Exhibit 10.2

MANAGEMENT AGREEMENT

by and between

MORNINGSTAR SENIOR MANAGEMENT, LLC

(Manager)

and

CHP BILLINGS MT TENANT CORP.

(Tenant)

MORNINGSTAR OF BILLINGS

BILLINGS, MONTANA

December 2, 2013

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TABLE OF CONTENTS

 

         Page  

Article I DEFINITIONS

     1   

1.01

  Accounting Period      1   

1.02

  Adjusted NOI      1   

1.03

  Affiliate      1   

1.04

  Affiliated Agreements      1   

1.05

  Agreement      2   

1.06

  Approved Budget      2   

1.07

  Approved Capital Budget      2   

1.08

  Approved Operating Budget      2   

1.09

  Base Management Fee      2   

1.10

  Business Combination      2   

1.11

  Business Day      2   

1.12

  Change in Control      2   

1.13

  Consumables      2   

1.14

  Code      2   

1.15

  Emergency Requirements      2   

1.16

  Environmental Law(s)      3   

1.17

  Emergency and Evacuation Procedures      3   

1.18

  Event of Default      3   

1.19

  Excess Cash Flow      3   

1.20

  Facility      3   

1.21

  Facility Expenses      3   

1.22

  Facility Sale      5   

1.23

  Intentionally Omitted      5   

1.24

  FF&E      5   

1.25

  FF&E Reserve      5   

1.26

  FF&E Reserve Payment      6   

1.27

  Fiscal Quarter      6   

1.28

  Fiscal Year      6   

1.29

  GAAP      6   

1.30

  Gross Revenues      6   

1.31

  Home Office Employees      7   

1.32

  Household Replacements      7   

1.33

  Intentionally Omitted      7   

1.34

  Impositions      7   

1.35

  Incentive Management Fee      7   

1.36

  Incentive Threshold      7   

1.37

  Index      7   

1.38

  Insurance Program      7   

1.39

  Intellectual Property      7   

1.40

  Landlord      7   

1.41

  Legal Requirements      7   

1.42

  Lender      8   

 

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1.43

  Intentionally Omitted      8   

1.44

  Major Casulty      8   

1.45

  Management Fee      8   

1.46

  Manager Indemnitee(s)      8   

1.47

  Marketing Plan      8   

1.48

  Marketing Services      8   

1.49

  Maximum Reserve      8   

1.50

  Minor Casualty      8   

1.51

  Mortgage      8   

1.52

  Mortgage Loan      8   

1.53

  Mortgage Loan Documents      8   

1.54

  Intentionally Omitted      8   

1.55

  Facility Standards      8   

1.56

  MSM System      9   

1.57

  Net Operating Income      9   

1.58

  NOI Shortfall      9   

1.59

  Non-Routine Capital Expenditures      9   

1.60

  Operating Account      9   

1.61

  Performance Termination Notice      9   

1.62

  Person      9   

1.63

  Prime Rate      9   

1.64

  Proposed Budget      9   

1.65

  Proposed Capital Budget      9   

1.66

  Proposed Marketing Budget      9   

1.67

  Proposed Operating Budget      9   

1.68

  Proprietary Marks      10   

1.69

  Repairs and Equipment Estimate      10   

1.70

  Resident Agreements      10   

1.71

  Residents      10   

1.72

  Service Contracts      10   

1.73

  Shared Services      10   

1.74

  Software      10   

1.75

  State      10   

1.76

  Subordinated Base Management Fee      10   

1.77

  Subordination Threshold      10   

1.78

  Tenant      10   

1.79

  Tenant Indemnitee(s)      10   

1.80

  Term      11   

1.81

  Termination Event      11   

1.82

  Termination Fee      11   

1.83

  Threshold Shortfall      11   

1.84

  Trademark License      11   

Article II APPOINTMENT OF MANAGER AND PRIMARY GOAL OF AGREEMENT

     11   

2.01

  Appointment of Manager      11   

2.02

  Goals      11   

2.03

  Representations and Warranties of Tenant      12   

2.04

  Representations and Warranties of Manager      12   

2.05

  No Discrimination      14   

 

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Article III PAYMENTS TO MANAGER

     14   

3.01

  Base Management Fee      14   

3.02

  Subordination of Base Management Fee      14   

3.03

  Incentive Management Fee      14   

3.04

  Payment of Management Fees      15   

Article IV DUTIES AND RIGHTS OF MANAGER

     15   

4.01

  Authority of Manager      15   

4.02

  Marketing Services      16   

4.03

  Hiring and Training of Staff      16   

4.04

  Management Services      16   

4.05

  Manager’s Home Office Employees      18   

4.06

  Personnel Administration      18   

4.07

  Purchasing      18   

4.08

  Resident Agreements      19   

4.09

  Liaison with Residents      19   

4.10

  Contracts with Affiliates      19   

4.11

  Meetings with Tenant      19   

Article V OPERATING PROFITS, CREDITS AND COLLLECTIONS, AND PROCEDURE FOR
HANDLING RECEIPTS AND OPERATING CAPITAL

     20   

5.01

  Operating Profits      20   

5.02

  Credits and Collections      20   

5.03

  Operating Account and FF&E Reserve      20   

5.04

  Impositions      21   

Article VI FINANCIAL RECORDS

     22   

6.01

  Accounting and Financial Records      22   

6.02

  Reports      22   

6.03

  Access; Audit Rights      22   

Article VII APPROVED BUDGET

     23   

Article VIII Environmental Matters

     24   

8.01

  Tenant Responsibility and Indemnity      24   

8.02

  Manager Responsibility and Indemnity      24   

8.03

  Notice      25   

8.04

  Obligation to Comply      25   

Article IX OTHER FINANCIAL MATTERS

     25   

9.01

  Tax Status      25   

9.02

  Employee Withholding      26   

 

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Article X GENERAL COVENANTS AND TENANT AND MANAGER OBLIGATIONS

     26   

10.01

  Covenant Not To Hire      26   

10.02

  Tenant’s Obligations      26   

10.03

  Manager’s Obligations      26   

10.04

  Tenant’s Right To Inspect      26   

10.05

  Transfer of Residents      27   

10.06

  Non-Compete      27   

10.07

  Non-Solicitation      27   

Article XI REPAIRS AND MAINTENANCE

     28   

11.01

  Routine Repairs and Maintenance      28   

11.02

  Repairs and Equipment      28   

11.03

  Liens      29   

Article XII INSURANCE

     29   

12.01

  Insurance      29   

12.01

  Blanket Policies      30   

12.02

  Risk Management      30   

Article XIII TERMINATION OF AGREEMENT

     30   

13.01

  Termination      30   

13.02

  Change of Control      32   

Article XIV DEFAULTS

     33   

14.01

  Default by Manager      33   

14.02

  Default by Tenant      34   

14.03

  Remedies of Tenant      34   

14.04

  Remedies of Manager      34   

14.05

  No Waiver of Default      35   

14.06

  Interest      35   

14.07

  Disputes      35   

Article XV CONDEMNATION AND CASUALTY

     35   

15.01

  Minor Casualty      35   

15.02

  Major Casualty      36   

15.03

  Condemnation      36   

Article XVI LEGAL ACTIONS, GOVERNING LAW, LIABILITY OF MANAGER AND INDEMNITY

     37   

16.01

  Legal Actions      37   

16.02

  Legal Fees and Costs      37   

16.03

  Choice of Law and Venue      37   

16.04

  Liability of Manager      38   

16.05

  Indemnity      38   

Article XVII REGULATORY AND CONTRACTUAL REQUIREMENTS

     39   

17.01

  Regulatory and Contractual Requirements      39   

17.02

  Equal Employment Opportunity      39   

17.03

  Equal Housing Opportunity      40   

 

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Article XVIII PROPRIETARY MARKS; INTELLECTUAL PROPERTY

     40   

18.01

  Proprietary Marks      40   

18.02

  Ownership of Proprietary Marks      40   

18.03

  Trademark License      40   

18.04

  Intellectual Property      41   

18.05

  Use of Proprietary Marks and Intellectual Property      41   

18.06

  Breach of Covenant      41   

Article XIX MISCELLANEOUS PROVISIONS

     41   

19.01

  Additional Assurances      41   

19.02

  Intentionally Omitted      41   

19.03

  No Brokerage      41   

19.04

  Notices      41   

19.05

  Severability      42   

19.06

  Gender and Number      42   

19.07

  Division and Headings      43   

19.08

  Confidentiality of Information      43   

19.09

  Publicity      43   

19.10

  Right To Perform      43   

19.11

  No Assignment      43   

19.12

  Entire Agreement/Amendment      44   

19.13

  Inurement      44   

19.14

  Relationship Between the Parties      44   

19.15

  Quiet Enjoyment      44   

19.16

  Attorney’s Fees      45   

19.17

  Intentionally Omitted      45   

19.18

  Cooperation      45   

19.19

  Estoppel Certificate      45   

19.20

  Subordination of Management Agreement      45   

19.21

  Operational Transfer      46   

 

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LIST OF EXHIBITS

 

Exhibit A    Description of Real Property [See Recital A] Exhibit B    Approved
Budget for First Fiscal Year [See Section 1.06 and Article VII] Exhibit C   
[INTENTIONALLY OMITTED] Exhibit D    Financial Reporting Schedule [See Section
6.01] Exhibit D-1    Form Quarterly Certification [See Section 6.01] Exhibit E
   Form of Resident Agreement [See Section 4.08] Exhibit F    Facility Standards
[See Section 1.55] Exhibit G    Insurance Coverage [See Article XII] Exhibit H
   Manager’s Organizational Chart [See Section 2.04(g)] Sched. 10.06    Proposed
Ownership Interests [See Section 10.06]

 

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MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (“Agreement”) is made as of December 2, 2013 (the
“Effective Date”), between MORNINGSTAR SENIOR MANAGEMENT, LLC, a Colorado
limited liability company (“MSM” or “Manager”), and CHP BILLINGS MT TENANT
CORP., a Delaware corporation (“Tenant”).

RECITALS:

A. CHP Billings MT Owner, LLC, a Delaware limited liability company
(“Landlord”), owns the senior living facility situated on the property described
in Exhibit A, attached hereto and made a part hereof, and commonly referred to
as “MorningStar of Billings” and located at 4001 Bell Avenue, Billings, Montana
59106 (hereinafter referred to as the “Facility”).

B. Tenant and Landlord have entered into a lease agreement with respect to the
Facility.

C. Tenant wishes to and authorizes Manager to operate the Facility pursuant to
the terms of this Agreement and Manager desires to accept such appointment and
operate the Facility pursuant to the terms of this Agreement.

NOW, THEREFORE, in consideration of Ten and No/100 Dollars ($10.00), the receipt
and sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:

ARTICLE I

DEFINITIONS

The following terms shall have the following meanings when used in this
Agreement:

1.01 Accounting Period. The term “Accounting Period” shall mean the calendar
month.

1.02 Adjusted NOI. The term “Adjusted NOI” means an amount equal to Net
Operating Income less the Base Management Fee and the FF&E Reserve Payment;
provided however, the Incentive Management Fees paid in any Fiscal Year shall
not be considered an Operating Expense for purposes of calculating Adjusted NOI
for any such Fiscal Year.

1.03 Affiliate. The term “Affiliate” shall mean with respect to any Person, any
other Person who, directly or indirectly, controls, is under common control
with, or is controlled by such specified Person. For purposes of this
definition, the term “control” shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of management,
policies or activities of a Person, whether through ownership of voting
securities, by contract or otherwise.

1.04 Affiliated Agreements. The term “Affiliated Agreements” shall mean,
collectively, that certain Management Agreement of even date herewith between
Manager and CHP Boise ID Tenant Corp., a Delaware corporation, for the
management of MorningStar of

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Boise, that certain Management Agreement of even date herewith between Manager
and CHP Idaho Falls ID Tenant Corp., a Delaware corporation, for the management
of MorningStar of Idaho Falls, and that certain Management Agreement of even
date herewith between Manager and CHP Sparks NV Tenant Corp., a Delaware
corporation, for the management of MorningStar of Sparks. Each of the Affiliated
Agreements shall individually be referred to as an “Affiliated Agreement”.

1.05 Agreement. The term “Agreement” shall mean this Management Agreement
between Tenant and Manager, and any amendments hereto as may be from time to
time agreed to in writing by the parties.

1.06 Approved Budget. The term “Approved Budget” is defined in Article VII. The
Approved Budget for the first Fiscal Year is attached hereto and made a part
hereof as Exhibit B. Thereafter, the Approved Budget shall be the budgets
approved in writing by Tenant pursuant to Article VII.

1.07 Approved Capital Budget. The term “Approved Capital Budget” shall mean the
Proposed Capital Budget as approved as part of the Approved Budget by Tenant
pursuant to Article VII.

1.08 Approved Operating Budget. The term “Approved Operating Budget” shall mean
the Proposed Operating Budget as approved as part of the Approved Budget by
Tenant pursuant to Article VII.

1.09 Base Management Fee. The term “Base Management Fee” is defined in
Section 3.01.

1.10 Business Combination. The term “Business Combination” is defined in
Section 13.02.

1.11 Business Day. The term “Business Day” means any day other than Saturday,
Sunday or any other day on which banks or savings and loan associations in New
York, New York are not open for business.

1.12 Change in Control. The term “Change in Control” is defined in
Section 13.02.

1.13 Consumables. The term “Consumables” shall mean food, beverage, medical
supplies, soaps, shampoos or any other similar consumable product.

1.14 Code. The term “Code” is defined in Section 2.04(f).

1.15 Emergency Requirements. The term “Emergency Requirements” means any of the
following events or circumstances: (1) an emergency threatening the Facility, or
the safety of its residents, invitees or employees; or (2) a condition, the
continuation of which is likely to subject Tenant or Manager to criminal
liability or material civil liability.

 

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1.16 Environmental Law(s). The term “Environmental Law(s)” means: (1) the
Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.
Sections 9601 et seq., as now or hereafter amended and the Resource Conservation
and Recovery Act of 1976, as now or hereafter amended; (2) the regulations
promulgated thereunder, from time to time; and (3) all federal, state, municipal
and local laws, rules and regulations (now or hereafter in effect) dealing with
the use, generation, treatment, management, storage, disposal or abatement of
Hazardous Materials or protection of human health or the environment.

1.17 Emergency and Evacuation Procedures. The term “Emergency and Evacuation
Procedures” is defined in Section 4.04(n).

1.18 Event of Default. The term “Event of Default” is defined in Section 14.01,
as to Manager, and in Section 14.02, as to Tenant.

1.19 Excess Cash Flow. The term “Excess Cash Flow” means an amount, if any, by
which Adjusted NOI exceeds the Incentive Threshold.

1.20 Facility. The term “Facility” is defined in the Recitals to this Agreement.

1.21 Facility Expenses.

(a) The term “Facility Expenses” shall mean the following costs and expenses
that are directly related to the operating costs and staffing of the Facility
determined in accordance with GAAP for each Accounting Period, which expenses
and payment of expenses shall be administered by the Manager from the Gross
Revenues, including, without limitation:

(i) Costs of inventory and supplies consumed after the Effective Date of this
Agreement in the operation of the Facility;

(ii) Costs payable to prevent, cure or correct any violation of Legal
Requirements, restrictive covenants or orders or the rules of the applicable
Board of Fire Underwriters with respect to the leasing, use, repair or
maintenance of the Facility and any expense incurred in order to obtain or
maintain any operating permits or licenses, including any registration fees and
expenses and legal fees associated therewith;

(iii) Costs payable to make repairs and perform all maintenance and preventative
maintenance and other routine property maintenance and upkeep services;

(iv) Costs payable for the collection of delinquent rentals collected through an
attorney or collection agency and other costs required in connection with the
enforcement of any lease or resident agreement;

(v) Costs payable under service contracts;

(vi) Costs payable to third parties for advertising and leasing expenses
(including, but not limited to, promotions, printing and signs);

(vii) Costs payable to third parties for auditing, tax preparation and
accounting services and reasonable attorneys’ fees;

 

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(viii) All reasonable costs and fees of audit, legal, technical and other
independent professionals or other third parties who are retained by Manager to
perform services required or permitted hereunder.

(ix) Costs incurred by Manager for all personnel employed at the Facility or
whose services are entirely allocable to the Facility (“at cost” with no
additional fee or mark-up including salaries, payroll taxes, benefits, cost of
payroll, etc.);

(x) Costs payable to third parties for printed forms and supplies required for
use at the Facility;

(xi) Costs of all utilities serving the Facility;

(xii) Costs payable to third parties for printed checks and bank account fees
for each bank account reasonably required by Tenant;

(xiii) Costs of insurance premiums for insurance at the Facility required
pursuant to Exhibit G;

(xiv) Costs payable to third parties incurred in order to prevent a breach under
the Mortgage Documents;

(xv) The Management Fee payable to Manager under the terms of this Agreement;

(xvi) Costs incurred by Manager for electronic data processing equipment,
systems, software or services used at the Facility;

(xvii) All Impositions described in Section 5.05;

(xviii) Shared Services; and

(xix) Any other costs (including, without limitation, expenditures for FF&E,
repairs and equipment and capital improvements and fees payable to governmental
authorities in connection with filing applications for licenses, approvals,
certifications or permits required to operate the Facility as a senior living
facility), fees or expenses included in, and which Manager is authorized to
incur in accordance with, the Approved Budget and/or the terms, conditions and
limitations set forth in this Agreement.

Notwithstanding the foregoing, Manager may incur and pay Facility Expenses which
are not in accordance with the Approved Budget or approved by Tenant in writing,
to the extent such Facility Expenses do not exceed Ten Thousand Dollars
($10,000) individually, or Thirty Thousand Dollars ($30,000) in the aggregate
during any Fiscal Year.

