Exhibit 10.4

MANAGEMENT AGREEMENT

For

SUNRISE OF CONNECTICUT AVENUE

Dated as of

June 29, 2012

Owner: Sunrise Connecticut Avenue Assisted Living Owner, L.L.C.

Manager: Sunrise Senior Living Management, Inc.

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TABLE OF CONTENTS

 

          Page  

ARTICLE I

  

DEFINITIONS

     1   

1.01.

  

Defined Terms

     1   

ARTICLE II

  

APPOINTMENT OF MANAGER AND PRIMARY GOAL OF AGREEMENT

     14   

2.01.

  

Appointment of Manager

     14   

2.02.

  

Goals

     14   

ARTICLE III

  

MANAGEMENT FEES

     15   

3.01.

  

Base Management Fee

     15   

ARTICLE IV

  

DUTIES AND RIGHTS OF MANAGER

     15   

4.01.

  

Authority of Manager; Right of Possession

     15   

4.02.

  

Marketing Services

     15   

4.03.

  

Management Duties

     16   

4.04.

  

Manager’s Home Office Employees

     17   

4.05.

  

Personnel Administration

     18   

4.06.

  

Purchasing

     18   

4.07.

  

Resident Agreements

     18   

4.08.

  

Ancillary Activities

     18   

4.09.

  

Notice of Licensure Issues

     19   

ARTICLE V

  

COLLECTIONS AND PAYMENTS; GROSS REVENUE DISTRIBUTION; OD LOAN; CREDITS AND
COLLECTIONS; WORKING CAPITAL; IMPOSITIONS

     19   

5.01.

  

Collections and Payments

     19   

5.02.

  

Manager Pooling Agreement

     19   

5.03.

  

Distribution of Gross Revenues; OD Loan

     19   

5.04.

  

Credits and Collections

     21   

5.05.

  

Depositories for Funds

     21   

5.06.

  

Working Capital

     22   

5.07.

  

Impositions

     22   

ARTICLE VI

  

FINANCIAL RECORDS

     23   

6.01.

  

Accounting and Financial Records

     23   

6.02.

  

Reports

     24   

6.03.

  

Access; Audit

     24   

ARTICLE VII

  

ANNUAL OPERATING BUDGET

     24   

7.01.

  

Annual Operating Budget

     24   

ARTICLE VIII

  

ENVIRONMENTAL MATTERS

     25   

8.01.

  

Owner Responsibility and Indemnification

     25   

8.02.

  

Manager Responsibility and Indemnity

     26   

8.03.

  

Notice

     27   

 

 

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8.04.

  

Obligation to Comply

     27   

ARTICLE IX

  

OTHER FINANCIAL MATTERS

     27   

9.01.

  

Charges

     27   

9.02.

  

Tax Status

     27   

9.03.

  

Employee Withholding

     28   

ARTICLE X

  

GENERAL COVENANTS AND OWNER AND MANAGER OBLIGATIONS

     28   

10.01.

  

Owner’s Obligations

     28   

10.02.

  

Manager’s Obligations

     28   

10.03.

  

Quiet Enjoyment

     28   

10.04.

  

Financing of the Facility

     28   

ARTICLE XI

  

REPAIRS, MAINTENANCE AND REPLACEMENTS

     29   

11.01.

  

Routine Repairs and Maintenance

     29   

11.02.

  

FF&E Reserve and Routine Expenditures

     30   

11.03.

  

Non-Routine Capital Expenditures

     32   

11.04.

  

Emergency Expenditures

     33   

11.05.

  

Owner to Provide Funds; Failure of Owner to Fund

     33   

11.06.

  

Liens Arising From Repairs and Alterations

     34   

ARTICLE XII

  

INSURANCE; DAMAGE; CONDEMNATION; FORCE MAJEURE

     34   

12.01.

  

General Requirements

     34   

12.02.

  

Blanket Policies

     35   

12.03.

  

Risk Management

     35   

12.04.

  

Damage and Repair

     35   

12.05.

  

Condemnation

     36   

12.06.

  

Licensure Issues

     36   

ARTICLE XIII

  

TERMINATION OF AGREEMENT

     37   

13.01.

