, or as a result of the
Manager's failure to submit proper reports to the appropriate regulatory
agencies or to keep true, accurate and complete records.
9. ACCESS TO BOOKS AND RECORDS. As a subcontractor that may be subject to
Section 1861(v) (1) (i) of the Social Security Act (the "Act"), the Manager
shall, upon written request and in accordance with the above-mentioned section
of the Act and regulations promulgated pursuant thereto, make available to the
Comptroller General, the Secretary of Health and Human Services, and their duly
authorized representatives, a copy of this Agreement and access to the Manager's
books, documents, and records necessary to verify the nature and extent of the
costs of services provided to the Owner. Such access will be available until the
expiration of four years after the services to which the costs are related have
been furnished.
The provisions of this Section shall apply only if this Agreement is
covered by the Act and such provisions shall become void and shall be of no
further force or effect if, at the time a request is made, this Agreement is not
subject to the Act. The Manager agrees that if it carries out any of the duties
of this Agreement through a subcontract with a related organization which
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subcontract has a value or cost of $10,000 or more over a 12 month period, the
Manager will obtain an identical access requirement in such subcontract.
10. FIDELITY BOND. The Manager agrees to obtain a fidelity bond, employee
dishonesty insurance policy or other similar coverage, in form and amount
satisfactory to the Owner, covering those employees reasonably required to by
covered by the Owner.
11. AMENDMENTS. This Agreement shall not be changed modified, terminated,
or discharged, in whole or in part, except by an instrument in writing signed by
the Owner and the Manager, their respective successors or assigns, or otherwise
as provided herein. Such modifications shall be in writing and signed by the
Owner and the Manager.
12. GOVERNING LAW. The provisions of this Agreement shall be governed by,
construed, and interpreted in accordance with the laws of the Commonwealth of
Massachusetts. Any change in any applicable law which has the effect of
rendering any part of this Agreement invalid, illegal, or unenforceable shall
not render the remainder of this Agreement invalid, illegal, or unenforceable,
and the parties hereto agree that in the event that any part of this Agreement
is rendered invalid, illegal, or unenforceable, that they shall negotiate in
good faith to amend any such part of this Agreement so as to comply with any
such law, as amended, and further the respective objectives of the parties
hereto.
13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager will assign
its interests in this Agreement, without the prior written consent of the other;
provided that (a) the Manager may assign (i) its interests hereunder to an
affiliate, and (ii) its Management Fees to a lender as security for any
financing arrangement of Manager, and (b) the Owner may assign its interests
hereunder to a lender as security with respect to any Financing Agreement.
Subject to the foreoging, this Agreement shall be binding upon and inure to the
benefit of the parties and to their respective successors and assigns.
14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the fee title
holder to the Facility, or the land on which the Facility is located, the
Manager shall have the right to assume from the Owner any option to purchase,
right of first offer or right of first refusal which the Owner may hold with
respect to the Facility or the land on which the Facility is located.
15. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
16. NOTICES. Any notice, demand, consent, or other written instrument to be
given or received under this Agreement ("Notice") required or permitted to be
given shall be in writing signed by the party giving such Notice and/or consent
and shall be hand delivered, sent by nationally recognized overnight carrier or
sent, postage prepaid, by Certified or Registered Mail, Return Receipt
Requested, to the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
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cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: General Counsel
As to Owner: Chancellor of Plantation, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: President
Any party shall have the right to change the place to which such notice shall be
sent or delivered by similar notice sent in like manner to all other parties
hereto. All notices sent by certified mail or are hand delivered shall be deemed
received upon delivery or when delivery is refused to the office or address of
the addressee.
17. PROPERTY: Trade names, marketing material, marketing ideas and
development material and records developed specifically for and related to this
Facility shall be the property of the Owner. Trade names, ideas and documents,
forms and development material not developed specifically for this Facility are
to be considered proprietary and will remain the property of the Manager. All
operational forms and documents including, but not limited to, policy and
procedure manuals, operational forms, level of care determination systems,
management policy books, inspection control manuals, and nursing management
books are and will remain the property of the Manager. All financial management
forms, documents and software systems including, but not limited to, bookkeeping
manuals, financial forms, financial spreadsheets, database or word processing
forms, financial accounting packages and outcome information systems are and
will remain the property of the Manager. Upon termination of this Agreement, the
Owner shall have the option to purchase operational material belonging to the
Manager, except for the financial accounting packages and outcome information
systems, at a mutually agreed upon price.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
[signatures on following page]
[remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Management Agreement as
of the date first set forth above.
Witness: CAREMATRIX OF MASSACHUSETTS, INC.
By: /s/ Elizabeth Derrico By: /s/ David B.Currie
Name: Name: David B. Currie
Title: Vice President
WITNESS: CHANCELLOR OF PLANTATION, INC.
By: /s/ Elizabeth Derrico By: /s/ David B. Currie
Name: Name: David B. Currie
Title: Vice President
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Exhibit 10.03
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
This AMENDED AND RESTATED MANAGEMENT AGREEMENT (this "Agreement") is dated
as of the 1st day of April, 1999, by and between CareMatrix of Massachusetts,
Inc., a Delaware corporation, with its principal place of business at 197 First
Avenue, Needham, Massachusetts 02494 (the "Manager"), and Chancellor of
Deerfield Beach, Inc., or its designee or assignee, with its principal place of
business at 197 First Avenue, Needham, Massachusetts 02494 (the "Owner"), and
amends and restates that certain Management Agreement dated as of March 19, 1997
between the Manager and the Owner, as the same may have been previously amended
to date.
WHEREAS, the Owner is the operator of a 148 unit senior housing facility
located in Deerfield Beach, Florida (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company to
provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Manager has represented that it is experienced in the
management of similar facilities, is knowledgeable as to the state and federal
requirements governing the operation of senior housing facilities and that the
owners and employees of Manager are qualified management professionals;
WHEREAS, based upon the Manager's representations set forth herein, the
Owner has determined that the hiring of the Manager is cost-effective and
consistent with the Owner's desire to provide quality care to the residents at
the Facility at the lowest cost;
WHEREAS, the Owner has determined that the services provided by Manager
will augment the services provided by it and the employees of the Facility so as
to increase productivity;
WHEREAS, the Owner has determined that the hiring of the Manager on the
terms and conditions hereinafter set forth will not prevent the Owner from
exercising ultimate control over the policies and operations of the Facility;
and
WHEREAS, the Manager is willing to manage the day-to-day operations of the
Facility on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. GENERAL DUTIES. The Owner engages the Manager to manage and supervise
the Facility with the objective of providing quality care and services to
residents of the Facility and to carry out the general duties with respect to
the Facility under the general supervision and direction of the Owner which
include, but are not limited to, the following:
Supervise on behalf of the Owner, the performance of all such
administrative functions as may be necessary in the management of the Facility;
select, hire (or contract with), train, supervise, monitor the performance of,
and discipline, promote, terminate or fire (subject to the rights of the Owner
under Section 2.1 of this Agreement to approve the hiring, disciplining and
termination of the Executive Director, the Assistant Administrator and Director
of Resident
<PAGE>
Services) all personnel involved in the administration and day-to-day operation
of the Facility, including, without limitation, management, resident assistance
and other related personnel, custodial, food service, cleaning, maintenance and
other operational personnel, and secretarial or bookkeeping personnel; supervise
the accounting, billing, purchasing and bill payment functions for the Facility;
establish systems of accounts and supervise the maintenance of ledgers and other
primary accounting records by the personnel of the Facility; supervise the
financial affairs of the Facility; establish and supervise the implementation of
operating and capital budgets, including those required to establish
reimbursement rates, if any, with respect to state or federal entitlement
programs as well as self-pay rates; prepare and maintain true, complete and
accurate records necessary for the preparation of such operating budgets;
determine which items of cost and expense properly relate to resident care;
establish and administer financial controls over the operation of the Facility,
develop and establish financial standards and norms by which the income, costs
and operations of the Facility may be evaluated; serve as advisor and consultant
in connection with policy decisions to be made by the Owner; furnish reports to
the Owner as the Owner may reasonably request and provide the Owner with
economic and statistical data in connection with or relative to the operations
of the Facility; represent the Facility in its day-to-day dealings with
creditors, residents, personnel, agents for collection, and insurers; act as
agent for the Owner in disbursing or collecting the funds of the Facility and in
paying the debts and fulfilling the obligations of the Facility; coordinate and
supervise a marketing plan for the Facility to insure that the Facility obtains
full occupancy as soon as possible and, after the Facility has achieved full
occupancy, assist in the development of an annual marketing plan and budget to
maintain the resident census at a proper level; and do all other things
necessary or proper for the daily operation and management of the Facility,
including everything necessary to ensure compliance with all applicable local,
state and federal laws governing or applicable to senior housing facilities. In
addition, in order to plan for future operations and to establish long range
policies and goals for the Facility, the Manager will, under the general
supervision of the Owner, meet on at least a monthly basis with Owner's
representatives and the Executive Director to review financial and operational
statistics of the Facility. The Executive Director also will attend monthly
regional administrator meetings and educational programs.
The Manager further agrees that it will:
(a) perform its duties and responsibilities hereunder in compliance with
all applicable laws;
(b) supervise and direct the management and operation of the Facility,
exercising the degree of care used by an experienced management company, given
the financial resources available to the Facility, the location of the Facility,
the restrictions of applicable laws, and other existing circumstances; and
(c) consult with the Owner and keep the Owner advised as to all major
policy and business matters relating to the Facility.
2. SPECIFIC DUTIES. Without limiting the generality of the foregoing, the
Manager shall have the following specific duties:
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2.1 EMPLOYEES. The Manager shall recruit, evaluate, select, and
hire a qualified and properly licensed Executive Director who shall be
responsible for the functional operation of the Facility and supervision of
personnel at the Facility on a day-to-day basis, as well as all resident
assistance, custodial, food service, cleaning, maintenance, secretarial and
bookkeeping personnel for the day-to-day operations of the Facility. The
Executive Director shall be the employee of the Manager. Prior to the Conversion
Date (hereinafter defined) all personnel other than the Executive Director shall
be employees of the Owner, and the Owner shall retain full responsibility for
payment of wages, salaries and other compensation and benefits for the Executive
Director and such other personnel. Effective as of the Conversion Date, all such
personnel, as well as the Executive Director, shall be employees of the Manager,
and the Manager shall have full responsibility for payment of wages, salaries
and other compensation and benefits of the Executive Director and such other
personnel. The Manager shall, subject to approval by the Owner, establish
necessary and desirable personnel policies and procedures, wage structures and
staff schedules. The Manager, subject to approval by Owner, shall have authority
to hire, discipline, promote and discharge employees of the Owner who
participate in the day-to-day operation and administration of the Facility. Both
the Manager and the Owner must approve the hiring and/or firing of the Executive
Director, Assistant Administrator and the Director of Resident Services, which
approval shall not be unreasonably withheld or delayed. The Manager shall: (a)
maintain or cause to be maintained payroll records and prepare weekly and
monthly payrolls, withholding taxes and Social Security taxes; (b) prepare and
submit all required state and federal tax or benefit returns required with
respect to employees, including, without limitation, the returns required by
FICA, FUTA and all applicable unemployment compensation laws; (c) maintain in
force all required levels of workers' compensation insurance; and (d) prepare
and submit to the Owner any certificates of payroll expenses as may be
reasonably requested. Prior to the Conversion Date, the Manager shall not be
liable to any employee of the Facility for wages, salaries and other
compensation and benefits, or to the Owner, unless the Manager was specifically
required to obtain the approval of the Owner before committing to a salary or
benefit and such approval was not obtained. The Manager shall not be liable to
the Owner or others for any action or omission on the part of any employee of
the Owner of the Facility, unless the employee was acting under the express
direction of the Manager or unless such employee was following an express policy
or procedure of the Manager and such direction, policy or procedure is
subsequently determined to be the result of gross negligence. The Manager shall
provide the Owner with quarterly reports of all hiring, disciplinary actions,
promotions and firings at the Facility for the month.
2.2 PURCHASING. The Manager shall purchase, for the account of the
Owner, all necessary foodstuffs, supplies, materials, appliances, tools and
equipment necessary for the operation of the Facility. The Manager shall arrange
contracts on behalf of the Owner for electricity, gas, telephone, cable
television and any other utility or service necessary for the operation of the
Facility. The Manager shall, on behalf of the Owner, contract for and supervise
the making of any necessary repairs, alterations, and improvements to the
Facility; provided that in the case of any capital expenditure, alteration or
improvement, the cost of which exceeds Ten Thousand ($10,000) Dollars, the
Manager shall obtain the prior written approval of the Owner; and provided
further, that no such prior written approval shall be required if the
expenditure is made under circumstances reasonably requiring emergency action
(so long as the Manager attempts to notify the Owner on a concurrent basis). The
Manager shall prepare and submit to
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the Owner any certificates of purchasing expenses incurred for the Facility as
may be reasonably requested.
2.3 COLLECTION OF ACCOUNTS. The Manager shall supervise the
Facility bookkeeping personnel who shall prepare and submit bills and collect
for the account of the Owner any and all moneys owing to the Owner from
residents.
2.4 BOOKKEEPING. The Manager shall establish and maintain a record
and bookkeeping system for the operation and conduct of business of the Facility
in accordance with generally accepted accounting principles consistently
applied. Books and records at the Facility may be maintained by an employee of
the Owner under the supervision of the Manager. Full books of account with
entries of all receipts and expenditures related to the operation of the
Facility shall be maintained at the offices of the Manager and shall at all
times during normal business hours be open for inspection by representatives of
the Owner.
2.5 FINANCIAL REPORTS. The Manager shall furnish to the Owner the
following financial reports:
(a) as soon as possible and not later than 30 days after the close
of each calendar month, a balance sheet as of the end of the month and a
statement of income and retained earnings for the month and for the
year-to-date, together with a comparison to the budget and a detailed statement
of receipts, disbursements, accounts payable and accounts receivable as of the
end of such monthly period; provided, however, that the computer services
charges connected with the preparation of such information shall not be an
expense of the Owner;
(b) as soon as possible, and not later than 60 days after the
close of each fiscal year, a year-end compilation report, including a balance
sheet as of the end of such year and a statement of income and retained
earnings; and
(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set forth in
any financing agreements executed in connection with any Facility Financing
(hereinafter defined) (any such financing agreement or agreements are
collectively referred to herein as a "Financing Agreement").
2.6 RESIDENTS. In accordance with the provisions of all applicable
state and federal statutes, as amended from time to time, the Manager shall use
its best efforts to maintain the resident census at the Facility in such numbers
and in such a manner as, in the Manager's judgment, will tend to maintain the
financial stability of the Facility and will comply with the covenants in any
Financing Agreement.
2.7 BUDGETS. The Manager shall prepare and submit for approval by
the Owner the following: (a) as soon as possible and not later than 30 days
before the close of each fiscal year, or on such earlier date as may be required
under any Financing Agreement, a detailed written capital and operating budget
for the next succeeding fiscal year, broken down by month and showing projected
expenditures and projected revenues for such budget period; and (b) such other
budgets as may be reasonably required of the Owner under any Financing Agreement
or by regulatory authorities showing, inter alia, projected ordinary and
extraordinary expenditures and protected revenues for such budget period.
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2.8 INSURANCE. The Manager shall obtain, at the Owner's expense,
on behalf of the Owner and with the Owner's prior approval, all necessary
liability, fire and extended coverage, workers' compensation, and malpractice
insurance covering the Facility, its equipment, the employees of the Owner, and
the employees of Manager, if any, who relate to the operations of the Facility,
which policies of insurance shall name the Owner and the Manager as coinsured
and which policies shall comply with the terms of any Financing Agreement. The
Owner shall bear the expense of the above with respect to the Owner's employees,
equipment and the Facility. The Manager shall bear the expense of the above with
respect to the Manager's employees, if any. Such insurance shall be written by a
responsible insurance company or companies reasonably satisfactory to the Owner
in kinds and amounts and a certificate of insurance shall by provided to the
Owner. The Owner shall retain the right to designate any insurance agent or
agency of its choice through which such insurance shall be obtained.