 

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(b) Facility Expenses shall not include the following:

(i) Except as expressly agreed to by Tenant or included in the Approved Budget
as an expense for Shared Services, costs incurred by Manager or Manager’s
Affiliate for salary and wages, payroll taxes, workers’ compensation, bonus
compensation, incentive compensation, retirement plan payments, travel expenses
and other benefits payable to Manager’s or Manager’s Affiliate’s corporate
office employees (including, without limitation, any bonus compensation to such
employees)

(ii) Costs incurred by Manager for forms, papers, ledgers and other supplies,
equipment, copying and telephone of any kind used in Manager’s office at any
location other than the Facility;

(iii) Costs incurred by Manager for political contributions;

(iv) Costs attributable to losses which are covered by the indemnity obligations
of Manager pursuant to Section 16.05 of this Agreement;

(v) Except as expressly agreed to by Tenant or included as part of the Approved
Budget, costs incurred by Manager for training and hiring expenses related to
corporate office employees including but not limited to employment and
employment agency fees;

(vi) Costs incurred by Manager for advertising expenses of Manager other than
costs of marketing that relate exclusively to the Facility for lease or
occupancy, or costs of employment ads for positions at the Facility;

(vii) Costs incurred by Manager for any in-house risk manager, architect,
engineer, accountant or other professional advisor or consultant employed by
Manager (as distinct from third parties engaged for the performance of such
services); and

(viii) Costs incurred by Manager for dues of Manager or any of its employees in
professional organizations or for any of Manager’s employees participating in
industry conventions or meeting (except to the extent included in an Approved
Budget or as otherwise specifically approved by Tenant).

For purposes of consents required to be given by Tenant as described in this
definition of “Facility Expenses,” an approval by Tenant given by e-mail to
Manager will be sufficient.

1.22 Facility Sale. The term “Facility Sale” is defined in Section 13.01(c).

1.23 Intentionally Omitted.

1.24 FF&E. The term “FF&E” shall mean furniture, fixtures, furnishings, soft
goods, computer equipment, hardware, and wiring, case goods, vehicles and
equipment located in or on the Facility or used exclusively in connection with
the operation of the Facility, but shall not include Consumables, Household
Replacements or Software. FF&E shall be and remain the property of Tenant during
the Term and upon expiration or termination of this Agreement.

1.25 FF&E Reserve. The term “FF&E Reserve” is defined in Section 5.03(b).

 

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1.26 FF&E Reserve Payment. The term “FF&E Reserve Payment” means the amount
equal to three hundred fifty and no/100 dollars ($350.00) multiplied by the
total number of rental units on an annual basis (but prorated for any partial
Fiscal Year during the Term), and increasing on the first day of each Fiscal
Year following the Effective Date by three percent (3%) over the FF&E Reserve
Payment for the prior Fiscal Year, and as may be further adjusted by Tenant and
Manager in connection with the required amounts set forth in the approved
Budget.

1.27 Fiscal Quarter. The term “Fiscal Quarter” shall mean, during any Fiscal
Year, the three-month periods ending on March 31, June 30, September 30 and
December 31.

1.28 Fiscal Year. The term “Fiscal Year” means each calendar year included
within the Term; provided, however, that the first Fiscal Year shall be the
period of time commencing on the Effective Date and ending on December 31, 2014;
and provided, further, that the last Fiscal Year shall be the period commencing
on the first day of the applicable calendar year and ending on the date during
such calendar year when the Term shall expire or terminate pursuant to this
Agreement.

1.29 GAAP. The term “GAAP” means generally accepted accounting principles as
adopted by the American Institute of Certified Public Accountants.

1.30 Gross Revenues. The term “Gross Revenues” shall mean, for any applicable
period, all revenues and receipts of every kind derived from operating the
Facility and all departments and parts thereof, determined in accordance with
GAAP for each Accounting Period including, but not limited to: income (from both
cash and credit transactions, net of any fee therefore) from community fees,
monthly occupancy fees, health care fees and any and all other fees and payments
whatsoever received from Residents of the Facility; income from telephone
charges, income from food and beverage and catering sales; income from vending
machines; vendor rebates; and proceeds, if any, from business interruption or
other loss of income insurance (to the extent such insurance either reimburses
on the basis of gross revenues or otherwise covers all expenses including
Manager’s fees), all determined in accordance with GAAP; provided, however, that
Gross Revenues shall not include (i) gratuities to employees at the Facility;
(ii) federal, state or municipal excise, sales or use taxes or similar taxes
imposed at the point of sale and collected directly from Residents or guests of
the Facility or included as part of the sales price of any goods or services;
(iii) proceeds from the sale of FF&E and any other capital asset; (iv) interest
received or accrued with respect to the monies in any operating or reserve
accounts of the Facility; (v) proceeds of any financing or refinancing of the
Facility or any portion thereof; (vi) proceeds of any insurance policy (except
loss of income insurance as provided above) or condemnation or other taking;
(vii) any cash refunds, rebates or discounts to Residents of the Facility, cash
discounts and credits of a similar nature, given, paid or returned in the course
of obtaining Gross Revenues or components thereof; (viii) proceeds from any sale
of the Facility or any other capital transaction; (ix) Resident funds on deposit
or security deposits until such time as the same are applied to current fees due
for services rendered for the Facility; (x) awards of damages, settlement
proceeds and other payments received by Tenant in respect of any litigation
other than litigation to collect fees due for services rendered from the
Facility; (xi) payments under any policy of title insurance; and (xii) proceeds
of any condemnation. Any community fees or deposits that are refunded to a
Resident shall be credited against Gross Revenues during the month in which such
refunds are made, if previously included in Gross Revenues.

 

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1.31 Home Office Employees. The term “Home Office Employees” is defined in
Section 4.05.

1.32 Household Replacements. The term “Household Replacements” shall mean supply
items including linen, china, glassware, silver, uniforms, and similar items,
but excluding Consumables.

1.33 Intentionally Omitted.

1.34 Impositions. The term “Impositions” is defined in Section 5.05(b).

1.35 Incentive Management Fee. The term “Incentive Management Fee” is defined in
Section 3.04.

1.36 Incentive Threshold. The term “Incentive Threshold” means, commencing in
the second Fiscal Year and continuing for the remainder of the Term, for the
applicable Fiscal Year an amount equal to one hundred five percent (105%) of the
Approved Operating Budget for such Fiscal Year but less the Incentive Management
Fee for such Fiscal Year.

1.37 Index. The term “Index” shall mean a fraction, the numerator of which is
the Consumer Price Index for Urban Wage Earners and Clerical Workers, 1982-84
Base Year, All Items, U.S. City Average (CPI-W), as published by the Bureau of
Labor Statistics which is published for the last full calendar month preceding
the date of measurement and the denominator of which is the Index published for
the last full calendar month occurring one (1) year prior to the date of
measurement. If the Index is changed so that a base year other than 1982-84 is
used, the Index used herein shall be converted in accordance with the conversion
factor published by the Bureau of Labor Statistics of the United States
Department of Labor. If the Index is discontinued or otherwise revised during
the Term, such other government index or computation with which it is replaced
shall be used.

1.38 Insurance Program. The term “Insurance Program” is defined in
Section 12.01.

1.39 Intellectual Property. The term “Intellectual Property” shall mean (i) all
Software developed and/or owned by Manager or an Affiliate of Manager; and
(ii) all written or electronic manuals, instructions, policies, procedures and
directives issued or provided by Manager to its employees at the Facility
regarding the procedures and techniques to be used in operation of the Facility,
but specifically excludes the data and information stored or maintained on the
Intellectual Property.

1.40 Landlord. The term “Landlord” has the meaning set forth in the recitals.

1.41 Legal Requirements. The term “Legal Requirements” shall mean any license,
certificate, law, code, rule, ordinance, regulation or order of any federal,
state or local governmental authority, court, department, commission, board or
office, or any body similar to any of the foregoing having jurisdiction over the
business or operation of the Facility or the matters which are the subject of
this Agreement, including any resident care or health care, building, zoning or
use laws, ordinances, regulations or orders, environmental protection laws,
employment laws, occupational health and safety laws and fire department rules.

 

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1.42 Lender. The term “Lender” shall mean a bank or other institution providing
financing for the Facility.

1.43 Intentionally Omitted.

1.44 Major Casulty. The term “Major Casualty” means any fire or other casualty
that results in damage to the Facility to a greater extent than a Minor
Casualty.

1.45 Management Fee. The term “Management Fee” means, together, the Base
Management Fee and the Incentive Management Fee.

1.46 Manager Indemnitee(s). The term “Manager Indemnitee(s)” is defined in
Section 8.01.

1.47 Marketing Plan. The term “Marketing Plan” is defined in Section 4.02(a); a
copy of the approved Marketing Plan for the first Fiscal Year is attached hereto
as part of the Approved Budget for the first Fiscal Year attached hereto as
Exhibit B.

1.48 Marketing Services. The term “Marketing Services” is defined in
Section 4.02.

1.49 Maximum Reserve. The term “Maximum Reserve” is defined in Section 11.02(c).

1.50 Minor Casualty. The term “Minor Casualty” means any fire or other casualty
which results in damage to the Facility and/or its contents, and in the
reasonable judgment of Manager the out-of-pocket expenses (to the extent not
covered by insurance proceeds) of the “Repair and/or Replacement” equals or is
less than One Million Dollars ($1,000,000) (excluding any required insurance
deductibles). For purposes of this paragraph, “Repair and/or Replacement” shall
mean the repair and/or replacement of the Facility and/or its contents to
substantially the same condition as existed prior to the fire or other casualty
resulting in damage to the Facility and its contents.

1.51 Mortgage. The term “Mortgage” shall mean any mortgage or deed of trust
recorded against the Facility as security for a secured loan or any loan secured
by a pledge of the direct or indirect ownership interests in the Tenant.

1.52 Mortgage Loan. The term “Mortgage Loan” shall mean the loan made by Lender
for the Facility and secured by the Mortgage.

1.53 Mortgage Loan Documents. The term “Mortgage Loan Documents” shall mean all
documents evidencing or securing the Mortgage Loan in favor of the Lender.

1.54 Intentionally Omitted.

1.55 Facility Standards. The term “Facility Standards” means from time to time
both the operational standards (for example, staffing levels, compensation
plans, Resident care and health care policies and procedures, and accounting and
financial reporting policies and procedures) and the physical standards (for
example, amounts and quality of FF&E and

 

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frequency of FF&E replacements) that are then generally and consistently (but
not necessarily, absolutely or without exception) applied at or to senior living
communities (but not nursing homes or other acute care facilities), which are of
comparable type, size, age and market orientation as the Facility, all in
accordance with Legal Requirements, provided that the Facility Standards shall
at all times be at a level consistent with those of a premier manager of
assisted or senior living/dementia care facilities. A general summary of
Facility Standards is set forth on Exhibit F, attached hereto and by this
reference made a part hereof.

1.56 MSM System. The term “MSM System” means at any particular time the entire
system or group of MSM Senior Living communities then owned and/or operated or
managed by Manager (or one or more of its Affiliates), under the “MSM” name.

1.57 Net Operating Income. The term “Net Operating Income” means an amount equal
to Gross Revenues minus Facility Expenses.

1.58 NOI Shortfall. The term “NOI Shortfall” is defined in Section 13.01(e).

1.59 Non-Routine Capital Expenditures. The term “Non-Routine Capital
Expenditures” is defined in Section 11.03(a).

1.60 Operating Account. The term “Operating Account” is defined in
Section 5.03(a).

1.61 Performance Termination Notice. The term “Performance Termination Notice”
is defined in Section 13.01(e).

1.62 Person. The term “Person” means any natural person or entity.

1.63 Prime Rate. The term “Prime Rate” is defined in Section 14.06.

1.64 Proposed Budget. The term “Proposed Budget” is defined in Article VII.

1.65 Proposed Capital Budget. The term “Proposed Capital Budget” shall mean an
estimate of the expenditures necessary for (i) replacements and renewals to the
Facility’s FF&E normally capitalized under GAAP and (ii) repairs to the Facility
building of the nature described in Section 11.02(a)(ii), for the next ensuing
Fiscal Year.

1.66 Proposed Marketing Budget. The term “Proposed Marketing Budget” is defined
in Section 4.02(a).

1.67 Proposed Operating Budget. The term “Proposed Operating Budget” shall mean
the Marketing Plan, Proposed Marketing Budget, and an estimate on an Accounting
Period basis, of Gross Revenues and Facility Expenses for the next ensuing
Fiscal Year, together with an explanation of anticipated changes to resident
charges, payroll rates and positions, non-wage cost increases, the proposed
methodology and formula employed by Manager in allocating Shared Services, and
all other factors differing from the then current Fiscal Year.

 

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1.68 Proprietary Marks. The term “Proprietary Marks” shall mean all trademarks,
trade names, symbols, logos, slogans, designs, insignia, emblems, devices,
service marks and distinctive designs of buildings and signs, or combinations
thereof, which are used to identify the Facility in the MSM System. The term
“Proprietary Marks” shall also include all trade names, trademarks, symbols,
logos, designs, etc., which are used in connection with the operation of the
Facility during the Term. The term “Proprietary Marks” shall include all present
and future Proprietary Marks, whether they are now or hereafter owned by Manager
or any of its Affiliates, and whether or not they are registered under the laws
of the United States or any other country.

1.69 Repairs and Equipment Estimate. The term “Repairs and Equipment Estimate”
is defined in Section 11.02(c).

1.70 Resident Agreements. The term “Resident Agreements” is defined in
Section 4.08.

1.71 Residents. The term “Residents” is defined in Section 2.02(a).

1.72 Service Contracts. The term “Service Contracts” is defined in
Section 4.04(a).

1.73 Shared Services. The term “Shared Services” means costs incurred by Manager
in connection with providing services to, and allocated equitably among, senior
living communities operated by Manager or its Affiliates, which shall not
include general corporate overhead. Shared Services allocated to the Facility
shall be a Facility Expense to the extent set forth in the Approved Operating
Budget for each Fiscal Year. Tenant shall have the right to approve, in its sole
and absolute discretion, any increase in the Shared Services expenses at the
Facility over the amount set forth in the Approved Operating Budget for the
first Fiscal Year. In connection with Manager’s delivery of the Proposed Budget
to Tenant in accordance with Section 7.01, Manager shall provide Tenant with
(i) an analysis of the formula and methodology employed by Manager in allocating
Shared Services and (ii) a statement as to the fairness of the formula and
methodology for allocating such Shared Services among the applicable senior
housing facilities.

1.74 Software. The term “Software” means all computer software and accompanying
documentation (including all future upgrades, enhancements, additions,
substitutions and modifications thereof) that are owned or leased by Manager and
used in connection with its operations at the Facility.

1.75 State. The term “State” shall mean the State where the Facility is located.

1.76 Subordinated Base Management Fee. The term “Subordinated Management Fee” is
defined in Section 3.02.

1.77 Subordination Threshold. The term “Subordination Threshold” means,
commencing with the second Fiscal Year, for such Fiscal Year an amount equal to
ninety five percent (95%) of the Approved Operating Budget for such Fiscal Year.

1.78 Tenant. The term “Tenant” is defined in the first paragraph of this
Agreement.

1.79 Tenant Indemnitee(s). The term “Tenant Indemnitee(s)” is defined in
Section 8.01.

 

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1.80 Term. The “Term” of this Agreement shall include: (a) the period beginning
on the date of Effective Date and ending, unless sooner terminated, on the last
day of the calendar month in which the tenth (10th) anniversary of the Effective
Date occurs, plus subsequent automatic renewal periods of one year each unless
written notice of non-renewal is given by one party to the other not less than
ninety (90) days prior to the expiration of the then current period.

1.81 Termination Event. The term “Termination Event” is defined in
Section 13.01.

1.82 Termination Fee. The term “Termination Fee” is defined in Section 13.01(d).

1.83 Threshold Shortfall. The term “Threshold Shortfall” is defined in
Section 3.02.

1.84 Trademark License. The term “Trademark License” is defined in
Section 18.03.

ARTICLE II

APPOINTMENT OF MANAGER AND PRIMARY GOAL OF AGREEMENT

2.01 Appointment of Manager. Tenant hereby engages Manager to operate the
Facility, and Manager hereby accepts such engagement and agrees to operate the
Facility at Tenant’s expense, so as to provide all services required by Legal
Requirements and the terms and conditions set forth in this Agreement. During
the term of this Agreement, Manager shall have full authority to operate and
manage the Facility as a senior living facility in accordance with Legal
Requirements and the terms and conditions hereof, and shall have control over,
and use of, the entire Facility, including its common areas, in accordance with
the terms and conditions hereof. Except as otherwise provided herein, Manager
shall have day-to-day responsibility, control and discretion for the operation,
direction, management and supervision of the Facility, subject to the then
applicable Approved Budget, in accordance with this Agreement.