  

General Termination; Termination by Parties

     37   

13.02.

  

Transition upon Termination

     37   

13.03.

  

Repayment of Operating Deficit Loan upon Termination

     39   

ARTICLE XIV

  

DEFAULTS

     39   

14.01.

  

Default by Manager

     39   

14.02.

  

Default by Owner

     39   

14.03.

  

Insolvency Default

     40   

14.04.

  

Remedies of Owner

     40   

14.05.

  

Remedies of Manager

     40   

14.06.

  

No Waiver of Default

     40   

14.07.

  

Termination Fee

     40   

14.08.

  

Failure to Pay

     41   

14.09.

  

Manager’s Right to Specific Performance for Owner’s Wrongful Termination

     41   

ARTICLE XV

  

LEGAL ACTIONS, INDEMNITIES, AND LIMITATION OF LIABILITY

     42   

 

 

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15.01.

  

Legal Actions

     42   

15.02.

  

Indemnities

     42   

15.03.

  

Limitation of Liability

     43   

ARTICLE XVI

  

REGULATORY AND CONTRACTUAL REQUIREMENTS

     43   

16.01.

  

Regulatory and Contractual Requirements

     43   

16.02.

  

Equal Employment Opportunity

     44   

16.03.

  

Equal Housing Opportunity

     44   

ARTICLE XVII

  

PROPRIETARY MARKS; INTELLECTUAL PROPERTY

     44   

17.01.

  

Proprietary Marks

     44   

17.02.

  

Ownership of Proprietary Marks

     44   

17.03.

  

Intellectual Property

     44   

17.04.

  

Trademark License

     45   

17.05.

  

Breach of Covenant

     45   

ARTICLE XVIII

  

MISCELLANEOUS PROVISIONS

     45   

18.01.

  

Additional Assurances

     45   

18.02.

  

Right to Inspect

     45   

18.03.

  

Estoppel Certificates

     45   

18.04.

  

Consents, Approval and Discretion

     46   

18.05.

  

No Brokerage

     46   

18.06.

  

Notices

     46   

18.07.

  

Severability

     48   

18.08.

  

Gender and Number

     48   

18.09.

  

Division and Headings

     48   

18.10.

  

Confidentiality of Information

     48   

18.11.

  

Right to Perform

     49   

18.12.

  

Assignment by Manager or Owner; Controlling Interest Sale; Facility Sale

     49   

18.13.

  

Entire Agreement; Amendment

     53   

18.14.

  

Relationship Between the Parties

     53   

18.15.

  

Force Majeure

     53   

18.16.

  

Subordination, Non-disturbance and Attornment Agreements

     53   

18.17.

  

Arbitration

     54   

18.18.

  

Cooperation

     56   

18.19.

  

Manager Pooling Agreement as Controlling Agreement

     56   

18.20.

  

Costs of Dispute

     56   

18.21.

  

Governing Law; Litigation, Jurisdiction and Waiver of Jury Trial

     56   

18.22.

  

Counterparts

     57   

18.23.

  

Contracting with Affiliates

     57   

18.24.

  

Parent Subordination

     57   

18.25.

  

Facility Name

     58   

18.26.

  

Parent and Owner Consents

     58   

18.27.

  

REIT Compliance

     58   

 

 

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LIST OF EXHIBITS

 

Exhibit A    Description of Real Property Exhibit B-1    Facility Shared
Services Exhibit B-2    B-2 Direct Expenses Exhibit C-1    Financial Reporting
Requirements Exhibit C-2    Form of Quarterly Certification Exhibit D    Form of
Proposed Budget Exhibit E    Current Insurance Program

 

 

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MANAGEMENT AGREEMENT

THIS MANAGEMENT AGREEMENT (“Agreement”) is made as of June 29, 2012 (“Effective
Date”) by and among SUNRISE SENIOR LIVING MANAGEMENT, INC., a Virginia
corporation (“Manager”), SUNRISE CONNECTICUT AVENUE ASSISTED LIVING OWNER,
L.L.C., a Virginia limited liability company (“Owner”), and CHTSUN PARTNERS IV,
LLC, a Delaware limited liability company (“Parent”).