2.9 TECHNICAL AND PROFESSIONAL SERVICES. The Manager may, with the
prior approval of the Owner and at the Owner's expense, secure such engineering,
legal, and other specialized technical and professional services as may be
necessary to advise or represent the Owner in connection with any matter
involving or arising out of the ownership and operation of the Facility or the
conduct of affairs of the Facility.
2.10 MARKETING. The Manager shall agree to coordinate and
supervise the agreed upon marketing plan for the Facility during the fill-up
phase (the "Marketing Plan"). Monthly statistical census analysis reports will
be generated by the Manager and delivered to the Owner. The Manager will
recommend adjustments in the Marketing Plan as needed to achieve full occupancy.
For purposes of this Agreement, the Facility will be considered to have achieved
full occupancy when ninety percent (90%) of its units have been occupied for a
continuous 90 day period. The Manager will assist the management staff in the
continued development and coordination of advertising and promotional materials,
internal and external public relations programs, sales and staff development
programs, and customer satisfaction programs. The Manager shall assist the
Facility's management staff to develop a yearly Marketing Plan and budget based
upon the Facility's yearly census program and image.
2.11 ADMINISTRATIVE. The Manager shall recommend the establishment
of, and implement and supervise procedures to provide staff review of all
operational areas, which status shall be reviewed in regularly scheduled
quarterly meetings and at other meetings as may be deemed necessary or desirable
by the Owner.
2.12 PLANT AND MAINTENANCE.
(a) attention shall be given to preventive maintenance
(this item may be provided by outside parties if economically feasible) and, to
the extent deemed feasible by the Manager and the Owner, the services of regular
Facility maintenance employees shall be used; and
(b) the Manager shall make recommendations to the Owner
regarding entering into contracts with qualified independent contractors for the
maintenance and repair of air conditioning systems and laundry equipment and for
extraordinary repairs beyond the capability of regular Facility maintenance
employees.
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3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the Manager
shall pay itself, at its principal office as set forth above (or at such other
place as the Manager may from time to time designate in writing), and at the
times hereinafter specified, a monthly base management fee (the "Base Management
Fee") (i) for the period commencing on the beginning of the Term and continuing
until the date (the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate of
occupancy permitting operation of the Facility for its intended purpose, or (y)
such date as is designated by the Manager in its sole discretion, equal to the
greater of (I) Ten Thousand Dollars ($10,000) Dollars per month, or (II) ten
percent (10%) of Net Revenues (as hereinafter defined), and (i) for the period
commencing on the Conversion Date and continuing through the remainder of the
Term, equal to the sum of (x) all Facility Expenses (hereinafter defined), and
(y) the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II) ten
percent (10%) of Net Revenues. In addition to the Base Management Fee, as
additional compensation for the services to be rendered by the Manager during
the Term, the Manager shall pay itself, at its principal office as set forth
above (or at such other place as the Manager may from time to time designate in
writing), and at the times hereinafter specified, a monthly incentive management
fee (the "Incentive Management Fee") equal to eighty five percent (85%) of Net
Cash Flow (as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month in which
services were rendered. The Manager hereby acknowledges and agrees that any and
all Management Fees due hereunder shall be subordinate to any Facility
Financing, as well as to any preferred returns to equity investors of the Owner.
The Owner hereby represents and warrants that as of the date hereof, there
exists no Facility Financing except that certain $18,083,680 mortgage loan by
Meditrust Mortgage Investments, Inc. and that there are no preferred returns
payable to equity investors of the Owner. The Owner hereby covenants and agrees
with the Manager that at no time during the Term of this Agreement shall (i) the
total Facility Financing exceed the sum of (x) all costs incurred by the Owner
in connection with the acquisition, development, construction and fill-up of the
Facility, plus (y) all costs incurred by the Owner in connection with any
capital improvements to the Facility, and (ii) the preferred returns payable to
equity investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues (defined below)
less contractual adjustments for uncollectible accounts.
"Gross Revenues" as used herein shall mean and include all revenues
received or receivable from or by reason of the operation of the Facility,
including, without limitation, all revenue of the Facility for or on account of
any and all goods provided and services rendered or activities during the period
from the date of this Agreement and thereafter, the gross dollar amount of all
such billings by the Facility to or on behalf of residents directly or
indirectly connected with the Facility or the provision of all such goods and
services.
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"Facility Expenses" as used herein shall mean and include all personnel and
other expenses incurred in connection with the operation of the Facility,
including, without limitation, all expenses described in Section 4 below, but
specifically excluding any Management Fees and all Facility Financing.
"Net Cash Flow" as used herein shall mean the excess of (i) all Net
Revenue, over (ii) the sum of (x) all Facility Expenses, (y) all Base Management
Fees, and (z) all Facility Financing.
4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and properties of the
Facility:
(a) Salary and expenses (including, without limitation,
payroll taxes, costs of employee benefit plans, travel, insurance, and fidelity
bonds) of all personnel employed by the Manager (other than the Executive
Director, who will be paid by the Owner as set forth in Section 4.2 hereof) to
carry out all responsibilities detailed above.
(b) Salary and expenses (including, without limitation,
payroll taxes, cost of employee benefit plans, travel, insurance and fidelity
bonds) of all of the Manager's home office personnel and overhead.
(c) From and after the Conversion Date, all expenses
described in Section 4.2 below, but specifically excluding any Management Fees
and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided in this
Agreement, the Owner shall bear all of the expenses of operating and financing
the Facility and rendering resident services not expressly assumed by the
Manager, including, without limitation the following:
(a) Fees and expenses of independent professional persons
expressly retained by the Owner, or retained by the Manager for the account of
the Owner with the prior permission of the Owner, for any purpose; salary, other
compensation or benefits and expenses of all staff employed at the Facility by
the Owner, including, without limitation, all administrative, medical, resident
assistance and other health care personnel and the Executive Director;
custodial, food service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations of the
Facility and to perform health care and related services in the day-to-day
operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition, development,
construction, and fill-up of Facility ("Facility Financing").
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(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner, provided,
however, that all interest and penalties incurred as a result of the Manager's
failure to timely file all returns which the Manager is required to file
pursuant to this Agreement, or to make timely payment of all taxes, levies,
imposts, or other charges, to the extent that sufficient funds were available to
the Manager as of the date such payments were due, shall be the responsibility
of the Manager.
(d) Medical supplies and equipment, food, fuel, kitchen
and food service equipment, linens, beds, furniture, clothing and all other
supplies and equipment used in supplying services to residents.
(e) Expenses connected directly or indirectly with the
design, acquisition, disposition or ownership of real and personal property
devoted, used, or consumed in the business of the Facility, including, without
limitation, purchase and/or construction of the land and buildings used for such
purpose, maintenance, repair and improvement of property, all real estate and
personal property taxes assessed, premiums for property and liability insurance
on property owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is a party.
However, such fees shall not include those fees resulting from or arising out of
the gross negligence by the Manager and the Owner shall provide such necessary
funds to the Manager within 10 days after receipt of such notice.
In the event that there are insufficient funds available to the Manager to pay
expenses which the Manager is authorized to incur and pay hereunder, including,
without limitation, any taxes to be paid on behalf of the Owner by the Manager,
the Manager shall promptly notify the Owner of the amount necessary to cure and
the reason for such deficit and the Owner shall provide such necessary funds to
the Manager within 10 days after receipt of such notice.
4.3 DEPOSIT AND DISBURSEMENT OF FUNDS.
(a) The Manager shall establish and administer the overall
rate structure of the Facility and shall supervise the issuance of bills and the
collection of accounts as the true and lawful attorney-in-fact for the Owner.
The Manager shall take possession of and endorse the name of the Owner on all
notes, checks, money orders, insurance payments, and any other instruments
received in payment of accounts described below.
(b) The Manager shall establish such accounts for the
Facility in the Owner's name, separate from all other accounts and funds of the
Manager, with a bank or banks whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") or with a savings and loan institution or
institutions whose deposits are insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") as it deems necessary or desirable. The Manager,
on behalf of the Owner, shall use reasonable efforts to collect (using legal
counsel approved by the Owner, if necessary) all sums due and owing to Owner in
connection with the operation of the Facility.
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The Manager and the Owner shall deposit into such accounts all monies furnished
by the Owner as working funds and all receipts and monies arising from the
operation of the Facility or otherwise received by the Owner or by the Manager
for or on the behalf of the Owner.
(c) Draws on such accounts may be made by the sole
signature of an authorized representative of the Manager (or by wiring
instructions from such authorized representative of the Manager) and shall be
paid to the Manager to reimburse the Manager for payments made pursuant to this
Agreement by the Manager from its own accounts. The Owner hereby appoints the
Manager, for the term of this Agreement, as the Owner's true and lawful
attorney-in-fact to withdraw, by writing checks against such accounts, funds for
reimbursement of all amounts payable pursuant to this Agreement in connection
with the operation of the Facility. The Owner agrees to execute from time to
time any additional documents required by any bank wherein such documents are
held to effectuate all powers of attorney referred to herein. The Manager shall
make disbursements and payments from such accounts, on behalf and in the name of
the Owner, in such amounts and at such times as are deemed by the Manager to be
appropriate or required in connection with, first, payments required by any
Financing Agreement, and second, payments of ownership, maintenance and
operating expenses of the Facility and the other costs, expenses and
expenditures provided for in this Agreement including the Management Fee.
5. DUTY OF MANAGER. The Manager shall render the services called for
hereunder in the utmost good faith and the Manager acknowledges that it is
acting in a fiduciary capacity with respect to the Owner and owes the Owner the
highest duty of care.
6. RELATIONSHIP OF THE PARTIES. The Owner and the Manager are neither
partners nor joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose on any
of them any liability as partners or joint venturers. All dealings between the
Owner and the Manager are at arms length as between non-related parties.
7. TERM AND TERMINATION.
7.1 TERM. (a) This Agreement shall continue for a term (as the
same may be extended, the "Term") commencing on the date which is 12 months
prior to the anticipated date (as mutually agreed to by the Owner and the
Manager) for the opening of the Facility and continuing for a period of 15 years
after the date on which the Facility receives its certificate of occupancy
permitting the operation of the Facility for its intended use. The Owner and
Manager agree to execute a certificate setting forth the date on which the Term
commences promptly after such opening.
(b) On the conditions that (i) the Manager is not
in default of its obligations hereunder beyond any applicable notice, cure or
grace period at the time of exercise, and (ii) the Facility has had positive
cash flow for each of the three years prior to the commencement of the Extension
Exercise Period (hereinafter defined), the Manager shall have the option (each,
an "Extension Option") to extend the Term for three additional periods of five
years each on the same terms and conditions as set forth in this Agreement. Each
Extension Option shall be exercised in writing by the Manager to the Owner
during the six month period (the "Extension Exercise Period") commencing on the
first day of the then last year of the Term.
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7.2 TERMINATION FOR CAUSE. Either party may terminate this
Agreement by delivering 30 days written notice (a "Termination Notice") to the
other party in the event that any of the following occurs:
(a) any illegal act engaged in by any party in the
operation of the Facility;
(b) if any party files or has a petition or complaint in
receivership or bankruptcy filed against it which has not been dismissed within
90 days of such filing; or
(c) the breach by any party (the "Breaching Party") of any
other material provision in, or obligation imposed by, this Agreement which
violation shall have not been cured to the reasonable satisfaction of the other
party (the "Claiming Party") within 30 days following the date on which the
Claiming Party delivers notice to the Breaching Party describing with
specificity both the claimed breach and the actions required to be taken in
order to cure the claimed breach; PROVIDED that in the event that the claimed
breach is not reasonably susceptible of being cured within 30 days, the cure
period shall be extended for such additional time as may be reasonably required,
PROVIDED FURTHER that in the event that the Claiming Party delivers a
Termination Notice and the Breaching Party commences legal proceedings
contesting the termination within 30 days following delivery of the Termination
Notice, then this Agreement shall not terminate unless and until a final
judicial resolution of such legal proceedings beyond the expiration of any
appeal period has been issued upholding said termination.
7.3 TERMINATION FOR FAILURE TO PAY FEE ON A TIMELY BASIS. In
addition to the provisions of Section 7.2 above, the Manager may terminate this
Agreement upon thirty (30) days written notice of the Owner's failure to pay the
Management Fee when due unless the Owner cures the payment default within 10
days after receiving written notice from the Manager.
7.4 TERMINATION DUE TO CHANGE IN CONTROL. For so long as the
Owner, or the principals of the Owner, own or control, directly or indirectly,
at least twenty percent (20%) of the outstanding voting stock of the Manager (or
its controlling parent entity), the Owner shall have the right to terminate this
Agreement upon 30 days prior written notice to the Manager in the event of a
"Change in Control" of the Manager (or its controlling parent entity). For
purposes of this provisions, "Change in Control" shall mean, whether through a
single transaction or a series of transactions: (a) the transfer of all or
substantially all of the assets of such entity, (b) the transfer of an equity
interest in such entity after which the acquiror holds more than fifty percent
(50%) of the voting power of all equity interests in such entity, or (c) the
merger, consolidation, or other reorganization of such entity with or into
another entity which results in a change of more that fifty percent (50%) of the
composition of the governing body of such entity.
8. INDEMNIFICATION. The Owner shall indemnify the Manager and hold it
harmless of, for, and against all costs, claims, damages or expenses, including
reasonable attorney's fees (collectively "Costs"), incurred or suffered by the
Manager and arising out of acts performed within the scope of this Agreement.
Notwithstanding the foregoing, the Owner shall not have any obligation to
indemnify the Manager or hold it harmless of, from, and against Costs incurred
or suffered by the Manager as a result of the Manager's fraud, willful
misconduct, or gross negligence, or for Costs incurred or suffered by the
Manager as a result of the Manager's failure
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to keep true, accurate and complete records. The Manager shall indemnify the
Owner and hold it harmless of, from and against all Costs incurred or suffered
by the Owner as a result of any of the Manager's fraud, willful misconduct, or
gross negligence, or as a result of the Manager's failure to submit proper
reports to the appropriate regulatory agencies or to keep true, accurate and
complete records.
9. ACCESS TO BOOKS AND RECORDS. As a subcontractor that may be subject to
Section 1861(v) (1) (i) of the Social Security Act (the "Act"), the Manager
shall, upon written request and in accordance with the above-mentioned section
of the Act and regulations promulgated pursuant thereto, make available to the
Comptroller General, the Secretary of Health and Human Services, and their duly
authorized representatives, a copy of this Agreement and access to the Manager's
books, documents, and records necessary to verify the nature and extent of the
costs of services provided to the Owner. Such access will be available until the
expiration of four years after the services to which the costs are related have
been furnished.
The provisions of this Section shall apply only if this Agreement is
covered by the Act and such provisions shall become void and shall be of no
further force or effect if, at the time a request is made, this Agreement is not
subject to the Act. The Manager agrees that if it carries out any of the duties
of this Agreement through a subcontract with a related organization which
subcontract has a value or cost of $10,000 or more over a 12 month period, the
Manager will obtain an identical access requirement in such subcontract.
10. FIDELITY BOND. The Manager agrees to obtain a fidelity bond, employee
dishonesty insurance policy or other similar coverage, in form and amount
satisfactory to the Owner, covering those employees reasonably required to by
covered by the Owner.
11. AMENDMENTS. This Agreement shall not be changed modified, terminated,
or discharged, in whole or in part, except by an instrument in writing signed by
the Owner and the Manager, their respective successors or assigns, or otherwise
as provided herein. Such modifications shall be in writing and signed by the
Owner and the Manager.
12. GOVERNING LAW. The provisions of this Agreement shall be governed by,
construed, and interpreted in accordance with the laws of the Commonwealth of
Massachusetts. Any change in any applicable law which has the effect of
rendering any part of this Agreement invalid, illegal, or unenforceable shall
not render the remainder of this Agreement invalid, illegal, or unenforceable,
and the parties hereto agree that in the event that any part of this Agreement
is rendered invalid, illegal, or unenforceable, that they shall negotiate in
good faith to amend any such part of this Agreement so as to comply with any
such law, as amended, and further the respective objectives of the parties
hereto.
13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager will assign
its interests in this Agreement, without the prior written consent of the other;
provided that (a) the Manager may assign (i) its interests hereunder to an
affiliate, and (ii) its Management Fees to a lender as security for any
financing arrangement of Manager, and (b) the Owner may assign its interests
hereunder to a lender as security with respect to any Financing Agreement.