2.02 Goals. It is the joint goal of Tenant and Manager consistent with the other
terms herein, to:

(a) Provide quality services to individuals residing at the Facility (the
“Residents”) in a manner complying with the form of resident agreement in use at
the Facility and the Approved Budget and consistent with Facility Standards;

(b) Establish and maintain programs to promote the most effective and profitable
utilization of the Facility’s services;

(c) Establish appropriate marketing programs for the Facility all in accordance
with this Agreement, the Facility Standards and the Approved Budget;

(d) Maintain well trained, adequately supervised, quality staff, in sufficient
number, at the Facility in a manner consistent with this Agreement, the Facility
Standards and the Approved Budget;

(e) Operate the Facility prudently and in a manner consistent with this
Agreement, the Facility Standards and the Approved Budget;

 

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(f) Establish and maintain a sound financial accounting system for the Facility;

(g) Institute and maintain adequate internal fiscal controls through proper
budgeting, accounting procedures, and timely financial reporting in a manner
consistent with this Agreement;

(h) Establish sound cash flow and sound billing and collection procedures and
methods;

(i) Conform operations at the Facility to, and comply with, all applicable Legal
Requirements, this Agreement and the Facility Standards, including without
limitation, those pertaining to licensing, and take all steps necessary to
ensure that all licenses and certificates necessary to operate the Facility are
maintained at all times, without interruption; and

(j) Take such other steps as are necessary to provide high quality care to the
Residents, prudently and consistent with this Agreement, the Facility Standards
and the Approved Budget.

2.03 Representations and Warranties of Tenant. Tenant represents and warrants to
Manager as follows:

(a) Tenant is a corporation duly formed, validly existing and in good standing
under the laws of the State of Delaware and has full power and authority to own
a leasehold interest in the Facility.

(b) Tenant has full power and authority to enter into this Agreement and to
carry out its obligations set forth herein. Tenant has taken all action required
by laws, its organizational documents or otherwise to be taken to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. This Agreement is a valid and binding
agreement of Tenant enforceable in accordance with its terms, except that such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors’ rights,
and the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.

(c) There is no litigation, claim, investigation, challenge or other proceeding
pending or, to the knowledge of Tenant, threatened against Tenant, which seeks
to enjoin or prohibit it from entering into this Agreement.

2.04 Representations and Warranties of Manager. Manager represents and warrants
to Tenant as follows:

(a) Manager is a limited liability company duly organized, validly existing and
in good standing under the laws of the State of Colorado, has full corporate
power and authority to own its properties and is duly qualified or licensed to
do business in the State.

 

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(b) Manager has full power and authority to enter into this Agreement and to
carry out its obligations set forth herein. Manager has taken all action
required by law, its articles of incorporation, its bylaws or otherwise to be
taken to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement is a valid
and binding agreement of Manager enforceable in accordance with its terms,
except that such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors’ rights, and the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.

(c) Manager and/or its Affiliates own the Proprietary Marks and the Intellectual
Property and Manager has full right, power and authority to permit the use
thereof in connection with the Facility. Manager shall defend the Proprietary
Marks and Intellectual Property against any claim of right by any other person
to use the same, and will promptly commence and diligently prosecute any action
necessary to prevent the dilution or misappropriation of the Proprietary Marks
and/or Intellectual Property, where such defense or action is commercially
reasonable in the circumstances.

(d) Manager has (or will obtain in accordance with the Legal Requirements) all
licenses and permits necessary to operate the Facility in accordance with Legal
Requirements and otherwise perform its obligations under this Agreement.

(e) There is no litigation, claim, investigation, challenge or other proceeding
pending or, to the knowledge of Manager, threatened against Manager, its
properties or business(es), which seeks to enjoin or prohibit it from entering
into this Agreement.

(f) Manager is and shall at all times be an “eligible independent contractor” as
defined in Section 856(d)(9) of the Internal Revenue Code of 1986, as amended
from time to time (the “Code”) (and taking into account the restrictions on
ownership of the Manager by shareholders of CNL Healthcare Properties, Inc., and
restrictions on ownership of CNL Healthcare Properties, Inc., by owners of the
Manager set forth in Section 856(d)(3)), and Manager will and shall cause the
Facility to be operated in such a manner so that it qualifies as a “qualified
health care facility” within the meaning of Section 856(e)(6)(D) of the Code at
all times. In the event that Tenant reasonably concludes that the terms of this
Agreement will have any effect as to cause the rent under Tenant’s lease of the
Facility to fail to qualify as “rents from real property” within the meaning of
Section 856(d) of the Internal Revenue Code, Manager hereby agrees to enter into
an amendment to this Agreement as proposed by Tenant modifying such terms in
such a way as to cause rent under Tenant’s lease of the Facility to so qualify
as “rent from real property” in the reasonable opinion of Tenant and its
counsel; provided however, no such modifications shall affect the amount of
Management Fees or the practical realization of the rights and benefits of the
Manager hereunder.

(g) Attached hereto as Exhibit H is a true and accurate organizational chart
depicting the ownership structure of Manager.

 

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2.05 No Discrimination. During the Term of this Agreement, subject to the
Approved Budget, Manager will not discriminate against the Facility in favor of
other MSM Facilities in the terms of quality staffing, resources, preferential
leasing or otherwise.

ARTICLE III

PAYMENTS TO MANAGER

3.01 Base Management Fee. For services rendered under this Agreement during each
Fiscal Year of the Term, Tenant shall pay to Manager a management fee equal to
five percent (5%) of Gross Revenues for such Fiscal Year (the “Base Management
Fee”). As defined in Section 1.17(xvi), the Base Management Fee is a Facility
Expense. The Manager pays the Base Management Fee to itself, in accordance with
the terms of Article III.

3.02 Subordination of Base Management Fee. Commencing on January 1, 2015, in the
event Adjusted NOI does not equal or exceed the Subordination Threshold for any
Fiscal Quarter in any given Fiscal Year (before funding debt service, but after
Base Management Fee) (a “Threshold Shortfall”), then the lesser of the amount of
(a) such Threshold Shortfall or (b) forty percent (40%) of the Base Management
(the lesser of such amounts, the “Subordinated Base Management Fee”) shall not
be paid for such Fiscal Quarter and shall accrue through such Fiscal Year and be
payable to Manager in accordance with the terms of this Section 3.02. The
calculation shall be measured each Fiscal Quarter and reconciled on an annual
basis; notwithstanding the foregoing, however, in the event of any Threshold
Shortfall for any Fiscal Quarter, Manager shall pay an amount equal to the
Subordinated Base Management Fee for such Fiscal Quarter to Tenant on or before
the fifteenth (15th) day following the end of such Fiscal Quarter. The
Subordinated Base Management Fee shall only then be payable to the Manager
within fifteen (15) days of the end of the next Fiscal Quarter in which, for the
applicable Fiscal Year, the aggregate excess of the Adjusted NOI over the
aggregate Subordination Threshold for all Fiscal Quarters since the Threshold
Shortfall commenced has exceeded the Threshold Shortfall; provided, however,
that if the Threshold Shortfall is not recouped within the Fiscal Year in which
the Threshold Shortfall commenced, then such Subordinated Base Management Fee
shall not be payable to the Manager. Each Fiscal Year’s calculation shall stand
alone and not accrue or accumulate from year to year. In no event shall the
Subordinated Base Management Fee be paid from sources other than cash flow
resulting from Adjusted NOI above the Subordination Threshold. The payment of
the Subordinated Base Management Fee shall occur in the same manner as the
payment of the Incentive Management Fee, and shall be subject to a
reconciliation on a quarterly and annual basis.

3.03 Incentive Management Fee. Commencing January 1, 2015, Manager shall receive
fifty percent (50%) of Excess Cash Flow in any given Fiscal Year, subject to a
cap of two percent (2%) of total collected Revenues (the “Incentive Management
Fee”). The calculation of the Incentive Management Fee shall be measured and
paid (if any) each Fiscal Quarter, but reconciled on an annual basis, with a
final measurement done within sixty (60) days following the end of each Fiscal
Year. Each Fiscal Year’s calculation shall stand alone and not accrue or
accumulate from year to year. The amount of Incentive Management Fee to be paid
at any Fiscal Quarter during a Fiscal Year will be the Incentive Management Fee
earned through the expiration of the previous Fiscal Quarter less any Incentive
Management Fee installment previously paid for the Fiscal Year being measured.

 

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3.04 Payment of Management Fees.

(a) Payment of Base Management Fee. The Base Management Fee for each Fiscal Year
each shall be payable from Gross Revenues, in arrears, in twelve (12) monthly
installments due by the tenth (10th) day following the month for which such
payment is to be made; provided, however, that in the case of the first Fiscal
Year and the last Fiscal Year, the number of such installments shall equal the
number of calendar months (or partial calendar months) included within such
Fiscal Year. Appropriate provisions shall be made in the case of the final month
of the Term. At the end of each Fiscal Year, in connection with the submission
of annual financial statements and other reports pursuant to Section 6.01 and
the completion of any audit pursuant to Section 6.03, the Gross Revenues for
such Fiscal Year shall be determined. If such determination reveals any
underpayments or overpayments in respect of the Management Fee for such Fiscal
Year, then an adjustment in the amount of the Management Fee for such Fiscal
Year shall be made, and all sums determined to be owing to either Tenant or
Manager as a result of such adjustment shall be paid immediately.

(b) Payment of Incentive Management Fees. The Incentive Management Fees, if any,
shall be paid in arrears thirty (30) days following Tenant’s receipt of the
quarterly financial reports from Manager for the applicable Fiscal Quarter as
set forth in Article VI and Exhibit D hereto; provided however, the calculation
of the Incentive Management Fee shall be measured and reconciled, as necessary,
within sixty (60) days following receipt of the annual financial reports from
Manager for the applicable Fiscal Year as set forth in Article VI and Exhibit D
hereto. Notwithstanding the foregoing or any other provision hereof to the
contrary, if Tenant subsequently determines at any time that any financial
statement overstates the actual Net Operating Income or Gross Revenue upon which
any Incentive Management Fee was paid, then Manager shall refund the amount of
any overpayment of any such fee to Tenant within thirty (30) days after written
demand.

ARTICLE IV

DUTIES AND RIGHTS OF MANAGER

4.01 Authority of Manager. Subject to the terms of this Agreement and the
applicable Approved Budget, Facility operations shall be under the day-to-day
supervision and control of Manager which shall be responsible for the proper and
efficient operation of the Facility in accordance with the terms and provisions
of this Agreement. Subject to the terms of this Agreement and the applicable
Approved Budget, Manager shall have day-to-day discretion and control in all
matters relating to the management and operation of the Facility, including,
without limitation, the following: fees and charges for providing
accommodations, food services, care services, and related services to Residents
and their guests; supervision of Resident care; personal care policies; credit
policies; food and beverage services; employment policies; executing, modifying
and terminating licenses and concessions for commercial space within the
Facility and the provision of services to Residents at the Facility in
accordance with Section 4.04 below; procurement of inventories, supplies and
services; promotion and publicity; and, generally, all activities necessary for
the operation of the Facility consistent with this Agreement.

 

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4.02 Marketing Services. Manager shall provide the following services (the
“Marketing Services”):

(a) For each Fiscal Year of the term, prepare a marketing plan and marketing
strategy for the Facility (the “Marketing Plan”) and a proposed budget for such
plan and strategy (the “Proposed Marketing Budget”), both of which Manager shall
submit to Tenant for its approval as part of the Proposed Operating Budget
pursuant to Article VII hereof.

(b) Direct the marketing efforts for the Facility in accordance with the
Approved Budget and this Agreement.

(c) Plan and implement community outreach, public relations and special events
programs in a manner consistent with the Approved Budget and this Agreement.

(d) Do all other things Manager reasonably deems necessary for the successful
marketing of the Facility consistent with the Approved Budget and this
Agreement.

4.03 Hiring and Training of Staff. Manager shall be solely responsible for the
recruiting, hiring, training and supervising of all Facility staff. All
personnel employed at the Facility shall be employed, trained and paid by
Manager, and the salaries, costs and benefits of such employees shall be
Facility Expenses, to the extent set forth in the Approved Budget or otherwise
approved by Tenant in writing. The salaries, costs and benefits of the employees
will generally be commensurate with the salaries, costs and benefits paid by
Manager in other facilities in the general area in which the Facility is located
and is consistent with the Approved Budget. Manager shall not enter into any
written employment agreements with any person that purports to bind Tenant.
Manager shall comply with all State requirements and the Standards with regard
to the recruiting, hiring, training and supervising of Facility staff.

4.04 Management Services. As Manager of the Facility, Manager shall use its
diligent, good faith efforts to implement all aspects of the operation of the
Facility prudently and in accordance with the terms of this Agreement
(including, without limitation, the Facility Standards and all Legal
Requirements), and the Approved Budget, and shall have responsibility and
commensurate authority for all such activities, in accordance with all of the
terms of this Agreement. Without limiting the generality of the foregoing, in
addition to any other duties set forth in this Agreement, Manager shall be
responsible for doing the following, in a commercially prudent manner and all in
accordance with this Agreement, Legal Requirements, and the then applicable
Approved Budget:

(a) Enter into all contracts, leases and agreements required in the ordinary
course of business for the supply, operation, maintenance and service of the
Facility, including but not limited to food procurement, trash removal, pest
control and elevator maintenance (collectively the “Service Contracts”) and,
subject to Gross Revenues being adequate, pay the costs of all such services
when due. Manager shall only enter into Service Contracts which (i) provide for
expenditures which are in accordance with the Approved Budget and (ii) are
terminable upon no more than 60 days prior notice. Manager may only enter in to
Service Contracts which are not terminable in accordance with the foregoing
provision if such Service Contracts are specifically identified within the
Approved Budget.

 

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(b) Supervise and oversee the activities of all contractors, review the quality
of their workmanship, enforce contractors’ warranties and approve all work and
materials prior to payment therefor.

(c) Purchase such inventories, provisions, food, supplies and other expendable
items as are necessary to operate and maintain the Facility in the manner
required pursuant to this Agreement.

(d) Recruit, hire, supervise, train and discharge all employees to be employed
at the Facility in accordance with the terms of this Agreement.

(e) Provide care to Residents of the Facility as provided for in the resident
agreement agreed to by the parties and otherwise perform all duties and
obligations of the Tenant under the resident agreements.

(f) Set all resident fees (within ranges set forth in the Approved Budget) and
use its best professional efforts to collect such fees.

(g) Oversee, manage and direct all day-to-day operations in the manner required
by the terms of this Agreement.

(h) Obtain, renew and maintain all licenses and permits necessary in order to
operate the Facility in accordance with Legal Requirements and the terms of this
Agreement (and assist and cooperate with Tenant in doing the same in the event
that Tenant is, pursuant to Legal Requirements, required to acquire any such
licenses and permits). Manager shall provide to Tenant, on an annual basis in
conjunction with submission of the Proposed Budget for Tenant’s approval
pursuant to Article VII, a written confirmation that all such licenses and
permits are in full force and effect.

(i) Make or install, or cause to be made or installed, all normal capital
repairs, decorations, renewals, revisions, alterations, rebuilds, replacements,
additions and improvements in and to the Facility building and FF&E in the
ordinary course of business, that Manager deems necessary or appropriate for the
proper operation and maintenance of the Facility in accordance with Facility
Standards and otherwise in accordance with this Agreement and the Approved
Budget.

(j) Open and maintain the bank accounts as required by this Agreement.

(k) Prepare and deliver to Tenant the Proposed Budget, the reports and financial
statements required pursuant to Article VII and such other information as
required by this Agreement.

(l) Plan, execute and supervise repairs and maintenance at the Facility.

(m) Procure and maintain insurance in accordance with Article XII.

 

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(n) Prepare and present to on-site personnel written emergency and evacuation
procedures for the protection, warning, and safe and timely evacuation of all
residents, guests, invitees, and staff from the Facility (the “Emergency and
Evacuation Procedures”). Manager agrees to consult with insurance carrier loss
prevention consultants if so required by Tenant, and to change such Emergency
and Evacuation Procedures if recommended by them; provided, that the Emergency
and Evacuation Procedures shall at all times comply with applicable Legal
Requirements. Manager shall take such steps as it deems appropriate to assure
the proper training of the Manager’ employees, and shall assure that all
residents receive and are knowledgeable about such Emergency and Evacuation
Procedures.

4.05 Manager’s Home Office Employees. As part of the services provided by
Manager, Manager shall from time to time make its employees who are not working
directly at the Facility (the “Home Office Employees”) available, as needed, for
consultation and advice related to the Facility. Home Office Employees include
Manager’s home office staff and staff at other facilities managed by Manager and
its Affiliates with experience in areas such as accounting, budgeting, human
resources, marketing, food service and purchasing. The services of Home Office
Employees recited in the immediately preceding sentence and all other normal
services in accordance with the Facility Standards shall be provided by Manager
to the Facility on a routine basis, without any additional charge or fee to
Tenant unless a charge or fee is expressly approved by Tenant in certain
circumstances. Should Tenant request a type, form or level of service of a
different nature that Home Office Employees do not provide in the ordinary
course of operations to carry out the scope of services described in this
Agreement, Manager shall (i) provide such services by Home Office Employees for
an additional cost to be agreed to in advance by Manager and Tenant, which costs
shall be a Facility Expense, or (ii) if such services cannot be provided by
Manager’s Home Office Employees or if Manager and Tenant cannot agree on the
cost thereof, and Tenant so directs Manager in writing, use its commercially
reasonable efforts to locate and contract for such services from outside
consultants, the cost of which shall be a Facility Expense.

4.06 Personnel Administration. The personnel at the Facility shall be employed
by Manager (and shall not be considered employees of Tenant for any reason), and
the salaries, costs and benefits of such employees shall be Facility Expenses.
Manager shall be responsible for recruiting, hiring, training, promoting,
assigning, supervising, monitoring and discharging the personnel of the Facility
and shall be responsible for the formulation, implementation, modification and
administration of wage scales, rates of compensation, employee insurance,
employee taxes, in-service training, attendance at seminars or conferences,
staffing schedules, job descriptions and personnel policies with respect to the
personnel of the Facility, all in accordance with the Approved Budget and the
other terms of this Agreement.