RECITALS:

A. Owner has a fee interest in that certain real property described in Exhibit
A, attached hereto and made a part hereof, on which is constructed an assisted
living facility, located in Washington, D.C. and known as Sunrise of Connecticut
Avenue (hereinafter referred to as the “Facility”).

B. Owner wishes to appoint Manager as manager of the Facility and Manager
desires to accept such appointment and manage the Facility.

NOW, THEREFORE, the parties hereto agree as follows:

ARTICLE I

DEFINITIONS

1.01. Defined Terms. The following terms shall have the following meanings when
used in the Agreement:

AAA. The term “AAA” is defined in Section 18.17.

Accountants. The term “Accountants” means Ernst & Young LLP,
PricewaterhouseCoopers, Deloitte Touche Tohmatsu, and KPMG as selected by Owner
and Manager, or such other firm of independent certified public accountants as
may be approved by Owner and Manager.

Accounting Period. The term “Accounting Period” means and refers to a calendar
month.

Affiliate. The term “Affiliate” means a Person, which controls, is controlled
by, or is under common control with another Person. For the purposes of this
definition, “control” means the power to direct the management and policies of a
Person, directly or indirectly, whether through the ownership of voting
securities or other beneficial interest, by contract or otherwise; and the terms
“controlling” and “controlled” have the meanings correlative to the foregoing. A
Person shall not be deemed to be under common “control” with another Person
solely based on the fact that one or more Person(s) serve as a director of both
Persons.

Agreement. The terms “Agreement” and this “Agreement” means this Management
Agreement by and among Parent, Owner and Manager, and any amendments thereto as
may be from time to time agreed to in writing by the parties.

 

 

 

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Approved Budget. The term “Approved Budget” means the annual operating budget
for the operation of the Facility approved by Owner in accordance with Article
VII.

Arbitration Proceeding. The term “Arbitration Proceeding” is defined in
Section 18.17.

Bad Debt. The term “Bad Debt” means the Facility’s accounts receivable deemed to
be uncollectable and written off, and the allowance for bad debts per the
Manager’s policy, as consistently applied within Manager’s System.

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

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.

Capital Budget. The term “Capital Budget” is defined in Section 11.03(a).

Capital Transaction. The term “Capital Transaction” means the sale, exchange or
disposition of any of Owner’s property, the refinancing of any of Owner’s
property or casualty damage to or condemnation of any of Owner’s property.

CHT. The term “CHT” is defined in Section 6.02.

CHT Partner. The term “CHT Partner” is defined in Section 14.08.

Collection Proceedings. The term “Collection Proceedings” is defined in
Section 15.01.

Continuation Notice. The term “Continuation Notice” is defined in Section 18.12.

Controlling Interest. The term “Controlling Interest” means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person.

Controlling Interest Sale. The term “Controlling Interest Sale” means any direct
or indirect sale, assignment (other than a collateral assignment given in
connection with a financing of the Facility), transfer or other disposition, for
value or otherwise, voluntary or involuntary, by Owner or its Affiliate of a
Controlling Interest in Owner. For purposes of this Agreement, a Controlling
Interest Sale shall include any sale, assignment, transfer, or other
disposition, for value or otherwise, voluntary or involuntary, in a single
transaction or a series of related transactions. For the avoidance of any doubt,
the sale, assignment or other disposition of any interest in Parent shall not be
considered a Controlling Interest Sale for purposes of this Agreement.

Debt Service. The term “Debt Service” means the monthly payments of principal
and interest payable on the note secured by or to be secured by the Facility
Mortgage.

Downpayment. The term “Downpayment” is defined in Section 18.12(d).

 

 

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Effective Date. The term “Effective Date” is defined in the Preamble of this
Agreement.

Emergency Expenditures. The term “Emergency Expenditures” is defined in
Section 11.04.