Subject to the foreoging, this Agreement shall be binding upon and inure to the
benefit of the parties and to their respective successors and assigns.
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14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the fee title
holder to the Facility, or the land on which the Facility is located, the
Manager shall have the right to assume from the Owner any option to purchase,
right of first offer or right of first refusal which the Owner may hold with
respect to the Facility or the land on which the Facility is located.
15. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
16. NOTICES. Any notice, demand, consent, or other written instrument to be
given or received under this Agreement ("Notice") required or permitted to be
given shall be in writing signed by the party giving such Notice and/or consent
and shall be hand delivered, sent by nationally recognized overnight carrier or
sent, postage prepaid, by Certified or Registered Mail, Return Receipt
Requested, to the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Masschusetts 02494
Attention: General Counsel
As to Owner: Chancellor of Bonita Springs, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: President
Any party shall have the right to change the place to which such notice shall be
sent or delivered by similar notice sent in like manner to all other parties
hereto. All notices sent by certified mail or are hand delivered shall be deemed
received upon delivery or when delivery is refused to the office or address of
the addressee.
17. PROPERTY: Trade names, marketing material, marketing ideas and
development material and records developed specifically for and related to this
Facility shall be the property of the Owner. Trade names, ideas and documents,
forms and development material not developed specifically for this Facility are
to be considered proprietary and will remain the property of the Manager. All
operational forms and documents including, but not limited to, policy and
procedure manuals, operational forms, level of care determination systems,
management policy books, inspection control manuals, and nursing management
books are and will remain the property of the Manager. All financial management
forms, documents and software systems including, but not limited to, bookkeeping
manuals, financial forms, financial spreadsheets, database or word processing
forms, financial accounting packages and outcome information systems are and
will remain the property of the Manager. Upon termination of this Agreement, the
Owner shall have the option to purchase operational material belonging to the
Manager,
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except for the financial accounting packages and outcome information systems, at
a mutually agreed upon price.
18. LEASE OPTION. The Owner hereby agrees that so long as the Manager is
not in default in the performance of any duty or any obligation hereunder, the
Manager shall have the option to lease the Facility at any time during the term
of this Agreement (including any extension thereof) by providing the Owner with
at least ninety (90) days prior written notice of such election. Within thirty
(30) days after the receipt of the Manager's notice to lease, the parties shall
enter into a lease agreement substantially in the form attached hereto as
EXHIBIT A (the "Lease"), which Lease shall include, without limitation, a ten
(10) year initial term (with three (3) 5-year renewal terms) and rental payments
equal to the fair market value (which will be a negotiated percentage of total
project costs) as determined immediately prior to the initial term of the Lease
and immediately prior to any renewal terms.
19. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
[signatures on following page]
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IN WITNESS WHEREOF, the parties have executed this Management Agreement as
of the date first set forth above.
Witness: CAREMATRIX OF MASSACHUSETTS, INC.
By: By: /s/ Paul Zaylor
-----------------------------
Name: Name: Paul Zaylor
Title: Vice President
WITNESS: CHANCELLOR OF DEERFIELD BEACH, INC.
By: By: /s/ David B. Currie
-----------------------------
Name: Name: David B. Currie
Title: Vice President
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Exhibit 10.04
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
This AMENDED AND RESTATED MANAGEMENT AGREEMENT (this "Agreement") is dated
as of the 1st day of April, 1999, by and between CareMatrix of Massachusetts,
Inc., a Delaware corporation, with its principal place of business at 197 First
Avenue, Needham, Massachusetts 02494 (the "Manager"), and Chancellor of Naples,
Inc., or its designee or assignee, with its principal place of business at 197
First Avenue, Needham, Massachusetts 02494 (the "Owner"), and amends and
restates that certain Management Agreement dated as of September 26, 1997
between the Manager and the Owner, as the same may have been previously amended
to date.
WHEREAS, the Owner is the operator of a 148 unit senior housing facility
located in Naples, Florida (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company to
provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Manager has represented that it is experienced in the
management of similar facilities, is knowledgeable as to the state and federal
requirements governing the operation of senior housing facilities and that the
owners and employees of Manager are qualified management professionals;
WHEREAS, based upon the Manager's representations set forth herein, the
Owner has determined that the hiring of the Manager is cost-effective and
consistent with the Owner's desire to provide quality care to the residents at
the Facility at the lowest cost;
WHEREAS, the Owner has determined that the services provided by Manager
will augment the services provided by it and the employees of the Facility so as
to increase productivity;
WHEREAS, the Owner has determined that the hiring of the Manager on the
terms and conditions hereinafter set forth will not prevent the Owner from
exercising ultimate control over the policies and operations of the Facility;
and
WHEREAS, the Manager is willing to manage the day-to-day operations of the
Facility on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. GENERAL DUTIES. The Owner engages the Manager to manage and supervise
the Facility with the objective of providing quality care and services to
residents of the Facility and to carry out the general duties with respect to
the Facility under the general supervision and direction of the Owner which
include, but are not limited to, the following:
Supervise on behalf of the Owner, the performance of all such
administrative functions as may be necessary in the management of the Facility;
select, hire (or contract with), train, supervise, monitor the performance of,
and discipline, promote, terminate or fire (subject to the rights of the Owner
under Section 2.1 of this Agreement to approve the hiring, disciplining and
termination of the Executive Director, the Assistant Administrator and Director
of Resident
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Services) all personnel involved in the administration and day-to-day operation
of the Facility, including, without limitation, management, resident assistance
and other related personnel, custodial, food service, cleaning, maintenance and
other operational personnel, and secretarial or bookkeeping personnel; supervise
the accounting, billing, purchasing and bill payment functions for the Facility;
establish systems of accounts and supervise the maintenance of ledgers and other
primary accounting records by the personnel of the Facility; supervise the
financial affairs of the Facility; establish and supervise the implementation of
operating and capital budgets, including those required to establish
reimbursement rates, if any, with respect to state or federal entitlement
programs as well as self-pay rates; prepare and maintain true, complete and
accurate records necessary for the preparation of such operating budgets;
determine which items of cost and expense properly relate to resident care;
establish and administer financial controls over the operation of the Facility,
develop and establish financial standards and norms by which the income, costs
and operations of the Facility may be evaluated; serve as advisor and consultant
in connection with policy decisions to be made by the Owner; furnish reports to
the Owner as the Owner may reasonably request and provide the Owner with
economic and statistical data in connection with or relative to the operations
of the Facility; represent the Facility in its day-to-day dealings with
creditors, residents, personnel, agents for collection, and insurers; act as
agent for the Owner in disbursing or collecting the funds of the Facility and in
paying the debts and fulfilling the obligations of the Facility; coordinate and
supervise a marketing plan for the Facility to insure that the Facility obtains
full occupancy as soon as possible and, after the Facility has achieved full
occupancy, assist in the development of an annual marketing plan and budget to
maintain the resident census at a proper level; and do all other things
necessary or proper for the daily operation and management of the Facility,
including everything necessary to ensure compliance with all applicable local,
state and federal laws governing or applicable to senior housing facilities. In
addition, in order to plan for future operations and to establish long range
policies and goals for the Facility, the Manager will, under the general
supervision of the Owner, meet on at least a monthly basis with Owner's
representatives and the Executive Director to review financial and operational
statistics of the Facility. The Executive Director also will attend monthly
regional administrator meetings and educational programs.
The Manager further agrees that it will:
(a) perform its duties and responsibilities hereunder in compliance with
all applicable laws;
(b) supervise and direct the management and operation of the Facility,
exercising the degree of care used by an experienced management company, given
the financial resources available to the Facility, the location of the Facility,
the restrictions of applicable laws, and other existing circumstances; and
(c) consult with the Owner and keep the Owner advised as to all major
policy and business matters relating to the Facility.
2. SPECIFIC DUTIES. Without limiting the generality of the foregoing, the
Manager shall have the following specific duties:
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2.1 EMPLOYEES. The Manager shall recruit, evaluate, select, and
hire a qualified and properly licensed Executive Director who shall be
responsible for the functional operation of the Facility and supervision of
personnel at the Facility on a day-to-day basis, as well as all resident
assistance, custodial, food service, cleaning, maintenance, secretarial and
bookkeeping personnel for the day-to-day operations of the Facility. The
Executive Director shall be the employee of the Manager. Prior to the Conversion
Date (hereinafter defined) all personnel other than the Executive Director shall
be employees of the Owner, and the Owner shall retain full responsibility for
payment of wages, salaries and other compensation and benefits for the Executive
Director and such other personnel. Effective as of the Conversion Date, all such
personnel, as well as the Executive Director, shall be employees of the Manager,
and the Manager shall have full responsibility for payment of wages, salaries
and other compensation and benefits of the Executive Director and such other
personnel. The Manager shall, subject to approval by the Owner, establish
necessary and desirable personnel policies and procedures, wage structures and
staff schedules. The Manager, subject to approval by Owner, shall have authority
to hire, discipline, promote and discharge employees of the Owner who
participate in the day-to-day operation and administration of the Facility. Both
the Manager and the Owner must approve the hiring and/or firing of the Executive
Director, Assistant Administrator and the Director of Resident Services, which
approval shall not be unreasonably withheld or delayed. The Manager shall: (a)
maintain or cause to be maintained payroll records and prepare weekly and
monthly payrolls, withholding taxes and Social Security taxes; (b) prepare and
submit all required state and federal tax or benefit returns required with
respect to employees, including, without limitation, the returns required by
FICA, FUTA and all applicable unemployment compensation laws; (c) maintain in
force all required levels of workers' compensation insurance; and (d) prepare
and submit to the Owner any certificates of payroll expenses as may be
reasonably requested. Prior to the Conversion Date, the Manager shall not be
liable to any employee of the Facility for wages, salaries and other
compensation and benefits, or to the Owner, unless the Manager was specifically
required to obtain the approval of the Owner before committing to a salary or
benefit and such approval was not obtained. The Manager shall not be liable to
the Owner or others for any action or omission on the part of any employee of
the Owner of the Facility, unless the employee was acting under the express
direction of the Manager or unless such employee was following an express policy
or procedure of the Manager and such direction, policy or procedure is
subsequently determined to be the result of gross negligence. The Manager shall
provide the Owner with quarterly reports of all hiring, disciplinary actions,
promotions and firings at the Facility for the month.
2.2 PURCHASING. The Manager shall purchase, for the account of the
Owner, all necessary foodstuffs, supplies, materials, appliances, tools and
equipment necessary for the operation of the Facility. The Manager shall arrange
contracts on behalf of the Owner for electricity, gas, telephone, cable
television and any other utility or service necessary for the operation of the
Facility. The Manager shall, on behalf of the Owner, contract for and supervise
the making of any necessary repairs, alterations, and improvements to the
Facility; provided that in the case of any capital expenditure, alteration or
improvement, the cost of which exceeds Ten Thousand ($10,000) Dollars, the
Manager shall obtain the prior written approval of the Owner; and provided
further, that no such prior written approval shall be required if the
expenditure is made under circumstances reasonably requiring emergency action
(so long as the Manager attempts to notify the Owner on a concurrent basis). The
Manager shall prepare and submit to
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the Owner any certificates of purchasing expenses incurred for the Facility as
may be reasonably requested.
2.3 COLLECTION OF ACCOUNTS. The Manager shall supervise the
Facility bookkeeping personnel who shall prepare and submit bills and collect
for the account of the Owner any and all moneys owing to the Owner from
residents.
2.4 BOOKKEEPING. The Manager shall establish and maintain a record
and bookkeeping system for the operation and conduct of business of the Facility
in accordance with generally accepted accounting principles consistently
applied. Books and records at the Facility may be maintained by an employee of
the Owner under the supervision of the Manager. Full books of account with
entries of all receipts and expenditures related to the operation of the
Facility shall be maintained at the offices of the Manager and shall at all
times during normal business hours be open for inspection by representatives of
the Owner.
2.5 FINANCIAL REPORTS. The Manager shall furnish to the Owner the
following financial reports:
(a) as soon as possible and not later than 30 days after the close
of each calendar month, a balance sheet as of the end of the month and a
statement of income and retained earnings for the month and for the
year-to-date, together with a comparison to the budget and a detailed statement
of receipts, disbursements, accounts payable and accounts receivable as of the
end of such monthly period; provided, however, that the computer services
charges connected with the preparation of such information shall not be an
expense of the Owner;
(b) as soon as possible, and not later than 60 days after the
close of each fiscal year, a year-end compilation report, including a balance
sheet as of the end of such year and a statement of income and retained
earnings; and
(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set forth in
any financing agreements executed in connection with any Facility Financing
(hereinafter defined) (any such financing agreement or agreements are
collectively referred to herein as a "Financing Agreement").
2.6 RESIDENTS. In accordance with the provisions of all applicable
state and federal statutes, as amended from time to time, the Manager shall use
its best efforts to maintain the resident census at the Facility in such numbers
and in such a manner as, in the Manager's judgment, will tend to maintain the
financial stability of the Facility and will comply with the covenants in any
Financing Agreement.
2.7 BUDGETS. The Manager shall prepare and submit for approval by
the Owner the following: (a) as soon as possible and not later than 30 days
before the close of each fiscal year, or on such earlier date as may be required
under any Financing Agreement, a detailed written capital and operating budget
for the next succeeding fiscal year, broken down by month and showing projected
expenditures and projected revenues for such budget period; and (b) such other
budgets as may be reasonably required of the Owner under any Financing Agreement
or by regulatory authorities showing, inter alia, projected ordinary and
extraordinary expenditures and protected revenues for such budget period.
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2.8 INSURANCE. The Manager shall obtain, at the Owner's expense,
on behalf of the Owner and with the Owner's prior approval, all necessary
liability, fire and extended coverage, workers' compensation, and malpractice
insurance covering the Facility, its equipment, the employees of the Owner, and
the employees of Manager, if any, who relate to the operations of the Facility,
which policies of insurance shall name the Owner and the Manager as coinsured
and which policies shall comply with the terms of any Financing Agreement. The
Owner shall bear the expense of the above with respect to the Owner's employees,
equipment and the Facility. The Manager shall bear the expense of the above with
respect to the Manager's employees, if any. Such insurance shall be written by a
responsible insurance company or companies reasonably satisfactory to the Owner
in kinds and amounts and a certificate of insurance shall by provided to the
Owner. The Owner shall retain the right to designate any insurance agent or
agency of its choice through which such insurance shall be obtained.
2.9 TECHNICAL AND PROFESSIONAL SERVICES. The Manager may, with the
prior approval of the Owner and at the Owner's expense, secure such engineering,
legal, and other specialized technical and professional services as may be
necessary to advise or represent the Owner in connection with any matter
involving or arising out of the ownership and operation of the Facility or the
conduct of affairs of the Facility.
2.10 MARKETING. The Manager shall agree to coordinate and
supervise the agreed upon marketing plan for the Facility during the fill-up
phase (the "Marketing Plan"). Monthly statistical census analysis reports will
be generated by the Manager and delivered to the Owner. The Manager will
recommend adjustments in the Marketing Plan as needed to achieve full occupancy.
For purposes of this Agreement, the Facility will be considered to have achieved
full occupancy when ninety percent (90%) of its units have been occupied for a
continuous 90 day period. The Manager will assist the management staff in the
continued development and coordination of advertising and promotional materials,
internal and external public relations programs, sales and staff development
programs, and customer satisfaction programs. The Manager shall assist the
Facility's management staff to develop a yearly Marketing Plan and budget based
upon the Facility's yearly census program and image.
2.11 ADMINISTRATIVE. The Manager shall recommend the establishment
of, and implement and supervise procedures to provide staff review of all
operational areas, which status shall be reviewed in regularly scheduled
quarterly meetings and at other meetings as may be deemed necessary or desirable
by the Owner.
2.12 PLANT AND MAINTENANCE.
(a) attention shall be given to preventive maintenance
(this item may be provided by outside parties if economically feasible) and, to
the extent deemed feasible by the Manager and the Owner, the services of regular
Facility maintenance employees shall be used; and
(b) the Manager shall make recommendations to the Owner
regarding entering into contracts with qualified independent contractors for the
maintenance and repair of air conditioning systems and laundry equipment and for
extraordinary repairs beyond the capability of regular Facility maintenance
employees.