4.07 Purchasing. Manager shall use, on behalf of the Facility, such purchasing
systems and procedures developed by or otherwise available to Manager for all
items that are consistent with the Approved Budget and the other terms of this
Agreement. In furtherance thereof, Manager shall utilize, to the extent that
they offer competitive prices, any national purchasing contracts that Manager
may from time to time have in effect with suppliers of equipment and supplies,
provided that Manager shall fully pass on savings thereunder to Tenant. All
financial arrangements with vendors, including without limitation, ownership
interests in such vendors by Manager or its Affiliates, profit or revenue
participation and rebate programs, shall be fully disclosed to Tenant and
approved by Tenant in its reasonable discretion. Any purchase by Manager made
pursuant to the Approved Budget shall be made with Manager acting as agent for
and at the expense of the Facility or Tenant. Tenant acknowledges that Manager
is not a merchant and thus is not making any representations or warranties with
respect to the goods or services purchased by the Manager for use at the
Facility, implied or otherwise.

 

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4.08 Resident Agreements. Manager shall use the form of resident and occupancy
agreement attached hereto as Exhibit E, as such form may need to be amended to
comply with State law and regulations regarding senior living facilities.
Notwithstanding the foregoing, Manager may amend the form agreement, on a case
by case basis with respect to each resident, without the consent of Tenant, so
long as (i) any amendments to the agreement comply with Legal Requirements,
(ii) any amendments to the agreement do not increase the liability of Tenant
pursuant to the agreement, (iii) the agreement continues to be consistent with
the operation of the Facility in accordance with Facility Standards and the
Approved Budget, and (iv) if required, the Lender has approved such amendment,
(the form agreement, together with any modifications thereto, whether with
respect to a particular Resident or otherwise, are collectively referred to as
the “Resident Agreements”). Manager shall act as an authorized representative of
Tenant in executing Resident Agreements and any renewals, extensions,
modifications, amendments and terminations thereof, and Manager shall not enter
into any such agreement for a duration of more than one (1) year without the
prior written consent of Tenant. Manager shall use good faith efforts to secure
compliance by Residents and tenants with the terms and provisions of their
Resident Agreements, to the extent consistent with the Facility Standards and in
the ordinary course of Manager’s business. Manager shall inform all Residents
and tenants of such rules, regulations and notices as may be promulgated by
Tenant or Manager. Manager shall give Tenant prompt written notice of all
matters involving any material litigation.

4.09 Liaison with Residents. Manager shall schedule and coordinate Resident
moves, maintain personal contact with Residents and their families and sponsors
and serve as liaison with Tenant in order to minimize misunderstandings and
receive, and resolve Resident complaints in a timely and courteous manner.

4.10 Contracts with Affiliates. Manager shall not engage or pay any compensation
to any Affiliate of Manager for the provisions of goods and services in
connection with this Agreement unless (a) such party is fully qualified and
experienced to provide the required goods or services, (b) both the scope of
services and the compensation payable to such Affiliate for the goods or
services are consistent with then current market standards for arm’s-length
transactions, (c) Manager discloses such engagement to Tenant as a transaction
with an Affiliate of Manager and (d) Tenant, in its sole, absolute discretion,
approves such engagement and payment.

4.11 Meetings with Tenant. Manager shall meet with Tenant from time to time, at
Tenant’s request, to discuss the operations of the Facility and the performance
of the Manager’s duties under this Agreement.

 

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ARTICLE V

OPERATING PROFITS, CREDITS AND COLLLECTIONS, AND

PROCEDURE FOR HANDLING RECEIPTS AND OPERATING CAPITAL

5.01 Operating Profits. Manager shall collect all Gross Revenues and pay
Facility Expenses as set forth in the Approved Budget. All Fees due to Manager
under this Agreement will be paid to Manager directly from the Gross Revenues.
Notwithstanding the foregoing, Manager shall not require Tenant’s consent for
expenditures that deviate from the Approved Budget solely to the extent that
(i) any expense actually incurred for any line item does not deviate from the
amount provided for said line item in the Approved Budget by more than the
lesser of 5% or three thousand and no/100 dollars ($3,000.00) and (ii) the
aggregate amount of Facility Expenses actually incurred for a Fiscal Year does
not deviate from the amount provided for the Facility Expenses in the Approved
Budget by more than 5%. Subject to Article XI (Repairs and Maintenance), Manager
shall not require Tenant’s consent for expenditures that deviate from the
Approved Budget that are necessary to remedy or respond to an Emergency
Requirement and obtaining such consent would materially impair Manager’s ability
to respond to such Emergency Requirement by the terms of this Agreement and
Emergency Requirements.

5.02 Credits and Collections. Manager shall install credit and collection
policies and procedures, and Manager shall institute monthly billing by the
Facility, and steps necessary to collect accounts and monies owed to the
Facility by Residents. This also includes the institution of legal proceedings
in the name of Tenant, Manager and/or the Facility, if necessary, and, if
approved by Tenant, to the extent required by Section 14.01, the enforcement of
the rights of Tenant as creditor under any contract in connection with the
rendering of any service or the purchase of any goods. Any and all reasonable
costs and/or fees charged by a third party in connection with the collections
and/or enforcement set forth in this Section shall be included in Facility
Expenses as a legal expense to the extent included in the Approved Budget and,
if required, approved by Tenant in writing.

5.03 Operating Account and FF&E Reserve.

(a) Operating Account. Upon receipt, Manager shall deposit all Revenues received
into a separate, segregated bank account (the “Operating Account”) at a bank
approved by Tenant and Manager. The Operating Account shall be held in the
Tenant’s name and withdrawals from the Operating Account shall be made solely by
representatives of Manager whose signatures have been authorized to access the
Operating Account. Funds in the Operating Account shall be segregated from all
other accounts and investments and shall not be commingled with any other funds
controlled by the Manager. Manager shall, with Facility Revenue, maintain such
balances therein as Manager and Tenant shall deem appropriate, taking into
account the cash flow management needs of the Facility and the disbursement from
such accounts of such amounts of the Facility’s funds as Manager and Tenant
shall from time to time reasonably determine to be appropriate in the discharge
of the responsibilities of Manager under this Agreement, as well as remaining in
accordance with the Approved Budget an taking into account Tenant’s desire to
maintain as much of its funds in interest-bearing accounts as is reasonably
feasible. Tenant shall maintain a minimum cash balance of fifty thousand and
no/100 dollars ($50,000.00) equal to one (1) month of annualized Facility
Expenses (based on prior twelve (12) months of Facility Expenses) in the
Operating Account if needed to operate the Facility in a manner designed to meet
the mutual goals of Tenant and Manager set forth in Section 2.02 above,
consistent with the terms of this Agreement. Tenant shall be a signatory on the
Operating Account; provided, however, Tenant’s signature shall be required on
all checks/withdrawals after an Event of Default by Manager under this
Agreement. Reasonable petty cash funds shall be maintained at the Facility.

 

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(b) FF&E Reserve. Tenant shall, or Manger shall at Tenant’s direction, establish
a reserve account (the “FF&E Reserve”) at a bank approved by Manager, such
approval not to be unreasonably withheld or delayed. Each month during the Term,
Manager shall transfer into the FF&E Reserve an amount equal to one twelfth
(1/12) of the FF&E Reserve Payment. Transfers into the FF&E Reserve shall be
made on or before the fifteenth (15th) day of each month. Funds deposited into
the FF&E Reserve shall be disbursed in accordance with the Approved Capital
Budget. Manager and Tenant or Landlord shall each be signatories on the FF&E
Reserve; provided, however, Tenant’s signature shall be required on all
checks/withdrawals after an Event of Default by Manager under this Agreement.

5.04 Impositions.

(a) Except as specifically set forth in Section 5.05(b) hereof and subject to
the terms of any Mortgage, all Impositions (defined below) which accrue during
the Term of this Agreement (or are properly allocable to such Term under GAAP)
shall be paid by Manager from Gross Revenues, as a Facility Expense, before any
fine, penalty or interest is added thereto or lien placed upon the Facility or
this Agreement, unless payment thereof is stayed; provided, however, that
nothing herein shall impose upon Manager responsibility for funding payment of
Impositions from Manager’s own funds. Tenant shall within ten (10) Business Days
after the receipt of any invoice, bill, assessment, notice or other
correspondence relating to any Imposition, furnish Manager with a copy thereof.
Tenant may initiate proceedings (or direct Manager to initiate proceedings) to
contest any Imposition (in which case each party agrees to sign the required
applications and otherwise cooperate with the other party in expediting the
matter), and all reasonable costs of any negotiations or proceedings with
respect to any such contest shall be paid from Gross Revenues and shall be a
Facility Expense.

(b) The term “Impositions” means all levies, taxes, assessments and similar
charges, including, without limitation, the following: real estate taxes, all
water, sewer or similar fees, rents, rates, charges, excises or levies, vault
license fees or rentals; license fees; inspection fees and other authorization
fees and other governmental charges of any kind or nature whatsoever, whether
general or special, ordinary or extraordinary, foreseen or unforeseen, or
hereinafter levied or assessed of every character (including all interest and
penalties thereon), which at any time during or in respect of the Term of this
Agreement may be assessed, levied, confirmed or imposed on Tenant or Manager
with respect to the Facility or the operation thereof, or otherwise in respect
of or be a lien upon the Facility (including, without limitation, on any of the
inventories or Household Replacements now or hereafter located therein).
Impositions shall not include (i) any income or franchise taxes payable by
Tenant or Manager or (ii) any franchise, corporate, estate, inheritance,
succession, capital levy or transfer tax imposed on Tenant or Manager, all of
which shall be paid solely by Tenant or Manager, not from Gross Revenues or any
other funds generated by or held with respect to the Facility. Notwithstanding
the foregoing, any Impositions resulting from Manager’s gross negligence or
willful misconduct, or fines or penalties imposed due to Manager’s failure to
correct a noticed deficiency prior to the imposition of a fine (provided that
reasonable notice and time to cure was given), or as a result of a repeat of a
prior violation for which Manager was cited in the prior twelve (12) month
period, shall be paid by Manager from its own funds and not as a Facility
Expense. In the event that Manager and Tenant disagree as to whether an
Imposition is appropriate for reimbursement as a Facility Expense, the dispute
will be resolved pursuant to Section 19.20 below.

 

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ARTICLE VI

FINANCIAL RECORDS

6.01 Accounting and Financial Records. Manager shall establish and administer
accounting procedures and controls and systems for the development, preparation
and safekeeping of records and books of accounting relating to the business and
financial affairs of the Facility, including payroll, accounts receivable and
accounts payable, and shall prepare monthly, quarterly and annual financial
reports in accordance with the requirements of Exhibit D attached hereto and any
Lender requirements. All such reports shall be prepared in accordance with GAAP
and delivered electronically and those delivered monthly shall be certified by
an officer of Manager as being true and correct in all material respects and
those delivered quarterly and/or annually shall be accompanied by a certificate
of the CFO of Manager in the form attached hereto as Exhibit D-1. Such records
shall be kept in accordance with generally accepted accounting principles and
shall compare monthly, quarterly and year to date results with the Approved
Budget. Manager shall not materially alter such forms without obtaining Tenant’s
approval, which approval shall not be unreasonably withheld, conditioned or
delayed. Manager shall also cooperate with Tenant’s independent auditors in the
preparation of the annual audit and preparation of income tax returns. The
reasonable costs of the annual audit, if requested by Tenant, and of providing
information necessary for the preparation of the income tax returns of Tenant
shall be Facility Expense.

6.02 Reports. Manager shall maintain and keep complete and accurate records for
the Facility including, without limitation, memoranda, correspondence, notices
and all other such records as may be appropriate or customary in connection with
the leasing and operation of the Facility and the transaction of business with
third parties including, without limitation, suppliers, employees and
governmental or municipal authorities. In addition to the monthly interim report
required pursuant to Section 6.01 and such other reports as may be reasonably
requested by Tenant, Manager shall keep Tenant informed as to the financial
status, condition, and operation of the Facility and as to any Legal
Requirements in connection with the licenses and permits necessary for the
Facilities, with written reports and such other or special reports as Manager
may from time to time determine are necessary or as Tenant may reasonably
request from time to time. Manager shall inform Tenant, and upon request of
Tenant, submit to Tenant, all healthcare surveys, responsive plans of
correction, notices from governmental regulatory authorities, administrative
orders, and notices of change of law/regulation having a material impact on the
operation and provision of services at the Facility.

6.03 Access; Audit Rights. Tenant shall have the right, after providing Manager
at least two (2) business days’ notice, at all reasonable times during the usual
business hours of the Facility, to audit, examine, and make copies of books of
account (including copying any records contained in Software), memoranda,
correspondence, notices and all other records maintained by Manager with respect
to the Facility. Such right may be exercised through any agent or employee
designated by Tenant or by an independent public accountant designated by
Tenant. Manager shall locate any and all books of account and other records
maintained by Manager with respect to the Facility at the Facility. Manager
shall make adequate space available to Tenant at the Facility to audit, examine
and make copies of such books of account and other records, and Manager shall be
under no obligation to relocate such records to the Facility for Tenant’s
review. If any of the reports required by this Article VI are not furnished on a
timely

 

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basis, and Manager does not provide the same within ten (10) business days after
notice from Tenant thereof, Tenant shall have the right, at Manager’s expense,
to cause the books and records of Manager relating to the Facility to be
audited; provided that the foregoing rights shall be in addition to, and not in
lieu of, any other right or remedy available to Tenant under this Agreement.
Further, at the end of the Term of this Agreement, or upon the termination of
this Agreement, as provided herein, copies of all books and records kept for the
Facility, including all records kept on electronic media, and accounts and funds
belonging to the Facility, are to be promptly delivered to the Tenant in a form
readable by generally available software.

ARTICLE VII

APPROVED BUDGET

In accordance with the reporting schedule attached as Exhibit D, Manager shall
deliver to Tenant for Tenant’s approval, a proposed budget for the next ensuing
Fiscal Year for the Facility (a “Proposed Budget”), which shall include the
Proposed Operating Budget and a Proposed Capital Budget. The Proposed Budget
shall be considered by Tenant and, in consultation between Tenant and Manager,
the budget for the Facility for the ensuing Fiscal Year will be prepared by
Manager with the final contents of the budget to be approved by Tenant (the
“Approved Budget”), which approval will not be unreasonably denied, conditioned
or delayed. The Approved Budget shall be accompanied by a narrative description
of management objectives and assumptions, together with the other components
which would constitute the Approved Budget. If there is a delay in the
finalization of a new Approved Budget, or if Tenant shall disapprove the
Proposed Budget, (x) with respect to those portions approved by Tenant, Manager
shall operate the Facility pursuant to the Approved Budget for such Fiscal Year,
and (y) with respect to those portions not approved by Tenant, Manager shall
operate under the Approved Budget for the immediately preceding Fiscal Year,
increased by the greater of (i) 3  1⁄2% or (ii) the increase in the Index from
the first day of the new year compared to the Index on the first day of the
previous year, until a new budget is approved. Manager may only incur and pay
Facility Expenses which are in accordance with the Approved Budget (or within
clause (y) above) or otherwise approved by Tenant in writing or necessary to
remedy or respond to an Emergency Requirement. Notwithstanding the foregoing,
Manager may incur and pay Facility Expenses which are not in accordance with the
Approved Budget or approved by Tenant in writing, to the extent such Facility
Expenses do not exceed the lesser of Three Thousand Dollars ($3,000) or an
amount five percent (5%) or greater than the of the amount allocated for such in
the Approved Budget during any Fiscal Year. In furtherance of the foregoing,
Manager shall use its best efforts to operate the Facility as provided herein so
that the actual Gross Revenues and Facility Expenses during any applicable
period of Tenant’s Fiscal Year shall be consistent with the Approved Budget. All
expenses must be charged to the proper account on a basis consistent with the
Approved Budget classifications. No expense may be reclassified in a manner
inconsistent with the primary purpose of maximizing Gross Revenues and Operating
Profits, except as needed to correct an inadvertent error, or in the exercise of
good business practices to address a revised approach (e.g., paying for third
party advertising rather than hiring internal marketing person). During the
calendar year, Manager shall inform Tenant promptly of any material increases or
decreases in costs, expenses or income that were not reflected in the Approved
Budget. The form of the Approved Budget shall be consistent with Exhibit B.

 

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ARTICLE VIII

ENVIRONMENTAL MATTERS

8.01 Tenant Responsibility and Indemnity. To the extent not otherwise covered by
insurance maintained by either Manager or Tenant, Tenant shall protect,
indemnify and hold harmless Manager, its stockholders, members, partners,
trustees, directors, officers, agents, employees and beneficiaries, and any of
their respective successors or assigns (collectively, the “Manager Indemnitees”
and, individually, a “Manager Indemnitee”) for, from and against any and all
debts, liens, claims, causes of action, administrative orders or notices, costs,
fines, penalties or expenses (including, without limitation, reasonable
attorneys’ fees and expenses) imposed upon, incurred by or asserted against any
Manager Indemnitee resulting from, either directly or indirectly, the presence
during the Term in, upon or under the soil or ground water of the Facility or
any properties surrounding the Facility of any Hazardous Materials in violation
of any Environmental Law, except to the extent the same arises from the
negligence or wrongful conduct of any Manager Indemnitee. This duty includes,
but is not limited to, costs associated with personal injury or property damage
claims as a result of the presence prior to the expiration or sooner termination
of this Agreement of Hazardous Materials in, upon or under the soil or ground
water of the Facility in violation of any Environmental Law. Upon written notice
from the indemnified party and any other of the Manager Indemnitees, Tenant
shall undertake the defense, at its sole cost and expense, of any
indemnification duties set forth under this Section 8.01. The Manager and
Manager Indemnities, at their own expense, will cooperate fully with Tenant.
Tenant shall not be liable for any duplicative attorney fees incurred by Manager
or any Manager Indemnitee unless such fees were incurred at the express written
request of Tenant. The indemnity obligation of Tenant set forth in this
Section 8.01 shall survive for one (1) year after termination of this Agreement.
“Hazardous Materials” shall mean and include any substance or material
containing one or more of any of the following: “hazardous material,” “hazardous
waste,” “hazardous substance,” “regulated substance,” “petroleum,” “pollutant,”
“contaminant,” or “asbestos” as such terms are defined in any applicable
Environmental Law in such concentration(s) or amount(s) as may impose clean-up,
removal, monitoring or other responsibility under the Environmental Laws, as the
same may be amended from time to time, or which may present a significant risk
of harm to Residents, invitees or employees of the Manager or the Facility.