Emergency Requirements. The term “Emergency Requirements” means any of the
following events or circumstances: (1) an emergency threatening the Facility, or
the life, safety or property of its residents, invitees or employees; (2) a
Legal Requirement which if not complied with may subject Owner or Manager to
financial liability; (3) a condition, the continuation of which may subject
Owner or Manager to civil or criminal liability or may cause a default under any
third party indebtedness of Owner, or (4) a Force Majeure event that prevents
Manager from managing or operating the Facility pursuant to Manager’s Standards.

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.

Escrow Agent. The term “Escrow Agent” means a nationally recognized title
company reasonably acceptable to Manager.

Event of Default by Manager. The term “Event of Default by Manager” is defined
in Section 14.01.

Event of Default by Owner. The term “Event of Default by Owner” is defined in
Section 14.02.

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

Facility Expenses.

(a) The term “Facility Expenses” means those costs and expenses that are
directly related to the operation, maintenance, repair costs and staffing of the
Facility, which expenses and payment of expenses shall be administered by
Manager from the Facility’s Gross Revenues, including, without limitation:

 

  •  

Costs of inventory and supplies used in the operation of the Facility;

 

  •  

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

 

 

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  •  

Costs payable to make repairs and perform all maintenance and preventative
maintenance and other routine property maintenance and upkeep services with
respect to the Facility other than those paid from the FF&E Reserve;

 

  •  

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 with respect to the Facility
(including, without limitation, legal fees, reasonable disbursements and moving
and storage expenses for FF&E and personal property of Residents and/or
lessees);

 

  •  

Costs payable under service contracts to which Owner or Manager is a party with
respect to the Facility;

 

  •  

Costs payable to third parties for advertising and leasing expenses with respect
to the Facility (including, but not limited to, promotions, printing and signs),
or a pro rata share thereof where such advertising is for the benefit of the
Facility and other facilities;

 

  •  

Costs payable to third parties for auditing, tax preparation and accounting
services with respect to the Facility, and reasonable attorneys’ fees incurred
with respect to the Facility;

 

  •  

All reasonable costs and fees of audit, legal, technical and other independent
professionals who are retained by Manager to perform professional services
(which for purposes of this paragraph shall exclude repair, maintenance and
alterations work not of a professional nature) required or permitted hereunder;
provided that, so long as the Facility is subject to the Manager Pooling
Agreement, Manager will obtain Owner’s prior written consent with respect to any
such proposed expenditures to the extent required under Section 5.3 of the
Manager Pooling Agreement, unless such expenditures are necessary to satisfy
Emergency Requirements, in which case Owner’s consent shall not be required
provided that Manager provides Owner with prompt written notice of such
expenditure;

 

  •  

The reasonable cost and expense of technical consultants and operational experts
who are employees of Manager or one of its Affiliates and who perform
specialized services (that is, services not otherwise required to be provided by
Manager hereunder for and in consideration of the fees payable hereunder) in
connection with Facility work (including, but not limited to, regional office
employees and employees of Sunrise Senior Living, Inc. or its Affiliates who
assist with the Facility operations which includes an information technology
help desk and a regional business manager); provided, however, that the costs
and expenses so incurred shall only be Facility Expenses to the extent such
costs and expenses are reasonable and competitively priced, as compared to
similar work done by outside consultants or experts; and provided, further, so
long as the Facility is subject to the Manager Pooling Agreement, Manager will
obtain

 

 

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Owner’s prior written consent with respect to any such proposed expenditures to
the extent required under Section 5.3 of the Manager Pooling Agreement, unless
such expenditures are necessary to satisfy Emergency Requirements, in which case
Owner’s consent shall not be required provided that Manager provides Owner with
prompt written notice of such expenditure;

 

  •  

Costs incurred by Manager for all personnel employed at the Facility or whose
services are entirely allocable to the Facility, and for those personnel
employed in part at the Facility and in part at other facilities, a reasonable
share of costs of such personnel (determined by factors such as services
rendered in a facility and operational complexities and percent of such
personnel’s time spent in connection with the Facility), such costs to include
salary and wages (including costs of processing, printing and mailing of payroll
checks and W-2 forms), training programs, hiring expenses, payroll taxes,
workers’ compensation, bonus compensation, incentive compensation, retirement
plan payments, travel expenses and other benefits payable (including, for
example, health insurance, dental insurance, life insurance and disability
insurance) to such personnel;