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3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the Manager
shall pay itself, at its principal office as set forth above (or at such other
place as the Manager may from time to time designate in writing), and at the
times hereinafter specified, a monthly base management fee (the "Base Management
Fee") (i) for the period commencing on the beginning of the Term and continuing
until the date (the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate of
occupancy permitting operation of the Facility for its intended purpose, or (y)
such date as is designated by the Manager in its sole discretion, equal to the
greater of (I) Ten Thousand Dollars ($10,000) Dollars per month, or (II) ten
percent (10%) of Net Revenues (as hereinafter defined), and (i) for the period
commencing on the Conversion Date and continuing through the remainder of the
Term, equal to the sum of (x) all Facility Expenses (hereinafter defined), and
(y) the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II) ten
percent (10%) of Net Revenues. In addition to the Base Management Fee, as
additional compensation for the services to be rendered by the Manager during
the Term, the Manager shall pay itself, at its principal office as set forth
above (or at such other place as the Manager may from time to time designate in
writing), and at the times hereinafter specified, a monthly incentive management
fee (the "Incentive Management Fee") equal to eighty five percent (85%) of Net
Cash Flow (as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month in which
services were rendered. The Manager hereby acknowledges and agrees that any and
all Management Fees due hereunder shall be subordinate to any Facility
Financing, as well as to any preferred returns to equity investors of the Owner.
The Owner hereby represents and warrants that as of the date hereof, there
exists no Facility Financing except that certain $18,499,466 sale-leaseback
financing by HealthCare REIT and that there are no preferred returns payable to
equity investors of the Owner. The Owner hereby covenants and agrees with the
Manager that at no time during the Term of this Agreement shall (i) the total
Facility Financing exceed the sum of (x) all costs incurred by the Owner in
connection with the acquisition, development, construction and fill-up of the
Facility, plus (y) all costs incurred by the Owner in connection with any
capital improvements to the Facility, and (ii) the preferred returns payable to
equity investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues (defined below)
less contractual adjustments for uncollectible accounts.
"Gross Revenues" as used herein shall mean and include all revenues
received or receivable from or by reason of the operation of the Facility,
including, without limitation, all revenue of the Facility for or on account of
any and all goods provided and services rendered or activities during the period
from the date of this Agreement and thereafter, the gross dollar amount of all
such billings by the Facility to or on behalf of residents directly or
indirectly connected with the Facility or the provision of all such goods and
services.
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"Facility Expenses" as used herein shall mean and include all personnel and
other expenses incurred in connection with the operation of the Facility,
including, without limitation, all expenses described in Section 4 below, but
specifically excluding any Management Fees and all Facility Financing.
"Net Cash Flow" as used herein shall mean the excess of (i) all Net
Revenue, over (ii) the sum of (x) all Facility Expenses, (y) all Base Management
Fees, and (z) all Facility Financing.
4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and properties of the
Facility:
(a) Salary and expenses (including, without limitation,
payroll taxes, costs of employee benefit plans, travel, insurance, and fidelity
bonds) of all personnel employed by the Manager (other than the Executive
Director, who will be paid by the Owner as set forth in Section 4.2 hereof) to
carry out all responsibilities detailed above.
(b) Salary and expenses (including, without limitation,
payroll taxes, cost of employee benefit plans, travel, insurance and fidelity
bonds) of all of the Manager's home office personnel and overhead.
(c) From and after the Conversion Date, all expenses
described in Section 4.2 below, but specifically excluding any Management Fees
and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided in this
Agreement, the Owner shall bear all of the expenses of operating and financing
the Facility and rendering resident services not expressly assumed by the
Manager, including, without limitation the following:
(a) Fees and expenses of independent professional persons
expressly retained by the Owner, or retained by the Manager for the account of
the Owner with the prior permission of the Owner, for any purpose; salary, other
compensation or benefits and expenses of all staff employed at the Facility by
the Owner, including, without limitation, all administrative, medical, resident
assistance and other health care personnel and the Executive Director;
custodial, food service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations of the
Facility and to perform health care and related services in the day-to-day
operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition, development,
construction, and fill-up of Facility ("Facility Financing").
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(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner, provided,
however, that all interest and penalties incurred as a result of the Manager's
failure to timely file all returns which the Manager is required to file
pursuant to this Agreement, or to make timely payment of all taxes, levies,
imposts, or other charges, to the extent that sufficient funds were available to
the Manager as of the date such payments were due, shall be the responsibility
of the Manager.
(d) Medical supplies and equipment, food, fuel, kitchen
and food service equipment, linens, beds, furniture, clothing and all other
supplies and equipment used in supplying services to residents.
(e) Expenses connected directly or indirectly with the
design, acquisition, disposition or ownership of real and personal property
devoted, used, or consumed in the business of the Facility, including, without
limitation, purchase and/or construction of the land and buildings used for such
purpose, maintenance, repair and improvement of property, all real estate and
personal property taxes assessed, premiums for property and liability insurance
on property owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is a party.
However, such fees shall not include those fees resulting from or arising out of
the gross negligence by the Manager and the Owner shall provide such necessary
funds to the Manager within 10 days after receipt of such notice.
In the event that there are insufficient funds available to the Manager to pay
expenses which the Manager is authorized to incur and pay hereunder, including,
without limitation, any taxes to be paid on behalf of the Owner by the Manager,
the Manager shall promptly notify the Owner of the amount necessary to cure and
the reason for such deficit and the Owner shall provide such necessary funds to
the Manager within 10 days after receipt of such notice.
4.3 DEPOSIT AND DISBURSEMENT OF FUNDS.
(a) The Manager shall establish and administer the overall
rate structure of the Facility and shall supervise the issuance of bills and the
collection of accounts as the true and lawful attorney-in-fact for the Owner.
The Manager shall take possession of and endorse the name of the Owner on all
notes, checks, money orders, insurance payments, and any other instruments
received in payment of accounts described below.
(b) The Manager shall establish such accounts for the
Facility in the Owner's name, separate from all other accounts and funds of the
Manager, with a bank or banks whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") or with a savings and loan institution or
institutions whose deposits are insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") as it deems necessary or desirable. The Manager,
on behalf of the Owner, shall use reasonable efforts to collect (using legal
counsel approved by the Owner, if necessary) all sums due and owing to Owner in
connection with the operation of the Facility.
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The Manager and the Owner shall deposit into such accounts all monies furnished
by the Owner as working funds and all receipts and monies arising from the
operation of the Facility or otherwise received by the Owner or by the Manager
for or on the behalf of the Owner.
(c) Draws on such accounts may be made by the sole
signature of an authorized representative of the Manager (or by wiring
instructions from such authorized representative of the Manager) and shall be
paid to the Manager to reimburse the Manager for payments made pursuant to this
Agreement by the Manager from its own accounts. The Owner hereby appoints the
Manager, for the term of this Agreement, as the Owner's true and lawful
attorney-in-fact to withdraw, by writing checks against such accounts, funds for
reimbursement of all amounts payable pursuant to this Agreement in connection
with the operation of the Facility. The Owner agrees to execute from time to
time any additional documents required by any bank wherein such documents are
held to effectuate all powers of attorney referred to herein. The Manager shall
make disbursements and payments from such accounts, on behalf and in the name of
the Owner, in such amounts and at such times as are deemed by the Manager to be
appropriate or required in connection with, first, payments required by any
Financing Agreement, and second, payments of ownership, maintenance and
operating expenses of the Facility and the other costs, expenses and
expenditures provided for in this Agreement including the Management Fee.
5. DUTY OF MANAGER. The Manager shall render the services called for
hereunder in the utmost good faith and the Manager acknowledges that it is
acting in a fiduciary capacity with respect to the Owner and owes the Owner the
highest duty of care.
6. RELATIONSHIP OF THE PARTIES. The Owner and the Manager are neither
partners nor joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose on any
of them any liability as partners or joint venturers. All dealings between the
Owner and the Manager are at arms length as between non-related parties.
7. TERM AND TERMINATION.
7.1 TERM. (a) This Agreement shall continue for a term (as the
same may be extended, the "Term") commencing on the date which is 12 months
prior to the anticipated date (as mutually agreed to by the Owner and the
Manager) for the opening of the Facility and continuing for a period of 15 years
after the date on which the Facility receives its certificate of occupancy
permitting the operation of the Facility for its intended use. The Owner and
Manager agree to execute a certificate setting forth the date on which the Term
commences promptly after such opening.
(b) On the conditions that (i) the Manager is not
in default of its obligations hereunder beyond any applicable notice, cure or
grace period at the time of exercise, and (ii) the Facility has had positive
cash flow for each of the three years prior to the commencement of the Extension
Exercise Period (hereinafter defined), the Manager shall have the option (each,
an "Extension Option") to extend the Term for three additional periods of five
years each on the same terms and conditions as set forth in this Agreement. Each
Extension Option shall be exercised in writing by the Manager to the Owner
during the six month period (the "Extension Exercise Period") commencing on the
first day of the then last year of the Term.
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7.2 TERMINATION FOR CAUSE. Either party may terminate this
Agreement by delivering 30 days written notice (a "Termination Notice") to the
other party in the event that any of the following occurs:
(a) any illegal act engaged in by any party in the
operation of the Facility;
(b) if any party files or has a petition or complaint in
receivership or bankruptcy filed against it which has not been dismissed within
90 days of such filing; or
(c) the breach by any party (the "Breaching Party") of any
other material provision in, or obligation imposed by, this Agreement which
violation shall have not been cured to the reasonable satisfaction of the other
party (the "Claiming Party") within 30 days following the date on which the
Claiming Party delivers notice to the Breaching Party describing with
specificity both the claimed breach and the actions required to be taken in
order to cure the claimed breach; PROVIDED that in the event that the claimed
breach is not reasonably susceptible of being cured within 30 days, the cure
period shall be extended for such additional time as may be reasonably required,
PROVIDED FURTHER that in the event that the Claiming Party delivers a
Termination Notice and the Breaching Party commences legal proceedings
contesting the termination within 30 days following delivery of the Termination
Notice, then this Agreement shall not terminate unless and until a final
judicial resolution of such legal proceedings beyond the expiration of any
appeal period has been issued upholding said termination.
7.3 TERMINATION FOR FAILURE TO PAY FEE ON A TIMELY BASIS. In
addition to the provisions of Section 7.2 above, the Manager may terminate this
Agreement upon thirty (30) days written notice of the Owner's failure to pay the
Management Fee when due unless the Owner cures the payment default within 10
days after receiving written notice from the Manager.
7.4 TERMINATION DUE TO CHANGE IN CONTROL. For so long as the
Owner, or the principals of the Owner, own or control, directly or indirectly,
at least twenty percent (20%) of the outstanding voting stock of the Manager (or
its controlling parent entity), the Owner shall have the right to terminate this
Agreement upon 30 days prior written notice to the Manager in the event of a
"Change in Control" of the Manager (or its controlling parent entity). For
purposes of this provisions, "Change in Control" shall mean, whether through a
single transaction or a series of transactions: (a) the transfer of all or
substantially all of the assets of such entity, (b) the transfer of an equity
interest in such entity after which the acquiror holds more than fifty percent
(50%) of the voting power of all equity interests in such entity, or (c) the
merger, consolidation, or other reorganization of such entity with or into
another entity which results in a change of more that fifty percent (50%) of the
composition of the governing body of such entity.
8. INDEMNIFICATION. The Owner shall indemnify the Manager and hold it
harmless of, for, and against all costs, claims, damages or expenses, including
reasonable attorney's fees (collectively "Costs"), incurred or suffered by the
Manager and arising out of acts performed within the scope of this Agreement.
Notwithstanding the foregoing, the Owner shall not have any obligation to
indemnify the Manager or hold it harmless of, from, and against Costs incurred
or suffered by the Manager as a result of the Manager's fraud, willful
misconduct, or gross negligence, or for Costs incurred or suffered by the
Manager as a result of the Manager's failure
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to keep true, accurate and complete records. The Manager shall indemnify the
Owner and hold it harmless of, from and against all Costs incurred or suffered
by the Owner as a result of any of the Manager's fraud, willful misconduct, or
gross negligence, or as a result of the Manager's failure to submit proper
reports to the appropriate regulatory agencies or to keep true, accurate and
complete records.
9. ACCESS TO BOOKS AND RECORDS. As a subcontractor that may be subject to
Section 1861(v) (1) (i) of the Social Security Act (the "Act"), the Manager
shall, upon written request and in accordance with the above-mentioned section
of the Act and regulations promulgated pursuant thereto, make available to the
Comptroller General, the Secretary of Health and Human Services, and their duly
authorized representatives, a copy of this Agreement and access to the Manager's
books, documents, and records necessary to verify the nature and extent of the
costs of services provided to the Owner. Such access will be available until the
expiration of four years after the services to which the costs are related have
been furnished.
The provisions of this Section shall apply only if this Agreement is
covered by the Act and such provisions shall become void and shall be of no
further force or effect if, at the time a request is made, this Agreement is not
subject to the Act. The Manager agrees that if it carries out any of the duties
of this Agreement through a subcontract with a related organization which
subcontract has a value or cost of $10,000 or more over a 12 month period, the
Manager will obtain an identical access requirement in such subcontract.
10. FIDELITY BOND. The Manager agrees to obtain a fidelity bond, employee
dishonesty insurance policy or other similar coverage, in form and amount
satisfactory to the Owner, covering those employees reasonably required to by
covered by the Owner.
11. AMENDMENTS. This Agreement shall not be changed modified, terminated,
or discharged, in whole or in part, except by an instrument in writing signed by
the Owner and the Manager, their respective successors or assigns, or otherwise
as provided herein. Such modifications shall be in writing and signed by the
Owner and the Manager.
12. GOVERNING LAW. The provisions of this Agreement shall be governed by,
construed, and interpreted in accordance with the laws of the Commonwealth of
Massachusetts. Any change in any applicable law which has the effect of
rendering any part of this Agreement invalid, illegal, or unenforceable shall
not render the remainder of this Agreement invalid, illegal, or unenforceable,
and the parties hereto agree that in the event that any part of this Agreement
is rendered invalid, illegal, or unenforceable, that they shall negotiate in
good faith to amend any such part of this Agreement so as to comply with any
such law, as amended, and further the respective objectives of the parties
hereto.
13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager will assign
its interests in this Agreement, without the prior written consent of the other;
provided that (a) the Manager may assign (i) its interests hereunder to an
affiliate, and (ii) its Management Fees to a lender as security for any
financing arrangement of Manager, and (b) the Owner may assign its interests
hereunder to a lender as security with respect to any Financing Agreement.
Subject to the foreoging, this Agreement shall be binding upon and inure to the
benefit of the parties and to their respective successors and assigns.
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14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the fee title
holder to the Facility, or the land on which the Facility is located, the
Manager shall have the right to assume from the Owner any option to purchase,
right of first offer or right of first refusal which the Owner may hold with
respect to the Facility or the land on which the Facility is located.
15. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
16. NOTICES. Any notice, demand, consent, or other written instrument to be
given or received under this Agreement ("Notice") required or permitted to be
given shall be in writing signed by the party giving such Notice and/or consent
and shall be hand delivered, sent by nationally recognized overnight carrier or
sent, postage prepaid, by Certified or Registered Mail, Return Receipt
Requested, to the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Masschusetts 02494
Attention: General Counsel
As to Owner: Chancellor of Bonita Springs, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: President
Any party shall have the right to change the place to which such notice shall be
sent or delivered by similar notice sent in like manner to all other parties
hereto. All notices sent by certified mail or are hand delivered shall be deemed
received upon delivery or when delivery is refused to the office or address of
the addressee.
17. PROPERTY: Trade names, marketing material, marketing ideas and
development material and records developed specifically for and related to this
Facility shall be the property of the Owner. Trade names, ideas and documents,
forms and development material not developed specifically for this Facility are
to be considered proprietary and will remain the property of the Manager. All
operational forms and documents including, but not limited to, policy and
procedure manuals, operational forms, level of care determination systems,
management policy books, inspection control manuals, and nursing management
books are and will remain the property of the Manager. All financial management
forms, documents and software systems including, but not limited to, bookkeeping
manuals, financial forms, financial spreadsheets, database or word processing
forms, financial accounting packages and outcome information systems are and
will remain the property of the Manager. Upon termination of this Agreement, the
Owner shall have the option to purchase operational material belonging to the
Manager,
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except for the financial accounting packages and outcome information systems, at
a mutually agreed upon price.
18. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
[signatures on following page]
[remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Management Agreement as
of the date first set forth above.
Witness: CAREMATRIX OF MASSACHUSETTS, INC.
By: By: /s/ Paul Zaylor
--------------------------------
Name: Name: Paul Zaylor
Title: Vice President
WITNESS: CHANCELLOR OF NAPLES, INC.
By: By: /s/ David B. Currie
--------------------------------
Name: Name: David B. Currie
Title: Vice President
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Exhibit 10.05
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
This AMENDED AND RESTATED MANAGEMENT AGREEMENT (this "Agreement") is dated
as of the 1st day of April, 1999, by and between CareMatrix of Massachusetts,
Inc., a Delaware corporation, with its principal place of business at 197 First
Avenue, Needham, Massachusetts 02494 (the "Manager"), and Chancellor of Bonita
Springs, Inc., or its designee or assignee, with its principal place of business
at 197 First Avenue, Needham, Massachusetts 02494 (the "Owner"), and amends and
restates that certain Management Agreement dated as of April 7, 1997 between the
Manager and the Owner, as the same may have been previously amended to date.
WHEREAS, the Owner is the operator of a 148 unit senior housing facility
located in Bonita Bay, Florida (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company to
provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Manager has represented that it is experienced in the
management of similar facilities, is knowledgeable as to the state and federal
requirements governing the operation of senior housing facilities and that the
owners and employees of Manager are qualified management professionals;
WHEREAS, based upon the Manager's representations set forth herein, the
Owner has determined that the hiring of the Manager is cost-effective and
consistent with the Owner's desire to provide quality care to the residents at
the Facility at the lowest cost;
WHEREAS, the Owner has determined that the services provided by Manager
will augment the services provided by it and the employees of the Facility so as
to increase productivity;
WHEREAS, the Owner has determined that the hiring of the Manager on the
terms and conditions hereinafter set forth will not prevent the Owner from
exercising ultimate control over the policies and operations of the Facility;
and
WHEREAS, the Manager is willing to manage the day-to-day operations of the
Facility on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. GENERAL DUTIES. The Owner engages the Manager to manage and supervise
the Facility with the objective of providing quality care and services to
residents of the Facility and to carry out the general duties with respect to
the Facility under the general supervision and direction of the Owner which
include, but are not limited to, the following:
Supervise on behalf of the Owner, the performance of all such
administrative functions as may be necessary in the management of the Facility;
select, hire (or contract with), train, supervise, monitor the performance of,
and discipline, promote, terminate or fire (subject to the rights of the Owner
under Section 2.1 of this Agreement to approve the hiring, disciplining and
termination of the Executive Director, the Assistant Administrator and Director
of Resident
<PAGE>
Services) all personnel involved in the administration and day-to-day operation
of the Facility, including, without limitation, management, resident assistance
and other related personnel, custodial, food service, cleaning, maintenance and
other operational personnel, and secretarial or bookkeeping personnel; supervise
the accounting, billing, purchasing and bill payment functions for the Facility;
establish systems of accounts and supervise the maintenance of ledgers and other
primary accounting records by the personnel of the Facility; supervise the
financial affairs of the Facility; establish and supervise the implementation of
operating and capital budgets, including those required to establish
reimbursement rates, if any, with respect to state or federal entitlement
programs as well as self-pay rates; prepare and maintain true, complete and
accurate records necessary for the preparation of such operating budgets;
determine which items of cost and expense properly relate to resident care;
establish and administer financial controls over the operation of the Facility,
develop and establish financial standards and norms by which the income, costs
and operations of the Facility may be evaluated; serve as advisor and consultant
in connection with policy decisions to be made by the Owner; furnish reports to
the Owner as the Owner may reasonably request and provide the Owner with
economic and statistical data in connection with or relative to the operations
of the Facility; represent the Facility in its day-to-day dealings with
creditors, residents, personnel, agents for collection, and insurers; act as
agent for the Owner in disbursing or collecting the funds of the Facility and in
paying the debts and fulfilling the obligations of the Facility; coordinate and
supervise a marketing plan for the Facility to insure that the Facility obtains
full occupancy as soon as possible and, after the Facility has achieved full
occupancy, assist in the development of an annual marketing plan and budget to
maintain the resident census at a proper level; and do all other things
necessary or proper for the daily operation and management of the Facility,
including everything necessary to ensure compliance with all applicable local,
state and federal laws governing or applicable to senior housing facilities. In
addition, in order to plan for future operations and to establish long range
policies and goals for the Facility, the Manager will, under the general
supervision of the Owner, meet on at least a monthly basis with Owner's
representatives and the Executive Director to review financial and operational
statistics of the Facility. The Executive Director also will attend monthly
regional administrator meetings and educational programs.
The Manager further agrees that it will:
(a) perform its duties and responsibilities hereunder in compliance with
all applicable laws;
(b) supervise and direct the management and operation of the Facility,
exercising the degree of care used by an experienced management company, given
the financial resources available to the Facility, the location of the Facility,
the restrictions of applicable laws, and other existing circumstances; and
(c) consult with the Owner and keep the Owner advised as to all major
policy and business matters relating to the Facility.
2. SPECIFIC DUTIES. Without limiting the generality of the foregoing, the
Manager shall have the following specific duties:
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2.1 EMPLOYEES. The Manager shall recruit, evaluate, select, and
hire a qualified and properly licensed Executive Director who shall be
responsible for the functional operation of the Facility and supervision of
personnel at the Facility on a day-to-day basis, as well as all resident
assistance, custodial, food service, cleaning, maintenance, secretarial and
bookkeeping personnel for the day-to-day operations of the Facility. The
Executive Director shall be the employee of the Manager. Prior to the Conversion
Date (hereinafter defined) all personnel other than the Executive Director shall
be employees of the Owner, and the Owner shall retain full responsibility for
payment of wages, salaries and other compensation and benefits for the Executive
Director and such other personnel. Effective as of the Conversion Date, all such
personnel, as well as the Executive Director, shall be employees of the Manager,
and the Manager shall have full responsibility for payment of wages, salaries
and other compensation and benefits of the Executive Director and such other
personnel. The Manager shall, subject to approval by the Owner, establish
necessary and desirable personnel policies and procedures, wage structures and
staff schedules. The Manager, subject to approval by Owner, shall have authority
to hire, discipline, promote and discharge employees of the Owner who
participate in the day-to-day operation and administration of the Facility. Both
the Manager and the Owner must approve the hiring and/or firing of the Executive
Director, Assistant Administrator and the Director of Resident Services, which
approval shall not be unreasonably withheld or delayed. The Manager shall: (a)
maintain or cause to be maintained payroll records and prepare weekly and
monthly payrolls, withholding taxes and Social Security taxes; (b) prepare and
submit all required state and federal tax or benefit returns required with
respect to employees, including, without limitation, the returns required by
FICA, FUTA and all applicable unemployment compensation laws; (c) maintain in
force all required levels of workers' compensation insurance; and (d) prepare
and submit to the Owner any certificates of payroll expenses as may be
reasonably requested. Prior to the Conversion Date, the Manager shall not be
liable to any employee of the Facility for wages, salaries and other
compensation and benefits, or to the Owner, unless the Manager was specifically
required to obtain the approval of the Owner before committing to a salary or
benefit and such approval was not obtained. The Manager shall not be liable to
the Owner or others for any action or omission on the part of any employee of
the Owner of the Facility, unless the employee was acting under the express
direction of the Manager or unless such employee was following an express policy
or procedure of the Manager and such direction, policy or procedure is
subsequently determined to be the result of gross negligence. The Manager shall
provide the Owner with quarterly reports of all hiring, disciplinary actions,
promotions and firings at the Facility for the month.
2.2 PURCHASING. The Manager shall purchase, for the account of the
Owner, all necessary foodstuffs, supplies, materials, appliances, tools and
equipment necessary for the operation of the Facility. The Manager shall arrange
contracts on behalf of the Owner for electricity, gas, telephone, cable
television and any other utility or service necessary for the operation of the
Facility. The Manager shall, on behalf of the Owner, contract for and supervise
the making of any necessary repairs, alterations, and improvements to the
Facility; provided that in the case of any capital expenditure, alteration or
improvement, the cost of which exceeds Ten Thousand ($10,000) Dollars, the
Manager shall obtain the prior written approval of the Owner; and provided
further, that no such prior written approval shall be required if the
expenditure is made under circumstances reasonably requiring emergency action
(so long as the Manager attempts to notify the Owner on a concurrent basis). The
Manager shall prepare and submit to
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the Owner any certificates of purchasing expenses incurred for the Facility as
may be reasonably requested.
2.3 COLLECTION OF ACCOUNTS. The Manager shall supervise the
Facility bookkeeping personnel who shall prepare and submit bills and collect
for the account of the Owner any and all moneys owing to the Owner from
residents.
2.4 BOOKKEEPING. The Manager shall establish and maintain a record
and bookkeeping system for the operation and conduct of business of the Facility
in accordance with generally accepted accounting principles consistently
applied. Books and records at the Facility may be maintained by an employee of
the Owner under the supervision of the Manager. Full books of account with
entries of all receipts and expenditures related to the operation of the
Facility shall be maintained at the offices of the Manager and shall at all
times during normal business hours be open for inspection by representatives of
the Owner.
2.5 FINANCIAL REPORTS. The Manager shall furnish to the Owner the
following financial reports:
(a) as soon as possible and not later than 30 days after the close
of each calendar month, a balance sheet as of the end of the month and a
statement of income and retained earnings for the month and for the
year-to-date, together with a comparison to the budget and a detailed statement
of receipts, disbursements, accounts payable and accounts receivable as of the
end of such monthly period; provided, however, that the computer services
charges connected with the preparation of such information shall not be an
expense of the Owner;
(b) as soon as possible, and not later than 60 days after the
close of each fiscal year, a year-end compilation report, including a balance
sheet as of the end of such year and a statement of income and retained
earnings; and
(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set forth in
any financing agreements executed in connection with any Facility Financing
(hereinafter defined) (any such financing agreement or agreements are
collectively referred to herein as a "Financing Agreement").
2.6 RESIDENTS. In accordance with the provisions of all applicable
state and federal statutes, as amended from time to time, the Manager shall use
its best efforts to maintain the resident census at the Facility in such numbers
and in such a manner as, in the Manager's judgment, will tend to maintain the
financial stability of the Facility and will comply with the covenants in any
Financing Agreement.
2.7 BUDGETS. The Manager shall prepare and submit for approval by
the Owner the following: (a) as soon as possible and not later than 30 days
before the close of each fiscal year, or on such earlier date as may be required
under any Financing Agreement, a detailed written capital and operating budget
for the next succeeding fiscal year, broken down by month and showing projected
expenditures and projected revenues for such budget period; and (b) such other
budgets as may be reasonably required of the Owner under any Financing Agreement
or by regulatory authorities showing, inter alia, projected ordinary and
extraordinary expenditures and protected revenues for such budget period.
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2.8 INSURANCE. The Manager shall obtain, at the Owner's expense,
on behalf of the Owner and with the Owner's prior approval, all necessary
liability, fire and extended coverage, workers' compensation, and malpractice
insurance covering the Facility, its equipment, the employees of the Owner, and
the employees of Manager, if any, who relate to the operations of the Facility,
which policies of insurance shall name the Owner and the Manager as coinsured
and which policies shall comply with the terms of any Financing Agreement. The
Owner shall bear the expense of the above with respect to the Owner's employees,
equipment and the Facility. The Manager shall bear the expense of the above with
respect to the Manager's employees, if any. Such insurance shall be written by a
responsible insurance company or companies reasonably satisfactory to the Owner
in kinds and amounts and a certificate of insurance shall by provided to the
Owner. The Owner shall retain the right to designate any insurance agent or
agency of its choice through which such insurance shall be obtained.
2.9 TECHNICAL AND PROFESSIONAL SERVICES. The Manager may, with the
prior approval of the Owner and at the Owner's expense, secure such engineering,
legal, and other specialized technical and professional services as may be
necessary to advise or represent the Owner in connection with any matter
involving or arising out of the ownership and operation of the Facility or the
conduct of affairs of the Facility.
2.10 MARKETING. The Manager shall agree to coordinate and
supervise the agreed upon marketing plan for the Facility during the fill-up
phase (the "Marketing Plan"). Monthly statistical census analysis reports will
be generated by the Manager and delivered to the Owner. The Manager will
recommend adjustments in the Marketing Plan as needed to achieve full occupancy.
For purposes of this Agreement, the Facility will be considered to have achieved
full occupancy when ninety percent (90%) of its units have been occupied for a
continuous 90 day period. The Manager will assist the management staff in the
continued development and coordination of advertising and promotional materials,
internal and external public relations programs, sales and staff development
programs, and customer satisfaction programs. The Manager shall assist the
Facility's management staff to develop a yearly Marketing Plan and budget based
upon the Facility's yearly census program and image.
2.11 ADMINISTRATIVE. The Manager shall recommend the establishment
of, and implement and supervise procedures to provide staff review of all
operational areas, which status shall be reviewed in regularly scheduled
quarterly meetings and at other meetings as may be deemed necessary or desirable
by the Owner.
2.12 PLANT AND MAINTENANCE.
(a) attention shall be given to preventive maintenance
(this item may be provided by outside parties if economically feasible) and, to
the extent deemed feasible by the Manager and the Owner, the services of regular
Facility maintenance employees shall be used; and
(b) the Manager shall make recommendations to the Owner
regarding entering into contracts with qualified independent contractors for the
maintenance and repair of air conditioning systems and laundry equipment and for
extraordinary repairs beyond the capability of regular Facility maintenance
employees.
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3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the Manager
shall pay itself, at its principal office as set forth above (or at such other
place as the Manager may from time to time designate in writing), and at the
times hereinafter specified, a monthly base management fee (the "Base Management
Fee") (i) for the period commencing on the beginning of the Term and continuing
until the date (the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate of
occupancy permitting operation of the Facility for its intended purpose, or (y)
such date as is designated by the Manager in its sole discretion, equal to the
greater of (I) Ten Thousand Dollars ($10,000) Dollars per month, or (II) ten
percent (10%) of Net Revenues (as hereinafter defined), and (i) for the period
commencing on the Conversion Date and continuing through the remainder of the
Term, equal to the sum of (x) all Facility Expenses (hereinafter defined), and
(y) the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II) ten
percent (10%) of Net Revenues. In addition to the Base Management Fee, as
additional compensation for the services to be rendered by the Manager during
the Term, the Manager shall pay itself, at its principal office as set forth
above (or at such other place as the Manager may from time to time designate in
writing), and at the times hereinafter specified, a monthly incentive management
fee (the "Incentive Management Fee") equal to eighty five percent (85%) of Net
Cash Flow (as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month in which
services were rendered. The Manager hereby acknowledges and agrees that any and
all Management Fees due hereunder shall be subordinate to any Facility
Financing, as well as to any preferred returns to equity investors of the Owner.
The Owner hereby represents and warrants that as of the date hereof, there
exists no Facility Financing except that certain $18,935,752 mortgage loan by
Meditrust Mortgage Investments, Inc. and that there are no preferred returns
payable to equity investors of the Owner. The Owner hereby covenants and agrees
with the Manager that at no time during the Term of this Agreement shall (i) the
total Facility Financing exceed the sum of (x) all costs incurred by the Owner
in connection with the acquisition, development, construction and fill-up of the
Facility, plus (y) all costs incurred by the Owner in connection with any
capital improvements to the Facility, and (ii) the preferred returns payable to
equity investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues (defined below)
less contractual adjustments for uncollectible accounts.
"Gross Revenues" as used herein shall mean and include all revenues
received or receivable from or by reason of the operation of the Facility,
including, without limitation, all revenue of the Facility for or on account of
any and all goods provided and services rendered or activities during the period
from the date of this Agreement and thereafter, the gross dollar amount of all
such billings by the Facility to or on behalf of residents directly or
indirectly connected with the Facility or the provision of all such goods and
services.