8.02 Manager Responsibility and Indemnity. To the extent not otherwise covered
by insurance maintained by either Manager or Tenant, Manager shall protect,
indemnify and hold harmless Tenant, its stockholders, members, partners,
trustees, directors, officers, agents, employees and beneficiaries, and any of
their respective successors or assigns with respect to their interest in the
Facility (collectively, the “Tenant Indemnitees” and, individually, a “Tenant
Indemnitee”) for, from and against any and all debts, liens, claims, causes of
action, administrative orders or notices, costs, fines, penalties or expenses
(including, without limitation, reasonable attorneys’ fees and expenses) imposed
upon, incurred by or asserted against any Tenant Indemnitee resulting from,
either directly or indirectly, the presence during the Term in, upon or under
the soil or ground water of the Facility or any properties surrounding the
Facility of any Hazardous Materials in violation of any Environmental Law, to
the extent that any of the foregoing arises by reason of the gross negligence or
willful misconduct of Manager, except to the extent the same also arises from
the negligence or wrongful conduct of a third party or any other Tenant
Indemnitee. This duty includes, but is not limited to, costs associated with
personal

 

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injury or property damage claims as a result of the presence prior to the
expiration or sooner termination of this Agreement of Hazardous Materials in,
upon or under the soil or ground water of the Facility in violation of any
Environmental Law. Upon written notice from the indemnified party and any other
of the Tenant Indemnitees, Manager shall undertake the defense, at its sole cost
and expense, of any indemnification duties set forth under this Section 8.02.
The Tenant and Tenant Indemnities, at their own expense, will cooperate fully
with Manager. Manager shall not be liable for any duplicative attorney fees
incurred by Tenant or any Tenant Indemnitee unless such fees were incurred at
the express written request of Manager. The indemnity obligation of Manager set
forth in this Section 8.02 shall survive for one (1) year after termination of
this Agreement.

8.03 Notice. Each party shall undertake reasonable efforts to notify the other
party concerning the non-compliance of any Environmental Law or presence of any
Hazardous Materials on or under the Facility of which the notifying party has
knowledge; provided, however, that, except to the extent permitted by
Section 19.08 below, the parties shall otherwise maintain such information
confidential.

8.04 Obligation to Comply. Manager agrees to take all reasonable actions
necessary to comply with all requests of lenders and insurers and with all Legal
Requirements including implementing any and all remedial or preventative
maintenance programs as circumstances may reasonably require to comply with any
and all Environmental Laws. All such costs shall be paid as a Facility Expense
to the extent they are typical and ordinary maintenance expenses, but if such
costs are extraordinary in nature or should be properly treated as a capitalized
expense, Tenant shall bear such costs and shall promptly pay such expenses.

ARTICLE IX

OTHER FINANCIAL MATTERS

9.01 Tax Status. Subject to the provisions of this Agreement, Manager shall
operate the Facility in a manner to best assure that Tenant and the Facility
receive all benefits of applicable tax exemptions and/or credits available
thereto from any governmental authority. Manager will prepare or cause to be
prepared, at no additional cost to Tenant (except as permitted below), all tax
returns required in the course of operations, excluding income or franchise tax
returns, which are the responsibilities of Tenant. These returns include, but
are not limited to, sales and use tax return, personal property tax return and
business, professional and occupational license tax returns. Manager shall
timely file or cause to be filed such returns as required by each jurisdiction.
All third party costs and expenses incurred by Manager in performing its duties,
which are in accordance with the Approved Budget or otherwise agreed to in
writing by Tenant, shall be Facility Expenses. Nothing herein shall be construed
to restrict Manager from engaging a third party accounting or law firm to assist
Manager to file or cause to be filed such returns on a timely basis.
Notwithstanding the foregoing, Manager shall not be responsible for the
preparation of Tenant’s Federal or State income tax returns; provided, however,
that Manager shall cooperate fully with Tenant as may be necessary to enable
Tenant to file such Federal or State income tax returns, including without
limitation by preparing the necessary data and submitting it to Tenant in a
timely manner. If Tenant or any entity owning a majority of the equity interests
of Tenant (directly or indirectly) intends to qualify as a real estate
investment trust for Federal tax purposes, Manager shall cooperate with Tenant
and such entity to

 

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structure the operations and documentation relating to the Facility in a manner
requested by Tenant or such entity to assure such qualifications. Tenant agrees
that Manager will not be required to incur expenses to comply with the
provisions of the prior sentence to the extent Manager would not otherwise incur
such expenses pursuant to this Agreement unless Tenant promptly reimburses
Manager therefor.

9.02 Employee Withholding. Manager shall comply with all applicable Legal
Requirements concerning the withholding of taxes from employee wages and
otherwise administering the payroll. Manager will cause to be prepared and filed
all forms, reports and returns as required by law in connection with
unemployment insurance, worker’s compensation insurance, withholding tax, Social
Security and other similar taxes now in effect.

ARTICLE X

GENERAL COVENANTS AND TENANT AND MANAGER OBLIGATIONS

10.01 Covenant Not To Hire. Upon any termination or assignment of this
Agreement, and for a period of one (1) year thereafter, Tenant shall not,
without the express written consent of the Manager, hire or solicit for
employment the persons occupying the positions of Executive Director or Sales
Director (also referred to as Marketing Director) of the Facility at the time
this Agreement is terminated; provided, however, that the provisions of this
Section 10.01 shall not apply in the event that Manager was terminated without
cause, pursuant to Section 13.01(d) herein. The provisions of this Section 10.01
shall not apply to employees of Manager at the Facility below the level of
Executive Director and Sales Director.

10.02 Tenant’s Obligations. Tenant hereby agrees to comply with all of the
provisions of this Agreement applicable to Tenant and to perform all obligations
of Tenant as set forth herein. Tenant further agrees to take all steps
reasonably necessary to ensure, consistent with the provisions herein, that
Tenant and Tenant’s agents provide all necessary assistance and cooperation to
Manager in connection with Manager’s provision of management services hereunder.
Tenant shall perform only such duties as shall be permitted under applicable
Legal Requirements and licenses.

10.03 Manager’s Obligations. Manager hereby agrees to comply with all of the
provisions of this Agreement applicable to Manager and to perform all
obligations of Manager as set forth herein. Manager agrees to make Home Office
Employees necessary for Manager to discharge its duties and obligations under
this Agreement available, as more particularly set forth in Section 4.05 above.

10.04 Tenant’s Right To Inspect. Tenant or its employees, representatives,
lenders or agents shall have access to the Facility and the files, books,
accounts, and records of Manager related to the Facility for the purpose of
inspection at any time and without prior notice. Tenant, or its employees,
representatives, lenders or agents shall have access to the Facility and the
files, books, accounts and records of Manager for the purpose of showing the
Facility to prospective purchasers, investors, Residents or mortgagees at
reasonable business hours and (i) with respect to access to the Facility, upon
one (1) business day notice, and (ii) with respect to books and records
maintained by Manager, upon at least three (3) business days notice, in each
case given to Manager’s investor relations representative for Tenant located at
Manager’s corporate headquarters (and not to the Facility’s Executive Director).
Manager shall be permitted to accompany Tenant, its employees, representatives,
lenders or agents on all such visits.

 

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10.05 Transfer of Residents. Manger agrees that it will not, as long as it
manages for Tenant under this Agreement, without the prior written consent of
the Tenant, encourage or solicit the transfer of any resident of the Facility to
another facility in which Manager has an interest which is not owned by Tenant,
unless the physical or medical condition of the resident indicates that such a
transfer would be appropriate and Tenant is informed in advance thereof.

10.06 Non-Compete. Manager hereby covenants and agrees that, for a period
commencing on the Effective Date and ending one (1) year following the
expiration or earlier termination of this Agreement, Manager shall not, and
shall not cause or permit any of its Affiliates (each, a “Covered Person”), to
either (1) engage directly or indirectly, in any capacity, in any activities
that Compete with the business of developing, owning, operating, leasing or
managing a senior living facility within five (5) driving miles of the Facility
or (2) specifically solicit any employees of the Facility for employment at
other facilities owned or controlled by a Covered Person. For purposes of this
provision, “Compete” means (i) to, directly or indirectly, conduct, facilitate,
participate or engage in, or bid for or otherwise pursue a business, whether as
a principal, sole proprietor, partner, stockholder, or agent of, or consultant
to or manager for, any Person or in any other capacity, or (ii) to, directly or
indirectly, have any ownership interest in any Person or business which
conducts, facilitates, participates or engages in, or bids for or otherwise
pursues a business, whether as a principal, sole proprietor, partner,
stockholder, or agent of, or consultant to or manager for, any such Person or in
any other capacity. Notwithstanding the foregoing, this Section 10.06 shall not
apply to or in any way prohibit or restrict any existing ownership interests,
any existing operations, the proposed ownership interests set forth on Schedule
10.06, or existing operations of a Covered Person as of the Effective Date. The
parties recognize and acknowledge that a breach of this Section 10.06 by Manager
or any of its Affiliates will cause irreparable and material loss and damage to
Tenant and hereby consent to the granting by any court of competent jurisdiction
of an injunction or other equitable relief, without the necessity of posting a
bond, cash or otherwise, and without the necessity of actual monetary loss being
proved or Tenant’s establishing the inadequacy of any remedy at law, and order
that the breach or threatened breach of such provisions may be effectively
restrained. The provisions of this Section 10.06 shall expressly survive the
expiration or earlier termination of this Agreement for a period of one
(1) year, provided, however, that the provisions of this Section 10.06 shall not
apply in the event that Manager was terminated without cause, pursuant to
Section 13.01(d) herein.

10.07 Non-Solicitation. Manager agrees not to directly or indirectly solicit,
divert or accept business from any customer, supplier, distributor or
manufacturer of or to Tenant or Landlord to the detriment of Tenant or Landlord,
or otherwise interfere with the relationship between Tenant or Landlord and any
customer, supplier, distributor or manufacturer of or to Tenant or Landlord to
the detriment of Tenant or Landlord. The parties recognize and acknowledge that
a breach of this Section 10.07 by Manager or any of its Affiliates will cause
irreparable and material loss and damage to Tenant and hereby consent to the
granting by any court of competent jurisdiction of an injunction or other
equitable relief, without the necessity of posting a bond, cash or otherwise,
and without the necessity of actual monetary loss being proved or Tenant’s
establishing the inadequacy of any remedy at law, and order that the breach or

 

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threatened breach of such provisions may be effectively restrained. The
provisions of and obligations under this Section 10.07 shall apply throughout
the Term and shall expressly survive the expiration or earlier termination of
this Agreement for a period of one (1) year following such expiration or earlier
termination; provided, however, that the provisions of this Section 10.07 shall
not apply in the event that Manager was terminated without cause, pursuant to
Section 13.01(d) herein.

ARTICLE XI

REPAIRS AND MAINTENANCE

11.01 Routine Repairs and Maintenance. Subject to the Approved Budget and having
adequate funds available, Manager shall maintain the Facility in good repair and
condition and in conformity with Facility Standards and Legal Requirements, and
shall make or cause to be made such routine, preventive maintenance, repairs and
alterations, the cost of which can be expensed under GAAP, as it, from time to
time, deems necessary for such purposes consistent with the Approved Budget.
Manager shall from time to time make (a) such replacements and renewals to the
Facility’s FF&E as set forth in the Approved Budget, or as required to satisfy
an Emergency Requirement; and (b) certain repairs and maintenance to the
Facility building which are normally capitalized under GAAP such as exterior and
interior repainting, resurfacing building walls, floors, roofs and parking
areas, but which are not major repairs, alterations, improvements, renewals or
replacements to the Facility building’s structure or exterior façade or to its
mechanical, electrical, heating, ventilating, air conditioning, plumbing or
vertical transportation systems, as are set forth in the Approved Budget, or as
are required on an emergency basis. The cost of such maintenance, repairs and
alterations shall be paid from Gross Revenues and treated as Facility Expenses
to the extent consistent with the Approved Budget or as otherwise provided in
this Article XI.

11.02 Repairs and Equipment.

(a) Subject to the terms of this Agreement and the Approved Budget, the funds in
the FF&E Reserve shall be used by Manager to cover the costs of:

(i) Replacements, renewals and additions as required by Facility resident needs,
Legal Requirements and the Facility Standards to the Facility’s FF&E not
normally capitalized under GAAP; and

(ii) Certain repairs and maintenance to the Facility building which are normally
capitalized under GAAP such as material exterior and interior repainting,
resurfacing building walls, floors, roofs and parking areas, but which are not
minor repairs, alterations, improvements, renewals or replacements to the
Facility building’s structure or exterior façade or to its mechanical,
electrical, heating, ventilating, air conditioning, plumbing or vertical
transportation systems.

(b) Manager shall from time to time make such: (i) replacements and renewals to
the Facility’s FF&E as set forth in the Approved Budget, or to satisfy an
Emergency Requirement; and (ii) repairs to the Facility building of the nature
described in Section 11.02(a)(ii), as are set forth in the Approved Budget, or
to satisfy an Emergency Requirement, up

 

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to the balance in the FF&E Reserve. No expenditures shall be made in excess of
said balance without the written approval of Tenant. Subject to the last
sentence of this subsection (c), at the end of each Fiscal Year, any amounts
remaining in the FF&E Reserve shall be carried forward to the next Fiscal Year.
Proceeds from the sale of FF&E no longer necessary to the operation of the
Facility shall be deposited in the FF&E Reserve, as shall any interest which
accrues on amounts placed in the FF&E Reserve. Neither: (x) proceeds from the
disposition of FF&E; nor (y) interest which accrues on amounts held in the FF&E
Reserve, shall either (aa) result in any reduction in the required contributions
to the FF&E Reserve, or (bb) be included in the FF&E Reserve; provided, the
amount in the FF&E Reserve shall not exceed Two Hundred Fifty Thousand Dollars
$250,000.00 as may be adjusted each year by the Index (the “Maximum Reserve”) at
any time, except as set forth in the following sentence. Any amount in the FF&E
Reserve in excess of the Maximum Reserve as of December 1 of any year shall, at
Tenant’s request, be paid to Tenant, unless the expenditure of such excess funds
is contemplated by the next Fiscal Year’s Approved Budget.

11.03 Liens. Manager and Tenant shall use commercially reasonable efforts to
prevent any liens from being filed against the Facility that arise from any
maintenance, repairs, alterations, improvements, renewals or replacements in or
to the Facility. Manager shall not file any lien against the Facility. Manager
and Tenant shall cooperate fully in obtaining the release of any such liens, and
the cost thereof, if the lien was not occasioned by the fault of either party,
shall be treated the same as the cost of the matter to which it relates. If the
lien arises as a result of the negligent act or omission of either party, then
the party shall bear the cost of obtaining the release.

ARTICLE XII

INSURANCE

12.01 Insurance. Manager or Tenant, at Tenant’s election, shall negotiate with
independent insurance companies of recognized responsibility, a contract or
contracts for, and keep in full force and effect, all policies of insurance of
the type, extent, amount and cost of coverage as provided to Tenant and
otherwise consistent with sound management of the Facility, subject to market
availability, insuring Tenant, Manager and the Facility against the risks
customarily insured against for such a facility (the “Insurance Program”).
Tenant may elect, in its sole discretion, to procure and maintain some or all of
the insurance policies required by this Agreement (except Manager’s Workers’
Compensation, Employer’s Liability, and Professional Liability insurance
policies), upon thirty (30) days written notice to Manager. The cost of such
insurance shall be included in the Approved Budget as a Facility Expense. As of
the date of this Agreement, the coverages required to be obtained and maintained
under the Insurance Program shall include the requirements set forth on Exhibit
G attached hereto.

Commencing with the Approved Budget for the first Fiscal Year, and continuing
annually during the Term, the Insurance Program shall be reviewed by Manager and
Tenant in consultation with each other. Not less than one day prior to Manager
operating the Facility and thereafter not less than sixty (60) days prior to the
expiration of the then-existing Insurance Program, Manager shall submit a pro
forma estimate of its proposed Insurance Program for the next year to Tenant for
review, which proposal shall include coverage levels and cost allocations for
all such levels of insurance coverage. Tenant shall then have thirty
(30) calendar days to

 

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elect to either (a) accept Managers proposed Insurance Program in part or its
entirety or (b) obtain an independent Insurance Program with levels of insurance
coverage reasonably acceptable to Manager (except as respects to property
insurance), and consistent with the specific levels of coverage and limits set
forth on Exhibit G. The decision by the Tenant to obtain independent insurance
coverage for the next insurance program year shall be irrevocable for the policy
period of the respective insurance policies that comprise the Manager’s
Insurance Program for that program year. Tenant may re-enter the Manager’s
Insurance Program at the beginning of a subsequent Insurance Program year by
providing one hundred and twenty (120) days notice to the Manager, subject to
the approval of the Manager. The amount of any insurance deductibles paid by
Tenant (or by Manager on Tenant’s behalf out of Gross Revenues) shall be a
Facility Expense. Upon commencement of this Agreement, Tenant shall provide
Property Insurance and Manager shall provide Liability Insurance as set forth on
Exhibit G.