 

  •  

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

 

  •  

Costs of all utilities serving the Facility;

 

  •  

Costs payable to third parties for printed checks and bank account maintained by
Owner or Manager in accordance with this Agreement with respect to the Facility;

 

  •  

To the extent required to be carried by Manager pursuant to the terms of this
Agreement, costs of insurance at the Facility which include: insurance premiums;
the ultimate costs of self-insured losses and deductibles; claims administration
costs; risk management costs; and other program costs including premium taxes,
fronting fees, state Workers’ Compensation self-insurance assessments,
collateral fees and surety bonds supporting self-insurance programs, and broker
fees;

 

  •  

Costs incurred to third parties incurred in order to prevent a breach under a
lease or a Facility Mortgage;

 

  •  

The Base Management Fee payable to Manager under the terms of this Agreement;

 

  •  

Costs incurred by Manager for electronic data processing equipment, systems,
software or services used at the Facility, including procurement, maintenance
and upgrades;

 

  •  

All Impositions described in Section 5.07;

 

  •  

Costs incurred by Manager for comprehensive crime insurance or fidelity bonds
for Facility employees; and

 

 

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  •  

Any other costs, fees or expenses included in, and which Manager is authorized
to incur in accordance with the terms and conditions set forth in this
Agreement.

(b) Facility Expenses will include a proportionate share of Facility Shared
Services used at the Facility. At Owner’s request, Manager shall provide Owner
with an analysis of the formula and methodology employed by Manager in
allocating the Facility Shared Services among the applicable facilities which
allocation shall be a fair and reasonable formula based upon use by the other
facilities within the Manager’s System (and Owner’s allocation of Facility
Shared Services shall not be disproportionate as compared to Facility Shared
Services used by other facilities within the Manager’s System). Facility
Expenses will also include charges for services provided directly to the
Facility by employees of Manager or Manager’s Affiliates who do not work at the
Facility which services are set forth in Exhibit B-2 attached hereto. The
amount, type, and cost of the Facility Shared Services that are necessary to
maintain the Facility in accordance with Manager’s Standards and will be
included in the Proposed Budget submitted to Owner pursuant to Article VII.

(c) Facility Expenses shall not include the following:

 

  •  

Except as expressly agreed to by Owner, or included in the Approved Budget or as
otherwise set forth above, costs incurred by Manager for salary and wages,
payroll taxes, workers’ compensation, bonus compensation, incentive
compensation, retirement plan payments, travel expenses and other benefits
payable to Manager’s or Manager’s Affiliates’ corporate office employees or
divisional or regional supervisor employees (including, without limitation,
non-incentive stock option grants and any bonus compensation to such employees);

 

  •  

Except as expressly agreed to by Owner as part of an annual request by Manager,
costs incurred by Manager for in-house accounting and reporting systems,
software or services furnished by Manager under this Agreement, as distinguished
from third party accounting and reporting costs (as for example, the annual
auditing costs of Accountants), which shall be Facility Expenses;

 

  •  

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;

 

  •  

Except as expressly agreed to by Owner, costs incurred by Manager for political
contributions;

 

  •  

Costs attributable to losses which are covered by the indemnity obligations of
Manager pursuant to Section 15.02(a) of this Agreement;

 

  •  

Except to the extent included in an Approved Budget or as otherwise expressly
agreed to by Owner, costs incurred by Manager for training and hiring expenses
related to corporate office employees or divisional or regional supervisory
employees, including but not limited to employment and employment agency fees;

 

 

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  •  

Costs incurred by Manager for advertising expenses of Manager other than costs
of marketing the Facility for lease or occupancy, or costs of employment ads for
positions at the Facility;

 

  •  

Costs incurred by Manager for any architect, engineer, or other professional
advisor or consultant employed by Manager, as distinguished from cost for third
parties engaged for the performance of such services, which shall be Facility
Expenses;

 

  •  

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

 

  •  

Any insurance premiums and deductibles and real estate taxes payable by the
Owner if Owner is making those payments directly rather than having Manager make
those payments on Owner’s behalf; and

 

  •  

Debt Service.