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"Facility Expenses" as used herein shall mean and include all personnel and
other expenses incurred in connection with the operation of the Facility,
including, without limitation, all expenses described in Section 4 below, but
specifically excluding any Management Fees and all Facility Financing.
"Net Cash Flow" as used herein shall mean the excess of (i) all Net
Revenue, over (ii) the sum of (x) all Facility Expenses, (y) all Base Management
Fees, and (z) all Facility Financing.
4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and properties of the
Facility:
(a) Salary and expenses (including, without limitation,
payroll taxes, costs of employee benefit plans, travel, insurance, and fidelity
bonds) of all personnel employed by the Manager (other than the Executive
Director, who will be paid by the Owner as set forth in Section 4.2 hereof) to
carry out all responsibilities detailed above.
(b) Salary and expenses (including, without limitation,
payroll taxes, cost of employee benefit plans, travel, insurance and fidelity
bonds) of all of the Manager's home office personnel and overhead.
(c) From and after the Conversion Date, all expenses
described in Section 4.2 below, but specifically excluding any Management Fees
and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided in this
Agreement, the Owner shall bear all of the expenses of operating and financing
the Facility and rendering resident services not expressly assumed by the
Manager, including, without limitation the following:
(a) Fees and expenses of independent professional persons
expressly retained by the Owner, or retained by the Manager for the account of
the Owner with the prior permission of the Owner, for any purpose; salary, other
compensation or benefits and expenses of all staff employed at the Facility by
the Owner, including, without limitation, all administrative, medical, resident
assistance and other health care personnel and the Executive Director;
custodial, food service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations of the
Facility and to perform health care and related services in the day-to-day
operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition, development,
construction, and fill-up of Facility ("Facility Financing").
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(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner, provided,
however, that all interest and penalties incurred as a result of the Manager's
failure to timely file all returns which the Manager is required to file
pursuant to this Agreement, or to make timely payment of all taxes, levies,
imposts, or other charges, to the extent that sufficient funds were available to
the Manager as of the date such payments were due, shall be the responsibility
of the Manager.
(d) Medical supplies and equipment, food, fuel, kitchen
and food service equipment, linens, beds, furniture, clothing and all other
supplies and equipment used in supplying services to residents.
(e) Expenses connected directly or indirectly with the
design, acquisition, disposition or ownership of real and personal property
devoted, used, or consumed in the business of the Facility, including, without
limitation, purchase and/or construction of the land and buildings used for such
purpose, maintenance, repair and improvement of property, all real estate and
personal property taxes assessed, premiums for property and liability insurance
on property owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is a party.
However, such fees shall not include those fees resulting from or arising out of
the gross negligence by the Manager and the Owner shall provide such necessary
funds to the Manager within 10 days after receipt of such notice.
In the event that there are insufficient funds available to the Manager to pay
expenses which the Manager is authorized to incur and pay hereunder, including,
without limitation, any taxes to be paid on behalf of the Owner by the Manager,
the Manager shall promptly notify the Owner of the amount necessary to cure and
the reason for such deficit and the Owner shall provide such necessary funds to
the Manager within 10 days after receipt of such notice.
4.3 DEPOSIT AND DISBURSEMENT OF FUNDS.
(a) The Manager shall establish and administer the overall
rate structure of the Facility and shall supervise the issuance of bills and the
collection of accounts as the true and lawful attorney-in-fact for the Owner.
The Manager shall take possession of and endorse the name of the Owner on all
notes, checks, money orders, insurance payments, and any other instruments
received in payment of accounts described below.
(b) The Manager shall establish such accounts for the
Facility in the Owner's name, separate from all other accounts and funds of the
Manager, with a bank or banks whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") or with a savings and loan institution or
institutions whose deposits are insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") as it deems necessary or desirable. The Manager,
on behalf of the Owner, shall use reasonable efforts to collect (using legal
counsel approved by the Owner, if necessary) all sums due and owing to Owner in
connection with the operation of the Facility.
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The Manager and the Owner shall deposit into such accounts all monies furnished
by the Owner as working funds and all receipts and monies arising from the
operation of the Facility or otherwise received by the Owner or by the Manager
for or on the behalf of the Owner.
(c) Draws on such accounts may be made by the sole
signature of an authorized representative of the Manager (or by wiring
instructions from such authorized representative of the Manager) and shall be
paid to the Manager to reimburse the Manager for payments made pursuant to this
Agreement by the Manager from its own accounts. The Owner hereby appoints the
Manager, for the term of this Agreement, as the Owner's true and lawful
attorney-in-fact to withdraw, by writing checks against such accounts, funds for
reimbursement of all amounts payable pursuant to this Agreement in connection
with the operation of the Facility. The Owner agrees to execute from time to
time any additional documents required by any bank wherein such documents are
held to effectuate all powers of attorney referred to herein. The Manager shall
make disbursements and payments from such accounts, on behalf and in the name of
the Owner, in such amounts and at such times as are deemed by the Manager to be
appropriate or required in connection with, first, payments required by any
Financing Agreement, and second, payments of ownership, maintenance and
operating expenses of the Facility and the other costs, expenses and
expenditures provided for in this Agreement including the Management Fee.
5. DUTY OF MANAGER. The Manager shall render the services called for
hereunder in the utmost good faith and the Manager acknowledges that it is
acting in a fiduciary capacity with respect to the Owner and owes the Owner the
highest duty of care.
6. RELATIONSHIP OF THE PARTIES. The Owner and the Manager are neither
partners nor joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose on any
of them any liability as partners or joint venturers. All dealings between the
Owner and the Manager are at arms length as between non-related parties.
7. TERM AND TERMINATION.
7.1 TERM. (a) This Agreement shall continue for a term (as the
same may be extended, the "Term") commencing on the date which is 12 months
prior to the anticipated date (as mutually agreed to by the Owner and the
Manager) for the opening of the Facility and continuing for a period of 15 years
after the date on which the Facility receives its certificate of occupancy
permitting the operation of the Facility for its intended use. The Owner and
Manager agree to execute a certificate setting forth the date on which the Term
commences promptly after such opening.
(b) On the conditions that (i) the Manager is not
in default of its obligations hereunder beyond any applicable notice, cure or
grace period at the time of exercise, and (ii) the Facility has had positive
cash flow for each of the three years prior to the commencement of the Extension
Exercise Period (hereinafter defined), the Manager shall have the option (each,
an "Extension Option") to extend the Term for three additional periods of five
years each on the same terms and conditions as set forth in this Agreement. Each
Extension Option shall be exercised in writing by the Manager to the Owner
during the six month period (the "Extension Exercise Period") commencing on the
first day of the then last year of the Term.
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7.2 TERMINATION FOR CAUSE. Either party may terminate this
Agreement by delivering 30 days written notice (a "Termination Notice") to the
other party in the event that any of the following occurs:
(a) any illegal act engaged in by any party in the
operation of the Facility;
(b) if any party files or has a petition or complaint in
receivership or bankruptcy filed against it which has not been dismissed within
90 days of such filing; or
(c) the breach by any party (the "Breaching Party") of any
other material provision in, or obligation imposed by, this Agreement which
violation shall have not been cured to the reasonable satisfaction of the other
party (the "Claiming Party") within 30 days following the date on which the
Claiming Party delivers notice to the Breaching Party describing with
specificity both the claimed breach and the actions required to be taken in
order to cure the claimed breach; PROVIDED that in the event that the claimed
breach is not reasonably susceptible of being cured within 30 days, the cure
period shall be extended for such additional time as may be reasonably required,
PROVIDED FURTHER that in the event that the Claiming Party delivers a
Termination Notice and the Breaching Party commences legal proceedings
contesting the termination within 30 days following delivery of the Termination
Notice, then this Agreement shall not terminate unless and until a final
judicial resolution of such legal proceedings beyond the expiration of any
appeal period has been issued upholding said termination.
7.3 TERMINATION FOR FAILURE TO PAY FEE ON A TIMELY BASIS. In
addition to the provisions of Section 7.2 above, the Manager may terminate this
Agreement upon thirty (30) days written notice of the Owner's failure to pay the
Management Fee when due unless the Owner cures the payment default within 10
days after receiving written notice from the Manager.
7.4 TERMINATION DUE TO CHANGE IN CONTROL. For so long as the
Owner, or the principals of the Owner, own or control, directly or indirectly,
at least twenty percent (20%) of the outstanding voting stock of the Manager (or
its controlling parent entity), the Owner shall have the right to terminate this
Agreement upon 30 days prior written notice to the Manager in the event of a
"Change in Control" of the Manager (or its controlling parent entity). For
purposes of this provisions, "Change in Control" shall mean, whether through a
single transaction or a series of transactions: (a) the transfer of all or
substantially all of the assets of such entity, (b) the transfer of an equity
interest in such entity after which the acquiror holds more than fifty percent
(50%) of the voting power of all equity interests in such entity, or (c) the
merger, consolidation, or other reorganization of such entity with or into
another entity which results in a change of more that fifty percent (50%) of the
composition of the governing body of such entity.
8. INDEMNIFICATION. The Owner shall indemnify the Manager and hold it
harmless of, for, and against all costs, claims, damages or expenses, including
reasonable attorney's fees (collectively "Costs"), incurred or suffered by the
Manager and arising out of acts performed within the scope of this Agreement.
Notwithstanding the foregoing, the Owner shall not have any obligation to
indemnify the Manager or hold it harmless of, from, and against Costs incurred
or suffered by the Manager as a result of the Manager's fraud, willful
misconduct, or gross negligence, or for Costs incurred or suffered by the
Manager as a result of the Manager's failure
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to keep true, accurate and complete records. The Manager shall indemnify the
Owner and hold it harmless of, from and against all Costs incurred or suffered
by the Owner as a result of any of the Manager's fraud, willful misconduct, or
gross negligence, or as a result of the Manager's failure to submit proper
reports to the appropriate regulatory agencies or to keep true, accurate and
complete records.
9. ACCESS TO BOOKS AND RECORDS. As a subcontractor that may be subject to
Section 1861(v) (1) (i) of the Social Security Act (the "Act"), the Manager
shall, upon written request and in accordance with the above-mentioned section
of the Act and regulations promulgated pursuant thereto, make available to the
Comptroller General, the Secretary of Health and Human Services, and their duly
authorized representatives, a copy of this Agreement and access to the Manager's
books, documents, and records necessary to verify the nature and extent of the
costs of services provided to the Owner. Such access will be available until the
expiration of four years after the services to which the costs are related have
been furnished.
The provisions of this Section shall apply only if this Agreement is
covered by the Act and such provisions shall become void and shall be of no
further force or effect if, at the time a request is made, this Agreement is not
subject to the Act. The Manager agrees that if it carries out any of the duties
of this Agreement through a subcontract with a related organization which
subcontract has a value or cost of $10,000 or more over a 12 month period, the
Manager will obtain an identical access requirement in such subcontract.
10. FIDELITY BOND. The Manager agrees to obtain a fidelity bond, employee
dishonesty insurance policy or other similar coverage, in form and amount
satisfactory to the Owner, covering those employees reasonably required to by
covered by the Owner.
11. AMENDMENTS. This Agreement shall not be changed modified, terminated,
or discharged, in whole or in part, except by an instrument in writing signed by
the Owner and the Manager, their respective successors or assigns, or otherwise
as provided herein. Such modifications shall be in writing and signed by the
Owner and the Manager.
12. GOVERNING LAW. The provisions of this Agreement shall be governed by,
construed, and interpreted in accordance with the laws of the Commonwealth of
Massachusetts. Any change in any applicable law which has the effect of
rendering any part of this Agreement invalid, illegal, or unenforceable shall
not render the remainder of this Agreement invalid, illegal, or unenforceable,
and the parties hereto agree that in the event that any part of this Agreement
is rendered invalid, illegal, or unenforceable, that they shall negotiate in
good faith to amend any such part of this Agreement so as to comply with any
such law, as amended, and further the respective objectives of the parties
hereto.
13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager will assign
its interests in this Agreement, without the prior written consent of the other;
provided that (a) the Manager may assign (i) its interests hereunder to an
affiliate, and (ii) its Management Fees to a lender as security for any
financing arrangement of Manager, and (b) the Owner may assign its interests
hereunder to a lender as security with respect to any Financing Agreement.
Subject to the foreoging, this Agreement shall be binding upon and inure to the
benefit of the parties and to their respective successors and assigns.
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14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the fee title
holder to the Facility, or the land on which the Facility is located, the
Manager shall have the right to assume from the Owner any option to purchase,
right of first offer or right of first refusal which the Owner may hold with
respect to the Facility or the land on which the Facility is located.
15. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
16. NOTICES. Any notice, demand, consent, or other written instrument to be
given or received under this Agreement ("Notice") required or permitted to be
given shall be in writing signed by the party giving such Notice and/or consent
and shall be hand delivered, sent by nationally recognized overnight carrier or
sent, postage prepaid, by Certified or Registered Mail, Return Receipt
Requested, to the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Masschusetts 02494
Attention: General Counsel
As to Owner: Chancellor of Bonita Springs, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: President
Any party shall have the right to change the place to which such notice shall be
sent or delivered by similar notice sent in like manner to all other parties
hereto. All notices sent by certified mail or are hand delivered shall be deemed
received upon delivery or when delivery is refused to the office or address of
the addressee.
17. PROPERTY: Trade names, marketing material, marketing ideas and
development material and records developed specifically for and related to this
Facility shall be the property of the Owner. Trade names, ideas and documents,
forms and development material not developed specifically for this Facility are
to be considered proprietary and will remain the property of the Manager. All
operational forms and documents including, but not limited to, policy and
procedure manuals, operational forms, level of care determination systems,
management policy books, inspection control manuals, and nursing management
books are and will remain the property of the Manager. All financial management
forms, documents and software systems including, but not limited to, bookkeeping
manuals, financial forms, financial spreadsheets, database or word processing
forms, financial accounting packages and outcome information systems are and
will remain the property of the Manager. Upon termination of this Agreement, the
Owner shall have the option to purchase operational material belonging to the
Manager,
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except for the financial accounting packages and outcome information systems, at
a mutually agreed upon price.
18. LEASE OPTION. The Owner hereby agrees that so long as the Manager is
not in default in the performance of any duty or any obligation hereunder, the
Manager shall have the option to lease the Facility at any time during the term
of this Agreement (including any extension thereof) by providing the Owner with
at least ninety (90) days prior written notice of such election. Within thirty
(30) days after the receipt of the Manager's notice to lease, the parties shall
enter into a lease agreement substantially in the form attached hereto as
EXHIBIT A (the "Lease"), which Lease shall include, without limitation, a ten
(10) year initial term (with three (3) 5-year renewal terms) and rental payments
equal to the fair market value (which will be a negotiated percentage of total
project costs) as determined immediately prior to the initial term of the Lease
and immediately prior to any renewal terms.
19. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
[signatures on following page]
[remainder of this page intentionally left blank]
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IN WITNESS WHEREOF, the parties have executed this Management Agreement as
of the date first set forth above.
Witness: CAREMATRIX OF MASSACHUSETTS, INC.
By: By: /s/ Paul Zaylor
-----------------------------
Name: Name: Paul Zaylor
Title: Vice President
WITNESS: CHANCELLOR OF BONITA SPRINGS, INC.
By: By: /s/ David B. Currie
-----------------------------
Name: Name: David B. Currie
Title: Vice President
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Exhibit 10.06
AMENDED AND RESTATED
MANAGEMENT AGREEMENT
This AMENDED AND RESTATED MANAGEMENT AGREEMENT (this "Agreement") is dated
as of the 1st day of April, 1999, by and between CareMatrix of Massachusetts,
Inc., a Delaware corporation, with its principal place of business at 197 First
Avenue, Needham, Massachusetts 02494 (the "Manager"), and Chancellor of Stuart,
Inc., or its designee or assignee, with its principal place of business at 197
First Avenue, Needham, Massachusetts 02494 (the "Owner"), and amends and
restates that certain Management Agreement dated as of January 30, 1997 between
the Manager and the Owner, as the same may have been previously amended to date.