12.01 Blanket Policies. All insurance described in Section 12.01 may be obtained
by Manager or Tenant by endorsement or equivalent means under its blanket
insurance policies, provided that such blanket policies substantially fulfill
the requirements specified herein.

12.02 Risk Management. One of the responsibilities of Manager shall be to
provide risk management oversight at the Facility.

ARTICLE XIII

TERMINATION OF AGREEMENT

13.01 Termination. Unless sooner terminated pursuant to this Article, this
Agreement shall expire at the end of the Term. Manager may sooner terminate this
Agreement upon the occurrence of an Event of Default by Tenant pursuant to
Section 14.02. Tenant may sooner terminate this Agreement upon the occurrence of
an Event of Default by Manager pursuant to Section 14.01. Tenant may sooner
terminate this Agreement upon written notice from Tenant to Manager, upon any of
the following events (each a “Termination Event”):

(a) If the Manager or any Affiliate thereof: (i) is convicted of a felony;
(ii) intentionally misapplies any funds derived from the Facility (including
without limitation sales proceeds, rents, security deposits, insurance proceeds
or condemnation awards); or (iii) commits fraud, intentional misrepresentation,
gross negligence or willful misconduct; provided, however, if any of the
foregoing events are isolated to an employee or employees who are appropriately
disciplined (up to and including termination) in accordance with Facility
Standards and Manager provides full restitution to Tenant for any monetary
losses arising from such events and otherwise indemnifies Tenant subject to the
indemnification provisions of this Agreement, then this Agreement shall not be
terminated as a result of such events. No Termination Fee shall be due in
connection with a termination under this Section 13.01 (a).

(b) Upon a “Change in Control” in the beneficial ownership interest of Manager,
as defined in Section 13.02. No Termination Fee shall be due in connection with
a termination under this Section 13.01 (b).

 

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(c) Upon the sale or transfer to an unaffiliated third party of (i) the Facility
or (ii) the direct or indirect ownership interests in Tenant or Landlord by the
ultimate equity owners of Tenant or Landlord, as applicable (a “Facility Sale”)
without fee or penalty and upon thirty (30) days’ notice to Manager. No
Termination Fee shall be due in connection with the termination under this
Section 13.01(c). If any of the licenses and/or certificates necessary for
operation of the Facility in the manner contemplated by this Agreement at any
time is terminated, suspended or revoked and the event giving rise to any such
termination, suspension or revocation is not due to the action or inaction of
Tenant and results in cessation of operations or any major component of
operations at the Facility. Manager shall have thirty (30) days after receipt of
written notice from Tenant to cure such default, provided, however, that if
default cannot be cured within such thirty (30) day period, then Manager shall
be entitled to such additional time as shall be reasonable and dictated by the
state regulatory body governing the Facility, provided Manager is capable of
curing same, has promptly proceeded to commence cure of such default within said
period, and thereafter diligently prosecutes the cure to completion; and once
any such termination, suspension, revocation or enforcement action is cured, if
Tenant shall not have terminated this Agreement, Tenant may no longer terminate
for that occurrence. Sections 10.06 and 10.07 shall not apply in the event of
termination under this Section 13.01(d). No Termination Fee shall be due in
connection with a termination under this Section 13.01 (c).

(d) Commencing on the third (3rd) anniversary of the Effective Date, at any time
during the remainder of the term of the Agreement for any reason or nor reason
upon ninety (90) days’ prior notice to Manager and payment to the Manger of an
amount equal to the product of the average Management Fee for the prior three
(3) months multiplied by the number of remaining months in the Term (the
“Termination Fee”). Sections 10.06 and 10.07 shall not apply in the event of a
termination under this Section 13.01(d).

(e) If the sum of Adjusted NOI and the Subordinated Management Fee, if any, for
any Fiscal Year (or portion thereof on a pro-rata basis) falls below the
Subordinated NOI Threshold (an “NOI Shortfall”), then the Tenant shall have the
option to terminate this Agreement by providing a ninety (90) day written notice
(a “Performance Termination Notice”) to the Manager. To terminate this
Agreement, Tenant must deliver a Performance Termination Notice no later than
sixty (60) days following Tenant’s receipt of the annual financial reports for
such Fiscal Year; provided however, that with respect to two (2) NOI Shortfalls
during the Term hereof, Manager shall have the right, but not the obligation, to
cure such two (2) NOI Shortfalls within thirty (30) days of receipt of the
Performance Termination Notices related to such two (2) NOI Shortfalls by making
a cash payment to Tenant in an amount equal to the applicable NOI Shortfall or
agreeing to subordinate the Base Management Fee in the amount of the applicable
NOI Shortfall. Provided further however, Manager may not exercise its two
(2) cure options granted pursuant to this Section 13.01(e) for NOI Shortfalls
occurring in consecutive Fiscal Years without the prior written consent of
Tenant, which may be granted or withheld by Tenant in its sole and absolute
discretion. No Termination Fee shall be due in connection with a termination
under this Section 13.01 (e).

If a Termination Event occurs, Manager shall be compensated for its services
only through the date of termination after deducting therefrom damages incurred
by Tenant as a result of Manager’s default, if applicable (except for Manager
shall have a right to the Termination Fee solely in the event of a termination
by Tenant pursuant to Section 13.01(d)). Further, in the event

 

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of a termination, both parties shall fully cooperate with one another to ensure
a smooth transition of ownership and/or management, as the case may be. Upon
termination of this Agreement, Manager will deliver to Tenant the following with
respect to the Facility:

(i) A final accounting, reflecting the balance of income and expenses of the
Facility as of the date of termination, to be delivered as soon as reasonably
possible but not later than thirty (30) days after such termination;

(ii) Any balance of monies of Tenant (including any amount of Working Capital
reserves or any unexpended amount in the FF&E Reserve account or any amounts in
any other accounts maintained under this Agreement) or Resident deposits, or
both, held by Manager with respect to the Facility, to be delivered as soon as
reasonably possible, but not later than ten (10) days after such termination;

(iii) An assignment to Tenant, or its designee, of all contracts not otherwise
in the name of Tenant relating to the operation or leasing of the Facility (to
the extent such contracts are assignable and that Tenant agrees to indemnify
Manager for any liabilities relating to such contracts after the assignment date
and in such event Manager shall indemnify Tenant for any liabilities relating to
such contracts prior to the assignment date);

(iv) An itemized statement of the amounts due suppliers of services and goods
which have been ordered by Manager in the name of Tenant;

(v) An itemized statement of all accounts receivable due Tenant from any source;

(vi) All records, contracts, leases, resident agreements, tenant correspondence,
files, receipts for deposits, unpaid bills and other papers, documents, computer
disks (Manager will download onto disks all information reasonably concerning
the Facility which is contained in Manager’s databases) and all other
information which reasonably pertains to the Facility to be delivered as soon as
reasonably possible, but not later than thirty (30) days after such termination;
and

(vii) Manager shall cooperate reasonably in all respects to achieve a transfer
of any license and/or certificate (or to obtain a new license and/or
certificate, if necessary) required in connection with the operation of the
Facility, but shall not be required to incur any monetary expenditures in
connection therewith (unless Tenant agrees to reimburse Manager for the same).

Manager shall use good faith, diligent efforts to deliver all of foregoing as
soon as reasonably possible and in accordance with this Section 13.01.

13.02 Change of Control. A “Change in Control” of Manager shall be deemed to
occur if, at any time after the date hereof, (i) any Person (or one or more
Persons acting in concert as a group) acquires (A) more than fifty percent
(50%) ownership of MSM ; (ii) a merger, exchange, consolidation,
recapitalization or other business combination (a “Business Combination”) occurs
in which the holders of the interests in MSM or Manager immediately prior to
such Business Combination, disregarding for such purposes any holders who are
affiliates of another party to

 

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the Business Combination or acting in concert as a group with such other party,
own less than fifty-one percent (51%) of the aggregate equity interests of the
surviving entity or own less than fifty-one percent (51%) of the voting
interests (determined on the basis of number of votes per interest) immediately
following such Business Combination; or (iii) all or substantially all of the
assets of MSM or Manager are sold or otherwise disposed of, directly,
indirectly, voluntarily, involuntarily, by operation of law or otherwise;
provided, however, that a sale by MSM or Manager of their real estate assets
shall not be considered a Change of Control if MSM or Manager or an entity of
which MSM or Manager owns not less than fifty-one percent (51%) of the aggregate
equity interests or not less than fifty-one percent (51%) of the voting
interests (determined on the basis of number of votes per interest) retains
management of such real estate assets for a term not less than five (5) years.

ARTICLE XIV

DEFAULTS

14.01 Default by Manager. Manager shall be deemed to be in default under this
Agreement (an “Event of Default”) upon the occurrence of one or more of the
following events:

(a) Manager shall fail to keep, observe or perform any material covenant,
agreement, term or provision of this Agreement to be kept, observed or performed
by Manager, and such failure shall continue (i) for a period of ten (10) days
after Manager receives written notice from Tenant specifying the default in case
of monetary defaults or (ii) for a period of thirty (30) days after Manager
receives written notice from Tenant in the case of non-monetary defaults;
provided, however, that, if such non-monetary default cannot be cured within
such thirty (30) day period, then Manager shall be entitled to such additional
time as shall be reasonable, provided Manager is capable of curing same, has
promptly proceeded to commence cure of such default within said period, and
thereafter diligently prosecutes the cure to completion; provided, however, that
in no event shall such additional time exceed ninety (90) days for any
non-monetary default other than defaults involving licensing or regulatory
matters, so long as (x) Manager has made all filings in connection therewith on
a timely basis, (y) no legal action brought by a governmental agency in a court
of law or any administrative or other adjudicatory proceeding has been filed or
is pending, and (z) the regulatory or licensing default does not create a
material threat that Facility operations will be halted or a material threat of
third party liability for Tenant. The delivery of letters or notices threatening
legal action or revocation of a license shall not constitute a “legal action”
for purposes hereof.

(b) The entry by a court of competent jurisdiction of a decree or order for
relief in respect of Manager or MSM, in an involuntary case or proceeding under
any bankruptcy, insolvency or similar law, or appointing a receiver, liquidator,
trustee or similar official of Manager or MSM of all or any substantial part of
the property of Manager or MSM, or ordering the reorganization of Manager or
MSM, the winding up of Manager or MSM of its affairs or liquidation of its
property, and such decree or order shall continue unstayed and in effect for a
period of thirty (30) days.

 

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(c) The consent or acquiescence by Manager or MSM to the entry of any decree or
order described in Section 13.01(b) hereof, the commencement by Manager or MSM
of a voluntary case or proceeding under any bankruptcy, insolvency or similar
law, the making by Manager or MSM of any general assignment for the benefit of
creditors, or Manager’s or MSM’s failure or admission in writing of its
inability to pay its debts as they become due.

(d) [INTENTIONALLY OMITTED].

(e) The state regulatory body governing the Facility issues a stop-placement,
limiting or ceasing admission of new residents. Notwithstanding other Events of
Default, for this section 14.01(e) Manager shall have ninety (90) days from the
date of the issuance of such stop-placement to cure; provided, however, that if
such stop-placement default cannot be cured within such ninety (90) day period,
then Manager shall be entitled to such additional time as shall be reasonable
and dictated by the state regulatory body governing the Facility, provided
Manager is capable of curing same, has promptly proceeded to commence cure of
such default within said period, and thereafter diligently prosecutes the cure
to completion.

Upon the occurrence of any Termination Event, Tenant shall have thirty (30) days
to provide written notice to Manager of its election to terminate this
Agreement. If such election to terminate is not provided to Manager within such
thirty (30) days, Tenant shall be deemed to have waived its right to terminate
in connection with such occurrence.

(f) An “Event of Default” by “Manager” under an Affiliated Agreement (as such
terms are defined in the applicable Affiliated Agreement).

14.02 Default by Tenant. Tenant shall be deemed to be in default under this
Agreement (an “Event of Default”) in the event Tenant shall fail to keep,
observe or perform any material covenant, agreement, term or provision of this
Agreement to be kept, observed or performed by Tenant and such failure shall
continue (i) for a period of ten (10) business days after written notice thereof
by Manager to Tenant in case of monetary defaults or (ii) for a period of thirty
(30) days after written notice thereof by Manager to Tenant in the case of
non-monetary defaults; provided, however, if such default cannot be cured within
such thirty (30) day period, then Tenant shall be entitled to such additional
time as shall be reasonable, provided that Tenant is capable of curing same, has
promptly proceeded to commence cure of such default within said period, and
thereafter diligently prosecutes the cure to completion; provided, however, that
in no event shall such additional time to cure non-monetary defaults exceed
ninety (90) days.

14.03 Remedies of Tenant. Upon the occurrence of a default by Manager as
specified in Section 14.01 of this Agreement and expiration of any applicable
cure period provided by this Agreement, Tenant shall be entitled to terminate
this Agreement effective immediately without payment of any Termination Fee to
remove Manager from the day-to-day management of the Facility, subject to the
approval of any applicable governmental authority, if required, and to replace
Manager with a substitute Manager and otherwise to exercise all its rights at
law or in equity.

14.04 Remedies of Manager. Upon the occurrence of a default by Tenant as
specified in Section 14.02 of this Agreement and the expiration of any
applicable cure period provided by this Agreement, Manager shall be entitled to
terminate this Agreement effective immediately, and to exercise all of its
rights at law or in equity.

 

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14.05 No Waiver of Default. The failure of Tenant or Manager to seek remedy for
any violation of, or to insist upon the strict performance of, any term or
condition of this Agreement shall not prevent a subsequent act by Tenant or
Manager which would have originally constituted a violation of this Agreement by
Tenant or Manager, from having all the force and effect of an original
violation. Tenant or Manager may waive any breach or threatened breach by Tenant
or Manager of any term or condition herein contained. The failure by Tenant or
Manager to insist upon the strict performance of any one of the terms or
conditions of this Agreement or to exercise any right, remedy or election herein
contained or permitted by law shall not constitute or be construed as a waiver
or relinquishment for the future of such term, condition, right, remedy or
election, but the same shall continue and remain in full force and effect. All
rights and remedies that Tenant or Manager may have at law, in equity or
otherwise for any breach of any term or condition of this Agreement shall be
distinct, separate and cumulative rights and remedies and no one of them,
whether or not exercised by Tenant or Manager, shall be deemed to be in
exclusion of any right or remedy of Tenant or Manager.

14.06 Interest. Upon the failure of either party to make any payment required to
be made in accordance with the terms of this Agreement as of the due date which
is specified in this Agreement, and the continuance of such failure for five
(5) business days after written notice thereof, the amount owed to the
non-defaulting party shall accrue interest at the greater of (i) 14% or (ii) the
Prime Rate (defined below) plus 5% (but not greater than the highest rate
permitted by applicable law), from and after the date on which such payment was
originally due to the non-defaulting party until such payment is made. As used
herein, “Prime Rate” means the “prime rate” as published in the “Money Rates”
section of The Wall Street Journal; however, if such rate is, at any time during
the Term, no longer so published, the “Prime Rate” means the average of the
prime interest rates which are announced, from time to time, by the three
(3) largest banks (by assets) headquartered in the United States which publish a
“prime rate.”

14.07 Disputes. Tenant and Manager shall seek to resolve legal disputes arising
under this Agreement in a manner that, insofar as possible, will ensure minimal
disruption of continued services to Residents.

ARTICLE XV

CONDEMNATION AND CASUALTY

15.01 Minor Casualty. If, during the Term, the Facility is damaged by a Minor
Casualty, Manager shall, with all reasonable diligence, proceed to process the
claim with the applicable insurance carriers, including settling such claim, and
to make the necessary arrangements with appropriate contractors and suppliers to
repair and/or replace the damaged portion of the Facility. Tenant’s consent
shall not be needed for Manager to perform any of the foregoing, all of which
shall be performed in accordance with Manager’s reasonable judgment; provided,
however, that the parties agree that the standard for such repair and/or
replacement shall be to repair and/or replace the damaged portion of the
Facility to levels of quality and quantity that are equal to those that existed
with respect to such portion of the Facility prior to the occurrence of the
damage at issue. Tenant agrees to sign promptly any documents which are
necessary to process and/or adjust the claim with the insurance carriers, as
well as any contracts with such contractors and/or suppliers.

 

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15.02 Major Casualty. If, during the Term, the Facility suffers a Major
Casualty, Tenant shall, (i) at its cost and expense and with all reasonable
diligence, repair and/or replace the damaged portion of the Facility to the same
condition as existed previously or (ii) have the right to terminate this
Agreement by providing written notice to Manager within sixty (60) days of
learning of such Major Casualty (the failure to deliver such notice being an
election to proceed to repair and/or replace the damaged portion of the Facility
pursuant to the immediately preceding clause (i)), without fee or penalty.
Manager shall have the right to discontinue operating the Facility to the extent
it deems necessary to comply with applicable Legal Requirements or as necessary
for the safe and orderly operation of the Facility in accordance with Facility
Standards, and during such period, Manager shall not be entitled to any
Management Fees or other remuneration in connection with this Agreement. To the
extent available, proceeds from any casualty insurance shall be applied to such
repairs and/or replacements, provided that if any terms of this Section 15.02
conflict with the Mortgage Documents, the terms of the Mortgage Documents shall
control. If Tenant fails to promptly commence (no later than 30 days after
receipt by Manager of the insurance proceeds which Tenant may use without
limitation by the Mortgage Documents, or otherwise) and continuously pursue the
repairing and/or replacement of the Facility so that it shall be substantially
the same as it was prior to such damage or destruction, such failure shall
entitle Manager to terminate this Agreement by providing notice to Tenant of
same, without fee or penalty payable by Tenant to Manager.