For purposes of consents required to be given by Owner as described in this
definition of “Facility Expenses,” an approval by Owner given by e-mail from a
person so authorized to give such consent as determined by Owner from time to
time to Manager will be sufficient.

Facility Mortgage. The term “Facility Mortgage” means any mortgage, deed of
trust or indemnity deed of trust recorded against all or any portion of the
Facility as security for a secured loan.

Facility Sale. The term “Facility Sale” means any sale, assignment (other than a
collateral assignment given in connection with a financing of the Facility),
transfer or other disposition, for value or otherwise, voluntary or involuntary,
of Owner’s title or other interest (or any part thereof) to the Facility (either
fee or leasehold title, as the case may be). For purposes of this Agreement, a
Facility Sale shall include (a) a lease (or sublease) of all or substantially
all of the Facility to any Person, and (b) any sale, assignment, transfer, or
other disposition of all or substantially all of the Facility, for value or
otherwise, voluntary or involuntary, in a single transaction or a series of
related transactions.

Facility Shared Services. The term “Facility Shared Services” shall mean
(i) those expenses for goods or services that relate to the Facility and to
other Facilities in Manager’s System which are set forth on Exhibit B-1, and
(ii) expenses for such other services that are provided by Manager throughout
the Manager’s System from time to time as reasonably approved by Owner in the
Approved Budget, which charges shall not include general corporate overhead or
general corporate operating expenses of Manger or its Affiliates.

FF&E. The term “FF&E” means furniture, furnishings, fixtures, soft goods, case
goods, vehicles and equipment (including but not limited to telephone systems,
facsimile machines, communications and computer systems hardware) located in or
on or used exclusively in

 

 

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connection with the operation of the Facility but shall not include Household
Replacements or any software. FF&E shall be and remain the property of Owner
during the Term and upon the expiration or termination of this Agreement.

FF&E Estimate. The term “FF&E Estimate” is defined in Section 11.02(c).

FF&E Reserve. The term “FF&E Reserve” means the reserve established pursuant to
Section 11.02(a). FF&E Reserve shall be and remain the property of Owner during
the Term and upon the expiration or termination of this Agreement.

FF&E Reserve Balance. The term “FF&E Reserve Balance” means, as of any date, an
amount equal to the difference between (1) the amount actually paid into the
FF&E Reserve pursuant to Article V and (2) the amounts due to be paid into the
FF&E Reserve pursuant to Article V. Any portion of the FF&E Reserve Balance
remaining unpaid at the end of any Fiscal Year shall accrue and become payable
as a portion of the FF&E Reserve for the subsequent Fiscal Year.

FF&E Reserve Payment. The term “FF&E Reserve Payment” is defined in
Section 11.02(f).

Financing. The term “Financing” is defined in Section 10.04(a).

Fiscal Year. The term “Fiscal Year” means the calendar year.

FMV Determination Notice. The term “FMV Determination Notice” is defined in
Section 12.04(c).

Force Majeure. The term “Force Majeure” is defined in Section 18.15.

GAAP. The term “GAAP” means “U.S. generally accepted accounting principles.”

Guaranty. The term “Guaranty” means that certain Guaranty dated as of the date
hereof made by Parent in favor of Manager.

Governmental Authority. The term “Governmental Authority” means any federal,
state, county or municipal government, or political subdivision thereof, any
governmental agency, authority, board, bureau, commission, department,
instrumentality, or public body, or any court or administrative tribunal.