WHEREAS, the Owner is the operator of a 148 unit senior housing facility
located in Jensen Beach, Florida (the "Facility");
WHEREAS, the Owner determined that the hiring of a management company to
provide day-to-day management of the Facility is necessary for the efficient
operation of the Facility;
WHEREAS, the Manager has represented that it is experienced in the
management of similar facilities, is knowledgeable as to the state and federal
requirements governing the operation of senior housing facilities and that the
owners and employees of Manager are qualified management professionals;
WHEREAS, based upon the Manager's representations set forth herein, the
Owner has determined that the hiring of the Manager is cost-effective and
consistent with the Owner's desire to provide quality care to the residents at
the Facility at the lowest cost;
WHEREAS, the Owner has determined that the services provided by Manager
will augment the services provided by it and the employees of the Facility so as
to increase productivity;
WHEREAS, the Owner has determined that the hiring of the Manager on the
terms and conditions hereinafter set forth will not prevent the Owner from
exercising ultimate control over the policies and operations of the Facility;
and
WHEREAS, the Manager is willing to manage the day-to-day operations of the
Facility on the terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereto agree as follows:
1. GENERAL DUTIES. The Owner engages the Manager to manage and supervise
the Facility with the objective of providing quality care and services to
residents of the Facility and to carry out the general duties with respect to
the Facility under the general supervision and direction of the Owner which
include, but are not limited to, the following:
Supervise on behalf of the Owner, the performance of all such
administrative functions as may be necessary in the management of the Facility;
select, hire (or contract with), train, supervise, monitor the performance of,
and discipline, promote, terminate or fire (subject to the rights of the Owner
under Section 2.1 of this Agreement to approve the hiring, disciplining and
termination of the Executive Director, the Assistant Administrator and Director
of Resident
<PAGE>
Services) all personnel involved in the administration and day-to-day operation
of the Facility, including, without limitation, management, resident assistance
and other related personnel, custodial, food service, cleaning, maintenance and
other operational personnel, and secretarial or bookkeeping personnel; supervise
the accounting, billing, purchasing and bill payment functions for the Facility;
establish systems of accounts and supervise the maintenance of ledgers and other
primary accounting records by the personnel of the Facility; supervise the
financial affairs of the Facility; establish and supervise the implementation of
operating and capital budgets, including those required to establish
reimbursement rates, if any, with respect to state or federal entitlement
programs as well as self-pay rates; prepare and maintain true, complete and
accurate records necessary for the preparation of such operating budgets;
determine which items of cost and expense properly relate to resident care;
establish and administer financial controls over the operation of the Facility,
develop and establish financial standards and norms by which the income, costs
and operations of the Facility may be evaluated; serve as advisor and consultant
in connection with policy decisions to be made by the Owner; furnish reports to
the Owner as the Owner may reasonably request and provide the Owner with
economic and statistical data in connection with or relative to the operations
of the Facility; represent the Facility in its day-to-day dealings with
creditors, residents, personnel, agents for collection, and insurers; act as
agent for the Owner in disbursing or collecting the funds of the Facility and in
paying the debts and fulfilling the obligations of the Facility; coordinate and
supervise a marketing plan for the Facility to insure that the Facility obtains
full occupancy as soon as possible and, after the Facility has achieved full
occupancy, assist in the development of an annual marketing plan and budget to
maintain the resident census at a proper level; and do all other things
necessary or proper for the daily operation and management of the Facility,
including everything necessary to ensure compliance with all applicable local,
state and federal laws governing or applicable to senior housing facilities. In
addition, in order to plan for future operations and to establish long range
policies and goals for the Facility, the Manager will, under the general
supervision of the Owner, meet on at least a monthly basis with Owner's
representatives and the Executive Director to review financial and operational
statistics of the Facility. The Executive Director also will attend monthly
regional administrator meetings and educational programs.
The Manager further agrees that it will:
(a) perform its duties and responsibilities hereunder in compliance with
all applicable laws;
(b) supervise and direct the management and operation of the Facility,
exercising the degree of care used by an experienced management company, given
the financial resources available to the Facility, the location of the Facility,
the restrictions of applicable laws, and other existing circumstances; and
(c) consult with the Owner and keep the Owner advised as to all major
policy and business matters relating to the Facility.
2. SPECIFIC DUTIES. Without limiting the generality of the foregoing, the
Manager shall have the following specific duties:
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2.1 EMPLOYEES. The Manager shall recruit, evaluate, select, and
hire a qualified and properly licensed Executive Director who shall be
responsible for the functional operation of the Facility and supervision of
personnel at the Facility on a day-to-day basis, as well as all resident
assistance, custodial, food service, cleaning, maintenance, secretarial and
bookkeeping personnel for the day-to-day operations of the Facility. The
Executive Director shall be the employee of the Manager. Prior to the Conversion
Date (hereinafter defined) all personnel other than the Executive Director shall
be employees of the Owner, and the Owner shall retain full responsibility for
payment of wages, salaries and other compensation and benefits for the Executive
Director and such other personnel. Effective as of the Conversion Date, all such
personnel, as well as the Executive Director, shall be employees of the Manager,
and the Manager shall have full responsibility for payment of wages, salaries
and other compensation and benefits of the Executive Director and such other
personnel. The Manager shall, subject to approval by the Owner, establish
necessary and desirable personnel policies and procedures, wage structures and
staff schedules. The Manager, subject to approval by Owner, shall have authority
to hire, discipline, promote and discharge employees of the Owner who
participate in the day-to-day operation and administration of the Facility. Both
the Manager and the Owner must approve the hiring and/or firing of the Executive
Director, Assistant Administrator and the Director of Resident Services, which
approval shall not be unreasonably withheld or delayed. The Manager shall: (a)
maintain or cause to be maintained payroll records and prepare weekly and
monthly payrolls, withholding taxes and Social Security taxes; (b) prepare and
submit all required state and federal tax or benefit returns required with
respect to employees, including, without limitation, the returns required by
FICA, FUTA and all applicable unemployment compensation laws; (c) maintain in
force all required levels of workers' compensation insurance; and (d) prepare
and submit to the Owner any certificates of payroll expenses as may be
reasonably requested. Prior to the Conversion Date, the Manager shall not be
liable to any employee of the Facility for wages, salaries and other
compensation and benefits, or to the Owner, unless the Manager was specifically
required to obtain the approval of the Owner before committing to a salary or
benefit and such approval was not obtained. The Manager shall not be liable to
the Owner or others for any action or omission on the part of any employee of
the Owner of the Facility, unless the employee was acting under the express
direction of the Manager or unless such employee was following an express policy
or procedure of the Manager and such direction, policy or procedure is
subsequently determined to be the result of gross negligence. The Manager shall
provide the Owner with quarterly reports of all hiring, disciplinary actions,
promotions and firings at the Facility for the month.
2.2 PURCHASING. The Manager shall purchase, for the account of the
Owner, all necessary foodstuffs, supplies, materials, appliances, tools and
equipment necessary for the operation of the Facility. The Manager shall arrange
contracts on behalf of the Owner for electricity, gas, telephone, cable
television and any other utility or service necessary for the operation of the
Facility. The Manager shall, on behalf of the Owner, contract for and supervise
the making of any necessary repairs, alterations, and improvements to the
Facility; provided that in the case of any capital expenditure, alteration or
improvement, the cost of which exceeds Ten Thousand ($10,000) Dollars, the
Manager shall obtain the prior written approval of the Owner; and provided
further, that no such prior written approval shall be required if the
expenditure is made under circumstances reasonably requiring emergency action
(so long as the Manager attempts to notify the Owner on a concurrent basis). The
Manager shall prepare and submit to
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the Owner any certificates of purchasing expenses incurred for the Facility as
may be reasonably requested.
2.3 COLLECTION OF ACCOUNTS. The Manager shall supervise the
Facility bookkeeping personnel who shall prepare and submit bills and collect
for the account of the Owner any and all moneys owing to the Owner from
residents.
2.4 BOOKKEEPING. The Manager shall establish and maintain a record
and bookkeeping system for the operation and conduct of business of the Facility
in accordance with generally accepted accounting principles consistently
applied. Books and records at the Facility may be maintained by an employee of
the Owner under the supervision of the Manager. Full books of account with
entries of all receipts and expenditures related to the operation of the
Facility shall be maintained at the offices of the Manager and shall at all
times during normal business hours be open for inspection by representatives of
the Owner.
2.5 FINANCIAL REPORTS. The Manager shall furnish to the Owner the
following financial reports:
(a) as soon as possible and not later than 30 days after the close
of each calendar month, a balance sheet as of the end of the month and a
statement of income and retained earnings for the month and for the
year-to-date, together with a comparison to the budget and a detailed statement
of receipts, disbursements, accounts payable and accounts receivable as of the
end of such monthly period; provided, however, that the computer services
charges connected with the preparation of such information shall not be an
expense of the Owner;
(b) as soon as possible, and not later than 60 days after the
close of each fiscal year, a year-end compilation report, including a balance
sheet as of the end of such year and a statement of income and retained
earnings; and
(c) such other and further reports or calculations as may be
required under any financing terms in accordance with the deadlines set forth in
any financing agreements executed in connection with any Facility Financing
(hereinafter defined) (any such financing agreement or agreements are
collectively referred to herein as a "Financing Agreement").
2.6 RESIDENTS. In accordance with the provisions of all applicable
state and federal statutes, as amended from time to time, the Manager shall use
its best efforts to maintain the resident census at the Facility in such numbers
and in such a manner as, in the Manager's judgment, will tend to maintain the
financial stability of the Facility and will comply with the covenants in any
Financing Agreement.
2.7 BUDGETS. The Manager shall prepare and submit for approval by
the Owner the following: (a) as soon as possible and not later than 30 days
before the close of each fiscal year, or on such earlier date as may be required
under any Financing Agreement, a detailed written capital and operating budget
for the next succeeding fiscal year, broken down by month and showing projected
expenditures and projected revenues for such budget period; and (b) such other
budgets as may be reasonably required of the Owner under any Financing Agreement
or by regulatory authorities showing, inter alia, projected ordinary and
extraordinary expenditures and protected revenues for such budget period.
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2.8 INSURANCE. The Manager shall obtain, at the Owner's expense,
on behalf of the Owner and with the Owner's prior approval, all necessary
liability, fire and extended coverage, workers' compensation, and malpractice
insurance covering the Facility, its equipment, the employees of the Owner, and
the employees of Manager, if any, who relate to the operations of the Facility,
which policies of insurance shall name the Owner and the Manager as coinsured
and which policies shall comply with the terms of any Financing Agreement. The
Owner shall bear the expense of the above with respect to the Owner's employees,
equipment and the Facility. The Manager shall bear the expense of the above with
respect to the Manager's employees, if any. Such insurance shall be written by a
responsible insurance company or companies reasonably satisfactory to the Owner
in kinds and amounts and a certificate of insurance shall by provided to the
Owner. The Owner shall retain the right to designate any insurance agent or
agency of its choice through which such insurance shall be obtained.
2.9 TECHNICAL AND PROFESSIONAL SERVICES. The Manager may, with the
prior approval of the Owner and at the Owner's expense, secure such engineering,
legal, and other specialized technical and professional services as may be
necessary to advise or represent the Owner in connection with any matter
involving or arising out of the ownership and operation of the Facility or the
conduct of affairs of the Facility.
2.10 MARKETING. The Manager shall agree to coordinate and
supervise the agreed upon marketing plan for the Facility during the fill-up
phase (the "Marketing Plan"). Monthly statistical census analysis reports will
be generated by the Manager and delivered to the Owner. The Manager will
recommend adjustments in the Marketing Plan as needed to achieve full occupancy.
For purposes of this Agreement, the Facility will be considered to have achieved
full occupancy when ninety percent (90%) of its units have been occupied for a
continuous 90 day period. The Manager will assist the management staff in the
continued development and coordination of advertising and promotional materials,
internal and external public relations programs, sales and staff development
programs, and customer satisfaction programs. The Manager shall assist the
Facility's management staff to develop a yearly Marketing Plan and budget based
upon the Facility's yearly census program and image.
2.11 ADMINISTRATIVE. The Manager shall recommend the establishment
of, and implement and supervise procedures to provide staff review of all
operational areas, which status shall be reviewed in regularly scheduled
quarterly meetings and at other meetings as may be deemed necessary or desirable
by the Owner.
2.12 PLANT AND MAINTENANCE.
(a) attention shall be given to preventive maintenance
(this item may be provided by outside parties if economically feasible) and, to
the extent deemed feasible by the Manager and the Owner, the services of regular
Facility maintenance employees shall be used; and
(b) the Manager shall make recommendations to the Owner
regarding entering into contracts with qualified independent contractors for the
maintenance and repair of air conditioning systems and laundry equipment and for
extraordinary repairs beyond the capability of regular Facility maintenance
employees.
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3. MANAGEMENT FEE. (a) As compensation for the services to be
rendered by the Manager during the Term (as hereinafter defined), the Manager
shall pay itself, at its principal office as set forth above (or at such other
place as the Manager may from time to time designate in writing), and at the
times hereinafter specified, a monthly base management fee (the "Base Management
Fee") (i) for the period commencing on the beginning of the Term and continuing
until the date (the "Conversion Date") which is the earlier of (x) the second
anniversary of the date on which the Facility received its certificate of
occupancy permitting operation of the Facility for its intended purpose, or (y)
such date as is designated by the Manager in its sole discretion, equal to the
greater of (I) Ten Thousand Dollars ($10,000) Dollars per month, or (II) ten
percent (10%) of Net Revenues (as hereinafter defined), and (i) for the period
commencing on the Conversion Date and continuing through the remainder of the
Term, equal to the sum of (x) all Facility Expenses (hereinafter defined), and
(y) the greater of (I) Ten Thousand Dollars ($10,000) per month, or (II) ten
percent (10%) of Net Revenues. In addition to the Base Management Fee, as
additional compensation for the services to be rendered by the Manager during
the Term, the Manager shall pay itself, at its principal office as set forth
above (or at such other place as the Manager may from time to time designate in
writing), and at the times hereinafter specified, a monthly incentive management
fee (the "Incentive Management Fee") equal to eighty five percent (85%) of Net
Cash Flow (as hereinafter defined). The Base Management Fee and the Incentive
Management Fee are collectively referred to herein as the "Management Fee".
(b) All Management Fees will be paid in arrears and shall be due
and payable on or before the 15th day of each month following the month in which
services were rendered. The Manager hereby acknowledges and agrees that any and
all Management Fees due hereunder shall be subordinate to any Facility
Financing, as well as to any preferred returns to equity investors of the Owner.
The Owner hereby represents and warrants that as of the date hereof, there
exists no Facility Financing except that certain $19,261,473 mortgage loan by
Meditrust Mortgage Investments, Inc. and that there are no preferred returns
payable to equity investors of the Owner. The Owner hereby covenants and agrees
with the Manager that at no time during the Term of this Agreement shall (i) the
total Facility Financing exceed the sum of (x) all costs incurred by the Owner
in connection with the acquisition, development, construction and fill-up of the
Facility, plus (y) all costs incurred by the Owner in connection with any
capital improvements to the Facility, and (ii) the preferred returns payable to
equity investors of the Owner be increased beyond those set forth herein.
(c) "Net Revenues" as used herein shall mean Gross Revenues (defined below)
less contractual adjustments for uncollectible accounts.
"Gross Revenues" as used herein shall mean and include all revenues
received or receivable from or by reason of the operation of the Facility,
including, without limitation, all revenue of the Facility for or on account of
any and all goods provided and services rendered or activities during the period
from the date of this Agreement and thereafter, the gross dollar amount of all
such billings by the Facility to or on behalf of residents directly or
indirectly connected with the Facility or the provision of all such goods and
services.
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"Facility Expenses" as used herein shall mean and include all personnel and
other expenses incurred in connection with the operation of the Facility,
including, without limitation, all expenses described in Section 4 below, but
specifically excluding any Management Fees and all Facility Financing.
"Net Cash Flow" as used herein shall mean the excess of (i) all Net
Revenue, over (ii) the sum of (x) all Facility Expenses, (y) all Base Management
Fees, and (z) all Facility Financing.
4. EXPENSES.
4.1 MANAGER EXPENSES. The Manager shall bear the following
expenses incurred by it in the management of the business and properties of the
Facility:
(a) Salary and expenses (including, without limitation,
payroll taxes, costs of employee benefit plans, travel, insurance, and fidelity
bonds) of all personnel employed by the Manager (other than the Executive
Director, who will be paid by the Owner as set forth in Section 4.2 hereof) to
carry out all responsibilities detailed above.