15.03 Condemnation.

(a) In the event all or substantially all of the Facility shall be taken in any
eminent domain, condemnation, compulsory acquisition, or similar proceeding by
any competent authority for any public or quasi-public use or purpose, or in the
event a portion of the Facility shall be so taken, but the result is that it is
unreasonable to continue to operate the Facility in accordance with the
standards required by this Agreement, this Agreement shall terminate effective
as of the date of such taking or similar proceeding. Tenant and Manager shall
each have the right to initiate such proceedings as they deem advisable to
recover any damages to which they may be entitled.

(b) In the event a portion of the Facility shall be taken by the events
described in Section 15.03(a), or the entire Facility is affected but on a
temporary basis, and the result is not to make it unreasonable to continue to
operate the Facility, this Agreement shall not terminate. However, so much of
any award for any such partial taking or condemnation as shall be necessary to
render the Facility equivalent to its condition prior to such event shall be
used by Tenant for such purpose; and Manager shall have the right to discontinue
operating the Facility or portion of the Facility to the extent it deems
necessary for the safe and orderly operation of the Facility and, in the event
Manager ceases operations at the Facility, Manager shall not be entitled to
receive any Management Fees or other remuneration under this Agreement during
such period when operations cease. In the event Manager’s and Tenant’s rights
hereunder conflict with the terms of any Mortgage Documents, then terms of the
Mortgage Documents shall prevail.

 

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(c) In the event of any proceedings described in Section 15.03(a) or 15.03(b),
and if Tenant and Manager cannot agree on a fair and equitable apportionment of
any such award, the dispute will be resolved pursuant to Section 19.20 below.

ARTICLE XVI

LEGAL ACTIONS, GOVERNING LAW,

LIABILITY OF MANAGER AND INDEMNITY

16.01 Legal Actions. Legal counsel for Manager and Tenant shall cooperate in the
defense or prosecution of any action affecting the Facility. Manager shall, in
accordance with the Approved Budget, take all action reasonable and necessary in
Manager’s judgment, to enforce and collect payments due under the Resident
Agreements. Manager shall not institute or defend any other contract action (or
settle any contract action) seeking more than Five Thousand Dollars ($5,000.00),
subject to adjustment by the Index, in damages and affecting the Facility or any
occupants without prior written approval of Tenant, which approval shall not be
unreasonably conditioned, delayed, or withheld by Tenant. Manager shall timely
forward all legal notices to Tenant which relate to the Facility or Tenant.
Subject to Manager’s obligations set forth in Section 14.05 hereof, and subject
to Tenant’s prior written approval if required, Manager shall institute or
defend, as the case may be, in the name of the Facility, Tenant and/or Manager,
but in any event as a Facility Expense, all actions arising out of the operation
of the Facilities, including but not limited to actions or proceedings to
collect charges, third party payments, rents, or other income, or to cancel,
modify, or terminate any lease, resident agreement, license, or concession
agreement in the event of breach or default thereof, or to defend any action
brought against Tenant. Subject to Manager’s obligations set forth in
Section 16.05 hereof, Manager shall take the actions necessary to diligently
protest or litigate to the final decision in any appropriate court or forum, as
a Facility Expense, any violation, order, rule or regulation affecting the
Facility.

Notwithstanding anything to the contrary contained in this Agreement, Tenant
shall have the right, upon consultation with Manager, to select counsel and
direct the conduct of any litigation, arbitration or other proceeding involving
a claim (not being defended by insurance carrier or in excess of coverage),
which is not a collection matter arising out of resident agreements or which is
not a contract action within the limits described above, provided any applicable
insurance policy allows such approval. In addition, Manager shall prepare and
furnish to Tenant on a monthly basis reports summarizing all litigation with
respect to the Facility as set forth on Exhibit D.

16.02 Legal Fees and Costs. In the event either party elects to incur legal
expenses to enforce any provision of this Agreement against the other party to
this Agreement, the prevailing party shall be entitled to recover such legal
expenses, including without limitation, reasonable attorney’s fees, costs and
necessary disbursements, in addition to any other relief to which such party
shall be entitled.

16.03 Choice of Law and Venue. The parties agree that this Agreement shall be
governed by and construed in accordance with the laws of the where the Facility
is located.

 

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16.04 Liability of Manager.

(a) Standard of Care. Manager shall discharge its duties in good faith, and
agrees to exercise, with respect to all services provided by Manager under or
pursuant to this Agreement, a standard of care, skill, prudence and diligence
under the circumstances then prevailing as would be expected of a prudent
Manager who has a high level of experience and expertise with respect to such
matters and additionally at or above the Facility Standards and in no event with
less care, skill, prudence or diligence as Manager would customarily utilize in
the prudent conduct of its business, and as is necessary for the maintenance of
any license or permit required for the Facility and compliance with all Legal
Requirements and the Facility Standards. Manager agrees to exercise good faith,
diligent efforts to achieve and maintain the occupancy goals set forth in the
Approved Budget.

(b) Other Persons. Manager shall not be responsible for the acts or omissions of
any of Tenant’s other contractors or any subcontractors or any employees of
Tenant, or any persons representing Tenant performing any services for or in
connection with the Facility, or any consultants or other persons engaged by
Tenant with respect thereto, unless and only to the extent Manager is required
pursuant to this Agreement, or has otherwise agreed, to supervise such
contractors or subcontractors.

(c) No Member Liability. If Manager makes any claim under this Agreement,
Manager shall have no recourse to partners (general or limited), directors,
officers, employees, or members of Tenant or to any Affiliate of Tenant or its
partners. In the event that Tenant makes any claim against Manager, Tenant shall
have no recourse to members, managers, directors, officers, or employees of
Manager or to any Affiliate of Manager except for any Affiliate actually
providing goods or services hereunder.

16.05 Indemnity. Manager and Tenant will defend, indemnify and hold the other
(and any Affiliate of the other and its respective officers, directors, members,
managers, employees and agents) harmless from and against any claims, losses,
expenses, costs, suits, actions, proceedings, damages, demands or liabilities
(including, without limitation, engineers’ and attorneys’ fees and expenses, and
costs of litigation) that are asserted against or sustained or incurred by the
indemnified party and arising under or in connection with (a) a breach of this
Agreement, (b) legal actions or regulatory violations arising from the
indemnifying party’s breach of this Agreement or the indemnifying party’s gross
negligence, fraud, or willful misconduct, (c) the negligent placing, discharge,
leakage, use and/or storage of hazardous or regulated materials at, in or
beneath the Facility by the indemnifying party or its Affiliates or their
respective agents, employees, contractors or representatives in violation of any
Legal Requirements or (d) acts of the indemnifying party which are outside the
scope of this Agreement. The scope of the foregoing indemnities includes any and
all costs and expenses incurred in connection with any proceedings to defend any
indemnified claim, or to enforce the indemnity, or both. Recovery upon an
indemnity contained in this Agreement shall be reduced dollar-for-dollar by any
applicable insurance collected. This Section 16.05 shall survive the termination
of this Agreement.

 

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ARTICLE XVII

REGULATORY AND CONTRACTUAL REQUIREMENTS

17.01 Regulatory and Contractual Requirements. Manager shall use its diligent,
good faith efforts to cause all things to be done in and about the Facility as
may be reasonably necessary to comply with Legal Requirements or the
requirements of any governmental authority respecting the use of the Facility or
the construction, maintenance, or operation thereof. Manager shall use its
diligent, good faith efforts to obtain and maintain all permits, licenses and
certificates required by any governmental authority for the ownership, use and
operation of the Facility as a licensed senior living facility providing
personal care services in the State. All licenses, permits, approvals and
certifications should be in the name of Manager unless the governing entities
require otherwise. In addition, Manager shall supervise and coordinate the
preparation and filing of (and, where operators are required to do so under
applicable law or regulation, shall file) all reports or other information
required by any governmental agencies in the State having jurisdiction over the
Facility and shall deliver copies of all such reports to Tenant prior to their
filing. Manager shall cooperate with governmental inspection and enforcement
activities. Manager shall notify Tenant of the requirement for changes to the
physical structure of the Facility to comply with applicable laws and codes and
Tenant shall be responsible for any mandated changes to bring the physical
structure into compliance with the applicable laws and codes and to operate the
Facility in accordance with Facility Standards.

The parties understand and agree that certain non-material deficiencies or
situations of non-material non-compliance with various Legal Requirements (such
as building codes, the Occupational Safety and Health Act, the Americans with
Disabilities Act, health care regulations and the like) are likely to occur from
time to time in the normal course of business operations. Such occurrences will
not constitute an independent breach or default of Manager hereunder, provided
that, (i) Manager continues to maintain the Facility in accordance with the
Facility Standards and such breaches or defaults are not inconsistent with the
Facility Standards, (ii) Manager takes all reasonable actions in a timely manner
to cure such deficiencies or situations of non-compliance, (iii) they do not
materially affect the operation or cash flow of the Facility, and (iv) they do
not present a material threat that the operation of the Facility will be shut
down and do not present a material threat of liability or criminal charges to
Tenant or any third parties. The costs (including any fines for non-compliance
and any damages incurred by Tenant resulting therefrom) of curing such
deficiencies or circumstances of non-compliance shall constitute Facility
Expenses unless incurred by reason of Manager’s willful failure, gross
negligence or default hereunder, in which event the cost therefore shall be
payable out of Manager’s own funds.

17.02 Equal Employment Opportunity. Without limitation of any provision set
forth herein, Manager expressly agrees to abide by any and all applicable equal
employment opportunity statutes, rules and regulations imposed by any
governmental authority, including, without limitation, Title II of the Civil
Rights Act of 1964, the Americans with Disabilities Act, the Equal Pay Act of
1963, the National Labor Relations Act, the Fair Labor Standard Act, the
Rehabilitation Act of 1983, and the Occupational Safety and Health Act of 1970,
all as may be from time to time modified or amended.

 

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17.03 Equal Housing Opportunity. Without limitation or any provision set forth
herein, Tenant and Manager expressly agree to abide by any and all applicable
equal housing opportunity statutes, rules and regulations imposed by any
governmental authority, all as may be from time to time modified or amended.

ARTICLE XVIII

PROPRIETARY MARKS; INTELLECTUAL PROPERTY

18.01 Proprietary Marks. During the Term of this Agreement, the Facility shall
be known as an “MSM” facility, with such additional identification as may be
necessary and agreed to by Tenant and Manager to provide local identification.
If the name of the MSM System is changed, Manager shall have the right (with the
Tenant’s written consent) to change the name of the Facility to conform thereto.
Tenant shall have the right to require the name of the Facility to be changed to
conform to the name under which the MSM System will be operated. Except as set
forth above, the Facility shall always be operated under the MSM name and
failure to do so by Manager shall be an Event of Default.

18.02 Ownership of Proprietary Marks. The Proprietary Marks shall in all events
remain the exclusive property of Manager, and except as expressly set forth in
this Agreement, nothing contained herein shall confer on Tenant the right to use
the Proprietary Marks. Except as provided below in this section, upon
termination, any use of or right to use the Proprietary Marks by Tenant shall
cease forthwith and Tenant shall promptly remove, at Tenant’s expense, from the
Facility any signs or similar items that contain the Proprietary Marks. The
right to use such Proprietary Marks belongs exclusively to Manager, and the use
thereof inures to the benefit of Manager whether or not the same are registered
and regardless of the source of the same. Upon termination, Tenant shall have
the right to use any inventory, Consumables or Household Replacement items
marked with the Proprietary Marks exclusively in connection with the Facility
until they are consumed. Notwithstanding the foregoing, to the extent
Proprietary Marks are used on directional signs, room number identifications, or
other important markers in the Facility, Tenant shall be entitled to continue
using the same, provided that Manager shall have the right (but not the
obligation) to remove the same, provided they are replaced with new signage
and/or markings.

18.03 Trademark License. Manager hereby grants to Tenant a non-exclusive right
and license (“Trademark License”) to use “MSM” solely as part of the name of the
Facility (which, for the purposes of clarity, allows Tenant to, without
limitation, use “MSM” and the name of Manager in any advertisements, promotional
material, announcements, filings/disclosures made pursuant to Legal Requirements
and related to the Facility). Tenant shall not be permitted to use “MSM” in
connection with the identification or operation of any other business or
property, or at any other location, except as may otherwise be provide in other
agreements between the parties. Tenant acknowledges and agrees that Manager (or
one of its Affiliates) is the owner of all right, title, and interest in and to
“MSM” and the goodwill associated with and symbolized by that mark. Tenant’s use
of “MSM” pursuant to this Trademark License shall not give Tenant any ownership,
apart from this Trademark License, to “MSM,” and that all goodwill arising from
Tenant’s use of “MSM” shall inure solely to Manager’s benefit. Tenant shall not
use (except as otherwise permitted in this Agreement) or attempt to register any
trademark, service mark, trade name, domain name, or other mark or name that is
the same, contains, or is otherwise

 

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confusingly similar to the MSM mark. The MSM mark shall not be combined with,
associated with, or used in conjunction with any other trademark, service mark,
corporate name, or trade name except as expressly approved by Manager. Tenant
shall promptly notify Manager if a lawsuit, claim, or threat of a lawsuit or
claim is alleged that use of the MSM mark infringes upon a trademark, service
mark, or trade name owned by a third-party. Manager will, at its sole
discretion, decide on an appropriate response. Tenant shall provide reasonable
cooperation to Manager in the defense. Tenant shall also promptly notify Manager
of any infringement or potential infringement of the MSM mark by third-parties
which come to Tenant’s attention. Manager will, at its sole discretion, decide
whether and how to proceed. Tenant shall provide reasonable cooperation to
Manager as necessary. This Trademark License shall immediately terminate upon
termination or expiration of this Agreement.

18.04 Intellectual Property. All Intellectual Property shall at all times be
proprietary to Manager or its Affiliates, and shall be the exclusive property of
Manager or its Affiliates. During the Term of this Agreement, Manager shall be
entitled to take all reasonable steps to ensure that the Intellectual Property
remains confidential. Upon termination, all Intellectual Property shall be
removed from the Facility by Manager, without compensation to Tenant, provided
that Tenant shall have the right to use the same for a period of sixty (60) days
following termination to assist in a smooth transition of management.

18.05 Use of Proprietary Marks and Intellectual Property. Notwithstanding the
foregoing provisions of this Article, subject to Section 18.01 above, Manager
warrants and covenants that the Proprietary Marks and the Intellectual Property
shall be used at and in connection with the Facility during the Term of this
Agreement.

18.06 Breach of Covenant. Manager and/or its Affiliates shall be entitled, in
case of any breach of the covenants of Article XVIII by Tenant or others
claiming through it, to injunctive relief and to any other right or remedy
available at law. Article XVIII shall survive termination.

ARTICLE XIX

MISCELLANEOUS PROVISIONS

19.01 Additional Assurances. The provisions of this Agreement shall be
self-operative and shall not require further agreement by the parties except as
may be herein specifically provided to the contrary; provided, however, at the
request of either party, the party requested shall execute such additional
instruments and take such additional acts as the requesting party may deem
necessary to effectuate this Agreement.

19.02 Intentionally Omitted.

19.03 No Brokerage. Each party represents to the other that it has not engaged a
broker in connection with this transaction, and agrees to defend, indemnify, and
hold the other party harmless from any claim made by a broker through the
indemnifying party.

19.04 Notices. All notices, demands, consents, approvals, and requests given by
either party to the other hereunder shall be in writing and shall be sent by
hand delivery, by a nationally recognized overnight courier, or by registered or
certified mail, postage prepaid, return receipt requested, to the parties at the
following addresses:

 

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  Tenant:   

CHP Billings MT Tenant Corp.

c/o CNL Healthcare Properties, Inc.

CNL Center at City Commons

450 South Orange Avenue, 12th Floor

Orlando, Florida 32801-3736

Attn: Holly J. Greer, Esq., SVP and General Counsel and Joseph Johnson, SVP and
CFO

  Copy to:   

Lowndes Drosdick Doster Kantor and Reed, P.A.

215 North Eola Drive

Post Office Box 2809

Orlando, Florida 32802-2809

Attn: William T. Dymond, Jr., Esq.

  Manager:   

Attn: Matthew Turner, CFO

MorningStar Senior Management, LLC

7555 E. Hampden Avenue, Suite 501

Denver, CO 80231

Ph. 303-750-5522

Fax: 303-750-5992

E-mail: mturner@morningstarseniorliving.com

 

With copy to:

The DeSantis Law Firm

54 West 11th Avenue

Denver, Colorado 80204

Attention: Gennaro DeSantis, Esquire

Telephone No.: (303) 885-3060

Facsimile No.: (720) 306-8045

E-Mail: gdesantis@masopartners.com

Or to such other address and to the attention of such other person as either
party may from time to time designate in writing. Notices properly given as
described above shall be effective upon receipt. Refusal to accept delivery
shall constitute receipt.

19.05 Severability. If any term or provision of this Agreement or the
application thereof to any person or circumstance is held to be invalid or
unenforceable for any reason, the remainder of this Agreement, or the
application of such term or provision to persons or circumstances other than
those as to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Agreement shall be valid and be
enforced to the fullest extent permitted by law.

19.06 Gender and Number. Whenever the context of this Agreement requires, the
gender of all words herein shall include the masculine, feminine, and neuter,
and the number of all words herein shall include the singular and plural.

 

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19.07 Division and Headings. The divisions of this Agreement into sections and
subsections and the use of captions and headings in connection therewith are
solely for convenience and shall have no legal effect whatsoever in construing
the provisions of this Agreement.

19.08 Confidentiality of Information. Manager and Tenant agree to keep
confidential and not to use or to disclose to others, except (a) in the case of
Tenant, to any members, managers, partners, underwriters, analysts, employees,
consultants, agents, affiliates, officers, directors, lender or any prospective
lender, investor, purchaser or prospective purchaser of the Facility, (b) in the
case of either party, to any rating agencies, lenders, stock analysts, banks,
accountants, lawyers and other like professionals, (c) as expressly consented to
in writing by the other party, (d) as required by law, or (e) to obtain any
license or permit needed to operate the Facility, any and all of their
respective secrets or confidential technology, proprietary information, customer
lists, or trade secrets, or any matter or items ascertained through their
association with each other. Manager and Tenant further agree that should
Manager leave the active service of Tenant, Manager will return to Tenant any
Facility information of any kind pertaining to Residents of the Facility,
business, sales, financial condition or products and Tenant will return to
Manager any and all of Manager’s confidential information obtained by Tenant.
Notwithstanding anything herein to the contrary, any party to this Agreement
(and any employee, representative, or other agent of any party to this
Agreement) may disclose to any and all persons, without limitation of any kind,
the U.S. federal income tax treatment and tax structure of the transactions
contemplated by this Agreement and all materials of any kind (including opinions
or other tax analyses) that are provided to it relating to such tax treatment
and tax structure; provided, however, that neither party (nor any employee,
representative or other agent thereof) shall disclose (A) any information that
is not relevant to an understanding of the U.S. federal income tax treatment of
the transactions contemplated by this Agreement, including the identity of any
party to this Agreement (or its employees, representatives or agents) or other
information that could lead any person to determine such identity or (B) any
information to the extent such disclosure could result in a violation of any
federal or state securities laws.

19.09 Publicity. The parties agree that no public release or announcement
concerning the transactions contemplated hereby shall be issued by any party
without the prior written consent of the other party, except as required by law
or applicable regulations.

19.10 Right To Perform. In the event that Tenant or Manager shall be in default
hereunder, Tenant or Manager, in addition to any rights or remedies available to
it under law, shall have the right, but not the obligation to perform the
defaulting party’s duty or fulfill the defaulting party’s obligation, but in no
way obligating the party beyond any termination period allowable hereunder.

19.11 No Assignment. Manager shall not assign or transfer its interest in this
Agreement without the prior written consent of Tenant, which may be withheld in
Tenant’s sole and absolute discretion; provided, however, that Manager shall
have the right to assign this Agreement to an entity wholly owned and
controlled, directly or indirectly, by MSM, without release from Manager’s
obligations hereunder upon thirty (30) days written notice to Tenant; provided
further, however, for such assignment to be effective, such assignee must, and
shall at all times, be an “eligible independent contractor” as defined in
Section 856(d)(9) of the Code and

 

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such assignee will and shall cause the Facility to be operated in such a manner
so that it qualifies as a “qualified health care facility” within the meaning of
Section 856(e)(6)(D) of the Code at all times). Any such assignment may be
subject to the prior approval of governmental authorities. Further, any Change
in Control of Manager shall be considered an assignment of this Agreement by
Manager.

19.12 Entire Agreement/Amendment. With respect to the subject matter hereof,
this Agreement supersedes all previous contracts and constitutes the entire
Agreement between the parties with respect to the specific subject matter
hereof, and no party shall be entitled to benefits other than those specified
herein. As between the parties, no oral statements or prior written material not
specifically incorporated herein shall be of any force and effect. The parties
specifically acknowledge that in entering into and executing this Agreement, the
parties rely solely upon the representations and agreements contained in this
Agreement and no others. All prior representations or agreements not expressly
incorporated herein, whether written or verbal, are superseded, and no changes
in or additions to this Agreement shall be recognized unless and until made in
writing and signed by both parties hereto. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.

19.13 Inurement. Subject to the terms of Section 19.11, the terms and conditions
of this Agreement shall inure to the benefit of, and be binding upon, the
respective successors, heirs, legal representatives or permitted assigns of each
of the parties hereto.

19.14 Relationship Between the Parties. The relationship between Tenant and
Manager pursuant to this Agreement shall not be one of general agency, but shall
be that of Tenant with an independent contractor; provided, however, that with
respect to those specific and limited circumstances in which (a) Manager is
holding funds for the account of Tenant or (b) Manager is required to act as
authorized representative for Tenant with respect to agreements with residents
pursuant to licenses or Legal Requirements, the relationship between Tenant and
Manager shall be that of trustee and authorized representative (with limited
agency), respectively. Neither this Agreement nor any agreements, instruments,
documents or transactions contemplated hereby shall in any respect be
interpreted, deemed or construed as making Tenant a partner or joint venture
with Manager or as creating any similar relationship or entity, and each party
agrees that it will not make any contrary assertion, contention, claim or
counterclaim in any action, suit or other legal proceeding involving the other.

19.15 Quiet Enjoyment. Tenant hereby covenants and agree that, so long as this
Agreement has not been terminated by reason of (i) an Event of Default by
Manager or (ii) the exercise by Tenant of any right to terminate this Agreement
under any other section of this Agreement, Manager shall quietly hold, occupy
and enjoy the Facility throughout the Term hereof free from hindrance or
ejection by Tenant, or any other party claiming under, through or by the rights
of Tenant, except as set forth in Section 19.17 below. Notwithstanding anything
to the contrary contained herein, Manager acknowledges and agrees that nothing
stated in this Agreement shall vest Manager with an interest in real property,
including a leasehold estate therein, and all rights to the use or possession of
the Facility and the real estate shall automatically terminate upon the
termination of this Agreement.

 

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19.16 Attorney’s Fees. If either party seeks to enforce such party’s rights
under this Agreement by legal proceedings or otherwise the non-prevailing party
shall be responsible for all costs and expenses in connection therewith,
including without limitation, reasonable attorneys’ fees and witness fees. In
this Section 19.16, non-prevailing party shall not be meant to refer to a party
who initiates or accepts a settlement offer with regards to such legal
proceeding.

19.17 Intentionally Omitted.

19.18 Cooperation. Manager hereby agrees to cooperate with Tenant in connection
with any sale of the Facility or the direct or indirect ownership interests in
Tenant, including without limitation, using commercially reasonable efforts to
furnish financial and property information, cooperating with any potential
purchaser’s physical inspection of the Facility, providing tours of the Facility
to prospective purchasers, assisting with the preparation of prorations, and
such other matters as are reasonably requested by Tenant and/or Tenant in
connection with the sale of the Facility or the ownership interests in Tenant.

19.19 Estoppel Certificate. Manager agrees, at any time and from time to time
and within ten (10) business days after written request by Tenant, to execute,
acknowledge and deliver to Tenant a statement in writing (i) certifying that
this Agreement is unmodified and in full force and effect (or if there have been
modifications, that the Agreement is in full force and effect as modified and
stating the modifications); (ii) stating the Management Fees payable and dates
to which the Management Fees and any other charges hereunder have been paid by
Tenant; (iii) stating whether or not Tenant is in default in the performance of
any covenant, agreement or condition contained in this Agreement, and if so,
specifying each such default of which Manager may have knowledge; (iv) to
Manager’s actual knowledge, Manager is not in default in any material respects
relating to the Management Agreement; (v) [intentionally omitted];
(vii) certifying that there are bans on admissions of residents to the Facility;
(viii) certifying that all financial statements and books and records have been
maintained in accordance with GAAP, and that they are true, accurate, and
complete in all material respects; (xi) certifying that there are no Resident
deposits held by Manager, except as set forth on a exhibit to the estoppel
certificate; and (xii) certifying that Manager has not accepted any advance
rents from Residents, except as set forth on an exhibit to the estoppel
certificate. Any such statement delivered pursuant hereto may be relied upon by
any owner of the Facility, any prospective purchaser of the Facility, and lender
or prospective lender of Tenant, or any prospective assignee of any such loan.
Manager’s failure to timely deliver an estoppel certificate as provided in this
Section will be a default under this Agreement.

19.20 Subordination of Management Agreement. Without the consent of Manager,
Landlord or Tenant may, from time to time, directly or indirectly, create or
otherwise cause to exist a mortgage, trust deed, lien, encumbrance or title
retention agreement (collectively, an “Encumbrance”) upon the Facility or any
part(s) or portion(s) thereof or interests therein. This Agreement and the
rights of Manager hereunder are and at all times shall be subject and
subordinate to any such Encumbrance which may now or hereafter affect the
Facility or any of them and to all renewals, modifications, consolidations,
replacements and extensions thereof. This Section 19.21 shall be self-operative
and no further instrument of subordination shall be required; provided, however,
that in confirmation of such subordination, Manager shall execute promptly any
certificate or document that Landlord or Tenant, mortgagee or beneficiary may
request for such purposes.

 

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19.21 Operational Transfer. As of the date hereof, Manager will commence
operations of the Facility and Mountain West Retirement Corporation, dba
Bonaventure Senior Living, an Oregon corporation (“Existing Operator”), the
manager of the Facility immediately prior to the Effective Date, will cease
managing the Facility. In order to facilitate a transition of operational and
financial responsibility from Existing Operator to Manager in a manner that will
ensure the continued operation of the Facility after the Effective Date in
compliance with applicable law and in a manner that does not jeopardize the
health and welfare of the residents of the Facility, Manager and Tenant hereby
agree as follows:

(a) Access to Records. Manager shall keep and preserve all medical records and
other records that Landlord obtained from Existing Operator or its affiliates
for persons who were residents of the Facility for the longer of five (5) years
following the delivery of such records to Landlord or Manager, or such time as
may be required by any applicable legal requirement.

(b) Employee Matters.

(i) Manager acknowledges and agrees that as of the date hereof, Existing
Operator has delivered to Manager a schedule setting forth: (i) the name of each
of the current Facility employees (collectively, the “Facility Employees”),
(ii) each Facility Employee’s position (and corresponding job description and
role) and rate of pay, (iii) both a reasonable estimate of all benefits (to
include but not limited to, all health benefits and retirement benefits) that
Existing Operator is obligated by all legal requirements and its employee
benefit policies, to provide the Facility Employees as of the Effective Date and
(iv) Existing Operator’s liability for the Facility Employees’ vacation, sick
and personal time-off as of the Effective Date, if any, which Existing Operator
shall be obligated to pay as of the Effective Date. “Facility Employees” does
not include any employees of Existing Operator (including regional and traveling
personnel) who may provide services to the Facility but are not employees of the
Facility, and Existing Operator personnel who may provide services to the
Facility on an interim basis but are not employees of the Facility.

(ii) To the extent that Manager elects to employ any Facility Employees as of
the Effective Date, on the Effective Date, Manager shall give Existing Operator
written notice of which Facility Employees Manager will employ as of the
Effective Date. On or about the date that is sixty (60) days after the Effective
Date, Manager shall provide Existing Operator with a list of any Facility
Employees terminated after the Effective Date, together with an indication as to
whether such employees were terminated with or without cause.

(c) Accounts Receivable. As soon as reasonably possible but not later than ten
(10) business days after the Effective Date, Tenant shall use commercially
reasonable efforts to cause Existing Operator to provide Manager with a schedule
of Seller’s accounts receivable, listing by resident the amounts due as of the
Effective Date (“Seller’s Accounts Receivable”). Manager shall do nothing to
interfere with any and all rights that Seller or any of its agents or
affiliates, including Existing Operator, may have in or with respect to Seller’s
Accounts

 

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Receivable including but not limited to the right to collect the same and to
enforce any and all of Seller’s rights with respect to Seller’s Accounts
Receivable, provided, however, that the pursuit of such Seller’s Accounts
Receivable by Seller or any of its agents or affiliates, including Existing
Operator, does not interfere with the Manager’s operation of the Facility.

(d) Payments Received by Manager. If Manager receives any proceeds with respect
to the Seller’s Accounts Receivable, Manager will hold such proceeds in trust
for Seller and shall promptly turn over those proceeds to Existing Operator
without demand, offset or deduction of any kind. All amounts received by Manager
from parties with respect to whom there is an Account Receivable shall be
applied in the manner specified by the payor. If there is no specification by
the payor with respect to the application of such amounts, such amounts shall be
applied as follows: (i) if the payment is made on or before the date that is
thirty (30) days after the Effective Date, the payment shall first be applied to
the oldest indebtedness of the payor; (ii) if the payment is made after the date
that is thirty (30) days after the Effective Date and on or before the date that
is ninety (90) days after the Effective Date, such payment shall be applied
first toward current amounts due, and if such payment exceeds any current
amounts due, then such excess shall be applied to any past due amounts of the
payor, beginning with the oldest indebtedness; and (iii) if the payment is made
after the date that is ninety (90) days after the Effective Date, such payment
shall be retained by Manager, for the benefit of Owner.

(e) Private Payments Received by Manager from Discharged Residents. Any private
payments received by Manager which relate to any residents discharged from the
Facility prior to the Effective Date (the “Discharged Residents”) shall be
forwarded to Existing Operator within ten (10) business days of receipt thereof
together with copies of applicable remittance advices or other information
received. Manager shall use commercially reasonable efforts to direct that such
Discharged Residents remit such payments directly to Existing Operator at a
location other than the Facility.

(f) Recovery of Accounts Receivable. Nothing herein shall be deemed to limit in
any way Existing Operator’s rights and remedies to recover Accounts Receivable
due and owing to Seller from any payor, except that, a) in no event shall
Existing Operator have the right, after the Effective Date, to terminate any
resident agreement or tenant lease or to bring any eviction or similar
proceeding (or threaten to do so) in connection with exercising any rights of
Seller or Existing Operator pursuant to this Section, and; b) Seller’s pursuit
and rights and remedies to recover Accounts Receivable shall not interfere with
Manager’s operation of the Facility.

(g) Misapplied Payments. In the event the parties mutually determine in good
faith that a payment described hereunder was misapplied by Manager, then the
Manager shall remit the same to Existing Operator within ten (10) business days
after said determination is made.

(h) For the ninety (90) day period following the Commencement Date or until
Existing Operator receives payment of all Accounts Receivable attributable to
the operation of the Facility prior to the Commencement Date, whichever is
sooner, Manager shall deliver to Seller and Tenant: (a) an accounting by the
20th calendar day of each month setting forth all accounts received by Manager
during the preceding month with respect to Accounts Receivable; and (b) copies
of all remittance advice relating so such amounts received and any other
reasonable supporting documentation as may be reasonably required for Seller to
determine the Accounts Receivable.

 

47

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(i) Failure to Forward Payments. Failure of Manager to forward to Existing
Operator any payment received by such Manager in accordance with the terms of
this Section shall (among all other remedies allowed to them by law and this
Agreement) cause the amount owed to accrue interest to interest on the amount
owed at the rate per annum equal to the prime rate as set forth in the Wall
Street Journal and same may be changed from time to time plus two percent
(2.00%) simple interest until such payment has been made.

(j) Removal of Signage. Immediately following the Effective Date, Manager shall
cover up or remove all references to the name “Bonaventure”, Bonaventure’s logo
or trademarks, or the registered phrase “Retirement Perfected” on Facility
signage or other materials used or distributed in connection with operation of
the business conducted at the Facility, including on letterhead or other
correspondence, employee business cards or accounts. No later than forty-five
(45) days following the Effective Date (and no later than thirty (30) days with
respect to Facility buses), Manager shall permanently remove or replace all
Facility signage and other materials used or distributed in connection with
operation of the business conducted at the Facility.

(k) Existing Operator Not Third Party Beneficiary. It is expressly agreed that
Existing Operator is not third party beneficiaries of this Agreement.

(l) Payments Received by Owner from Existing Operator. Any payments received by
Owner from Existing Operator after the Effective Date which represent payments
for services rendered or goods sold by Manager from and after the Effective Date
shall be forwarded to Manager promptly and/or credited appropriately under this
Management Agreement.

[Signatures Commence on Following Page]

 

48

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
under seal by their duly authorized officers, all as of the day and year first
above written.

 

Tenant: CHP BILLNGS MT TENANT CORP., a Delaware corporation By:  

/s/ Tracey B. Bracco

Name:   Tracey B. Bracco Title:   Vice President

[INTENTIONALLY BLANK; SIGNATURE OF MANAGER FOLLOWS]

 

49

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Manager:

MorningStar Senior Management, LLC,

a Colorado limited liability company

  By:  

/S/ Ken Jaeger

    Name:   Ken Jaeger     Title:   President/CEO

 

50

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EXHIBIT A

DESCRIPTION OF REAL PROPERTY

[Intentionally Omitted]

EXHIBIT B

APPROVED BUDGET FOR FIRST FISCAL YEAR

[Intentionally Omitted]

EXHIBIT C

[INTENTIONALLY OMITTED]

EXHIBIT D

REPORTING SCHEDULE

[Intentionally Omitted]

EXHIBIT D-1

QUARTERLY CERTIFICATION

[Intentionally Omitted]

EXHIBIT E

FORM OF RESIDENT AGREEMENT

[Intentionally Omitted]

EXHIBIT F

FACILITY STANDARDS

[Intentionally Omitted]

EXHIBIT G

INSURANCE COVERAGE

[Intentionally Omitted]

EXHIBIT H

MANAGER’S ORGANIZATIONAL CHART

[Intentionally Omitted]

SCHEDULE 10.06

PROPOSED OWNERSHIP INTERESTS OF MANAGER

[Intentionally Omitted]