(b) Salary and expenses (including, without limitation,
payroll taxes, cost of employee benefit plans, travel, insurance and fidelity
bonds) of all of the Manager's home office personnel and overhead.
(c) From and after the Conversion Date, all expenses
described in Section 4.2 below, but specifically excluding any Management Fees
and all Facility Financing.
4.2 OWNER EXPENSES. Except as otherwise expressly provided in this
Agreement, the Owner shall bear all of the expenses of operating and financing
the Facility and rendering resident services not expressly assumed by the
Manager, including, without limitation the following:
(a) Fees and expenses of independent professional persons
expressly retained by the Owner, or retained by the Manager for the account of
the Owner with the prior permission of the Owner, for any purpose; salary, other
compensation or benefits and expenses of all staff employed at the Facility by
the Owner, including, without limitation, all administrative, medical, resident
assistance and other health care personnel and the Executive Director;
custodial, food service, cleaning, maintenance, operational, secretarial and
bookkeeping personnel employed to administer the day-to-day operations of the
Facility and to perform health care and related services in the day-to-day
operations of the Facility's business.
(b) Principal, interest and discounts on indebtedness
incurred or assumed by the Owner with respect to the acquisition, development,
construction, and fill-up of Facility ("Facility Financing").
7
<PAGE>
(c) Taxes, imposts, levies or other charges on the
existence, operation, receipts, income or property of the Owner, provided,
however, that all interest and penalties incurred as a result of the Manager's
failure to timely file all returns which the Manager is required to file
pursuant to this Agreement, or to make timely payment of all taxes, levies,
imposts, or other charges, to the extent that sufficient funds were available to
the Manager as of the date such payments were due, shall be the responsibility
of the Manager.
(d) Medical supplies and equipment, food, fuel, kitchen
and food service equipment, linens, beds, furniture, clothing and all other
supplies and equipment used in supplying services to residents.
(e) Expenses connected directly or indirectly with the
design, acquisition, disposition or ownership of real and personal property
devoted, used, or consumed in the business of the Facility, including, without
limitation, purchase and/or construction of the land and buildings used for such
purpose, maintenance, repair and improvement of property, all real estate and
personal property taxes assessed, premiums for property and liability insurance
on property owned by the Owner, brokerage commissions, and fees and expenses of
consultants, managers, or agents retained directly by the Owner.
(f) The Management Fee.
(g) Legal fees and related expenses pertaining to the
Facility, and any other litigation or proceedings to which the Owner is a party.
However, such fees shall not include those fees resulting from or arising out of
the gross negligence by the Manager and the Owner shall provide such necessary
funds to the Manager within 10 days after receipt of such notice.
In the event that there are insufficient funds available to the Manager to pay
expenses which the Manager is authorized to incur and pay hereunder, including,
without limitation, any taxes to be paid on behalf of the Owner by the Manager,
the Manager shall promptly notify the Owner of the amount necessary to cure and
the reason for such deficit and the Owner shall provide such necessary funds to
the Manager within 10 days after receipt of such notice.
4.3 DEPOSIT AND DISBURSEMENT OF FUNDS.
(a) The Manager shall establish and administer the overall
rate structure of the Facility and shall supervise the issuance of bills and the
collection of accounts as the true and lawful attorney-in-fact for the Owner.
The Manager shall take possession of and endorse the name of the Owner on all
notes, checks, money orders, insurance payments, and any other instruments
received in payment of accounts described below.
(b) The Manager shall establish such accounts for the
Facility in the Owner's name, separate from all other accounts and funds of the
Manager, with a bank or banks whose deposits are insured by the Federal Deposit
Insurance Corporation ("FDIC") or with a savings and loan institution or
institutions whose deposits are insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") as it deems necessary or desirable. The Manager,
on behalf of the Owner, shall use reasonable efforts to collect (using legal
counsel approved by the Owner, if necessary) all sums due and owing to Owner in
connection with the operation of the Facility.
8
<PAGE>
The Manager and the Owner shall deposit into such accounts all monies furnished
by the Owner as working funds and all receipts and monies arising from the
operation of the Facility or otherwise received by the Owner or by the Manager
for or on the behalf of the Owner.
(c) Draws on such accounts may be made by the sole
signature of an authorized representative of the Manager (or by wiring
instructions from such authorized representative of the Manager) and shall be
paid to the Manager to reimburse the Manager for payments made pursuant to this
Agreement by the Manager from its own accounts. The Owner hereby appoints the
Manager, for the term of this Agreement, as the Owner's true and lawful
attorney-in-fact to withdraw, by writing checks against such accounts, funds for
reimbursement of all amounts payable pursuant to this Agreement in connection
with the operation of the Facility. The Owner agrees to execute from time to
time any additional documents required by any bank wherein such documents are
held to effectuate all powers of attorney referred to herein. The Manager shall
make disbursements and payments from such accounts, on behalf and in the name of
the Owner, in such amounts and at such times as are deemed by the Manager to be
appropriate or required in connection with, first, payments required by any
Financing Agreement, and second, payments of ownership, maintenance and
operating expenses of the Facility and the other costs, expenses and
expenditures provided for in this Agreement including the Management Fee.
5. DUTY OF MANAGER. The Manager shall render the services called for
hereunder in the utmost good faith and the Manager acknowledges that it is
acting in a fiduciary capacity with respect to the Owner and owes the Owner the
highest duty of care.
6. RELATIONSHIP OF THE PARTIES. The Owner and the Manager are neither
partners nor joint venturers with each other, and nothing herein shall be
construed so as to make them such partners or joint venturers or impose on any
of them any liability as partners or joint venturers. All dealings between the
Owner and the Manager are at arms length as between non-related parties.
7. TERM AND TERMINATION.
7.1 TERM. (a) This Agreement shall continue for a term (as the
same may be extended, the "Term") commencing on the date which is 12 months
prior to the anticipated date (as mutually agreed to by the Owner and the
Manager) for the opening of the Facility and continuing for a period of 15 years
after the date on which the Facility receives its certificate of occupancy
permitting the operation of the Facility for its intended use. The Owner and
Manager agree to execute a certificate setting forth the date on which the Term
commences promptly after such opening.
(b) On the conditions that (i) the Manager is not
in default of its obligations hereunder beyond any applicable notice, cure or
grace period at the time of exercise, and (ii) the Facility has had positive
cash flow for each of the three years prior to the commencement of the Extension
Exercise Period (hereinafter defined), the Manager shall have the option (each,
an "Extension Option") to extend the Term for three additional periods of five
years each on the same terms and conditions as set forth in this Agreement. Each
Extension Option shall be exercised in writing by the Manager to the Owner
during the six month period (the "Extension Exercise Period") commencing on the
first day of the then last year of the Term.
9
<PAGE>
7.2 TERMINATION FOR CAUSE. Either party may terminate this
Agreement by delivering 30 days written notice (a "Termination Notice") to the
other party in the event that any of the following occurs:
(a) any illegal act engaged in by any party in the
operation of the Facility;
(b) if any party files or has a petition or complaint in
receivership or bankruptcy filed against it which has not been dismissed within
90 days of such filing; or
(c) the breach by any party (the "Breaching Party") of any
other material provision in, or obligation imposed by, this Agreement which
violation shall have not been cured to the reasonable satisfaction of the other
party (the "Claiming Party") within 30 days following the date on which the
Claiming Party delivers notice to the Breaching Party describing with
specificity both the claimed breach and the actions required to be taken in
order to cure the claimed breach; PROVIDED that in the event that the claimed
breach is not reasonably susceptible of being cured within 30 days, the cure
period shall be extended for such additional time as may be reasonably required,
PROVIDED FURTHER that in the event that the Claiming Party delivers a
Termination Notice and the Breaching Party commences legal proceedings
contesting the termination within 30 days following delivery of the Termination
Notice, then this Agreement shall not terminate unless and until a final
judicial resolution of such legal proceedings beyond the expiration of any
appeal period has been issued upholding said termination.
7.3 TERMINATION FOR FAILURE TO PAY FEE ON A TIMELY BASIS. In
addition to the provisions of Section 7.2 above, the Manager may terminate this
Agreement upon thirty (30) days written notice of the Owner's failure to pay the
Management Fee when due unless the Owner cures the payment default within 10
days after receiving written notice from the Manager.
7.4 TERMINATION DUE TO CHANGE IN CONTROL. For so long as the
Owner, or the principals of the Owner, own or control, directly or indirectly,
at least twenty percent (20%) of the outstanding voting stock of the Manager (or
its controlling parent entity), the Owner shall have the right to terminate this
Agreement upon 30 days prior written notice to the Manager in the event of a
"Change in Control" of the Manager (or its controlling parent entity). For
purposes of this provisions, "Change in Control" shall mean, whether through a
single transaction or a series of transactions: (a) the transfer of all or
substantially all of the assets of such entity, (b) the transfer of an equity
interest in such entity after which the acquiror holds more than fifty percent
(50%) of the voting power of all equity interests in such entity, or (c) the
merger, consolidation, or other reorganization of such entity with or into
another entity which results in a change of more that fifty percent (50%) of the
composition of the governing body of such entity.
8. INDEMNIFICATION. The Owner shall indemnify the Manager and hold it
harmless of, for, and against all costs, claims, damages or expenses, including
reasonable attorney's fees (collectively "Costs"), incurred or suffered by the
Manager and arising out of acts performed within the scope of this Agreement.
Notwithstanding the foregoing, the Owner shall not have any obligation to
indemnify the Manager or hold it harmless of, from, and against Costs incurred
or suffered by the Manager as a result of the Manager's fraud, willful
misconduct, or gross negligence, or for Costs incurred or suffered by the
Manager as a result of the Manager's failure
10
<PAGE>
to keep true, accurate and complete records. The Manager shall indemnify the
Owner and hold it harmless of, from and against all Costs incurred or suffered
by the Owner as a result of any of the Manager's fraud, willful misconduct, or
gross negligence, or as a result of the Manager's failure to submit proper
reports to the appropriate regulatory agencies or to keep true, accurate and
complete records.
9. ACCESS TO BOOKS AND RECORDS. As a subcontractor that may be subject to
Section 1861(v) (1) (i) of the Social Security Act (the "Act"), the Manager
shall, upon written request and in accordance with the above-mentioned section
of the Act and regulations promulgated pursuant thereto, make available to the
Comptroller General, the Secretary of Health and Human Services, and their duly
authorized representatives, a copy of this Agreement and access to the Manager's
books, documents, and records necessary to verify the nature and extent of the
costs of services provided to the Owner. Such access will be available until the
expiration of four years after the services to which the costs are related have
been furnished.
The provisions of this Section shall apply only if this Agreement is
covered by the Act and such provisions shall become void and shall be of no
further force or effect if, at the time a request is made, this Agreement is not
subject to the Act. The Manager agrees that if it carries out any of the duties
of this Agreement through a subcontract with a related organization which
subcontract has a value or cost of $10,000 or more over a 12 month period, the
Manager will obtain an identical access requirement in such subcontract.
10. FIDELITY BOND. The Manager agrees to obtain a fidelity bond, employee
dishonesty insurance policy or other similar coverage, in form and amount
satisfactory to the Owner, covering those employees reasonably required to by
covered by the Owner.
11. AMENDMENTS. This Agreement shall not be changed modified, terminated,
or discharged, in whole or in part, except by an instrument in writing signed by
the Owner and the Manager, their respective successors or assigns, or otherwise
as provided herein. Such modifications shall be in writing and signed by the
Owner and the Manager.
12. GOVERNING LAW. The provisions of this Agreement shall be governed by,
construed, and interpreted in accordance with the laws of the Commonwealth of
Massachusetts. Any change in any applicable law which has the effect of
rendering any part of this Agreement invalid, illegal, or unenforceable shall
not render the remainder of this Agreement invalid, illegal, or unenforceable,
and the parties hereto agree that in the event that any part of this Agreement
is rendered invalid, illegal, or unenforceable, that they shall negotiate in
good faith to amend any such part of this Agreement so as to comply with any
such law, as amended, and further the respective objectives of the parties
hereto.
13. ASSIGNMENT; SUCCESSORS. Neither the Owner nor the Manager will assign
its interests in this Agreement, without the prior written consent of the other;
provided that (a) the Manager may assign (i) its interests hereunder to an
affiliate, and (ii) its Management Fees to a lender as security for any
financing arrangement of Manager, and (b) the Owner may assign its interests
hereunder to a lender as security with respect to any Financing Agreement.
Subject to the foreoging, this Agreement shall be binding upon and inure to the
benefit of the parties and to their respective successors and assigns.
11
<PAGE>
14. OWNER'S PURCHASE RIGHTS. In the event the Owner is not the fee title
holder to the Facility, or the land on which the Facility is located, the
Manager shall have the right to assume from the Owner any option to purchase,
right of first offer or right of first refusal which the Owner may hold with
respect to the Facility or the land on which the Facility is located.
15. CAPTIONS. The captions of this Agreement are for convenience and
reference only and in no way define, describe, extend or limit the scope of
intent of this Agreement or the intent of any provision contained in this
Agreement.
16. NOTICES. Any notice, demand, consent, or other written instrument to be
given or received under this Agreement ("Notice") required or permitted to be
given shall be in writing signed by the party giving such Notice and/or consent
and shall be hand delivered, sent by nationally recognized overnight carrier or
sent, postage prepaid, by Certified or Registered Mail, Return Receipt
Requested, to the other party at the addresses listed below:
As to Manager: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: Chief Executive Officer
cc: CareMatrix of Massachusetts, Inc.
197 First Avenue
Needham, Masschusetts 02494
Attention: General Counsel
As to Owner: Chancellor of Bonita Springs, Inc.
197 First Avenue
Needham, Massachusetts 02494
Attention: President
Any party shall have the right to change the place to which such notice shall be
sent or delivered by similar notice sent in like manner to all other parties
hereto. All notices sent by certified mail or are hand delivered shall be deemed
received upon delivery or when delivery is refused to the office or address of
the addressee.
17. PROPERTY: Trade names, marketing material, marketing ideas and
development material and records developed specifically for and related to this
Facility shall be the property of the Owner. Trade names, ideas and documents,
forms and development material not developed specifically for this Facility are
to be considered proprietary and will remain the property of the Manager. All
operational forms and documents including, but not limited to, policy and
procedure manuals, operational forms, level of care determination systems,
management policy books, inspection control manuals, and nursing management
books are and will remain the property of the Manager. All financial management
forms, documents and software systems including, but not limited to, bookkeeping
manuals, financial forms, financial spreadsheets, database or word processing
forms, financial accounting packages and outcome information systems are and
will remain the property of the Manager. Upon termination of this Agreement, the
Owner shall have the option to purchase operational material belonging to the
Manager,
12
<PAGE>
except for the financial accounting packages and outcome information systems, at
a mutually agreed upon price.
18. LEASE OPTION. The Owner hereby agrees that so long as the Manager is
not in default in the performance of any duty or any obligation hereunder, the
Manager shall have the option to lease the Facility at any time during the term
of this Agreement (including any extension thereof) by providing the Owner with
at least ninety (90) days prior written notice of such election. Within thirty
(30) days after the receipt of the Manager's notice to lease, the parties shall
enter into a lease agreement substantially in the form attached hereto as
EXHIBIT A (the "Lease"), which Lease shall include, without limitation, a ten
(10) year initial term (with three (3) 5-year renewal terms) and rental payments
equal to the fair market value (which will be a negotiated percentage of total
project costs) as determined immediately prior to the initial term of the Lease
and immediately prior to any renewal terms.
19. COUNTERPARTS. This Agreement may be executed in counterparts, each of
which shall be deemed an original.
[signatures on following page]
[remainder of this page intentionally left blank]
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Management Agreement as
of the date first set forth above.
Witness: CAREMATRIX OF MASSACHUSETTS, INC.
By: By: /s/ Paul Zaylor
-------------------------
Name: Name: Paul Zaylor
Title: Vice President
WITNESS: CHANCELLOR OF STUART, INC.
By: By: /s/ David B. Currie
-------------------------
Name: Name: David B. Currie
Title: Vice President
14
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