Gross Revenues. The term “Gross Revenues” means for each Accounting Period, all
revenues and receipts of every kind derived from operating the Facility and all
departments and parts thereof, including, but not limited to: income (from both
cash and credit transactions) from monthly occupancy fees, health care fees and
ancillary services fees received pursuant to various agreements with residents
of the Facility; interest received with respect to the monies in any operating
account of the Facility; income from food and beverage, and catering sales;
income from telephone charges; income from vending machines; 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

 

 

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determined on an accrual basis in accordance with GAAP consistently applied;
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, such as gross receipts or similar taxes; (iii) proceeds
from the sale or disposition of FF&E or other capital assets (which proceeds
will be deposited in the FF&E Reserve); (iv) interest received or accrued with
respect to the monies in any reserve accounts of the Facility; (v) any cash
refunds, rebates or discounts to residents of the Facility, or cash discounts
and credits of a similar nature, given, paid or returned in the course of
obtaining Gross Revenues or components thereof; (vi) proceeds from any sale of
the Facility or any part thereof, or any other Capital Transaction;
(vii) proceeds of any financing transaction affecting the Facility;
(viii) security or resident fee deposits until such time as the same are applied
to current fees and other charges due and payable; (ix) awards of damages,
settlement proceeds and other payments received by Owner in respect of any
litigation other than litigation to collect fees due for services rendered from
the Facility; (x) proceeds of any condemnation; (xi) proceeds of any casualty
insurance, other than loss of rents or business interruption insurance;
(xii) payments under any policy of title insurance; (xiii) income derived from
securities and other property acquired and held for investment; (xiv) income
from services to the extent they are outsourced and (xv) contributions by Owner.
Any Bad Debt, or any community fees or deposits that are refunded to a resident
shall be credited against Gross Revenues during the Accounting Period in which
such Bad Debt is recognized or such refunds are made, as the case may be, if
such amounts were previously included in Gross Revenues. Any Bad Debt which is
recognized but is later collected shall be added to Gross Revenues.

Hazardous Materials. The term “Hazardous Materials” is defined in Section 8.01.

Home Office Employees. The term “Home Office Employees” is defined in
Section 4.04.

Household Replacements. The term “Household Replacements” means supply items,
except for FF&E, used or held in storage for future use, as are customarily used
on a daily basis and are necessary in connection with the operation of the
Facility in accordance with the terms of this Agreement, including linen, china,
glassware, silver, uniforms, and similar items, including food, beverages,
medical supplies, soaps, shampoos or any other similar consumable product.

Impositions. The term “Impositions” is defined in Section 5.07(b).

Indemnitee. The term “Indemnitee” is defined in Section 8.02.

Index. The term “Index” means the Consumer Price Index: All Urban Consumers,
(1982-84=100), All Items, U.S. City Average (CPI-U), as published by the United
States Department of Labor, Bureau of Labor Statistics. 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. If the Index is
discontinued with no successor Index, another similar index with an appropriate
conversion factor shall be substituted. If the Index is changed so that a base
year other than 1982-84 is used, the Index shall be converted in accordance with
the conversion factor published by the Bureau of Labor Statistics.

 

 

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Initial Arbitrator. The term “Initial Arbitrator” is defined in Section 18.17.

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

Insurance Retention. The term “Insurance Retention” is defined in Section 13.02.

Intellectual Property. The term “Intellectual Property” means (1) all computer
software developed and owned by Manager or an Affiliate of Manager; and (2) all
manuals, instructions, policies, procedures and directives issued by Manager to
its employees at the Facility regarding the procedures and techniques to be used
in operation of the Facility. The term “Intellectual Property” shall include
Proprietary Marks but does not include the data and information stored or
maintained on the Intellectual Property.

Interest. The term “Interest” means the lower of (i) sixteen percent (16%) per
annum or (ii) the highest interest permitted under applicable laws.

JV Agreement. The term “JV Agreement” is defined in Section 14.08.

Legal Requirements. The term “Legal Requirements” means any law, code, rule,
ordinance, regulation, license, certificate or order of any Governmental
Authority 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.

Loan Documents. The term “Loan Documents” is defined in Section 10.04(b).

Major Casualty. 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.

Management Agreement. The term “Management Agreement” means this Agreement and
any Replacement Management Agreement.

Manager. The term “Manager” is defined in the Preamble of this Agreement.

Manager FMV Determination. The term “Manager FMV Determination” is defined in
Section 12.04(c).

Manager Indemnitee(s). The terms “Manager Indemnitee” and “Manager Indemnitees”
are defined in Section 8.01.

Manager Pooling Agreement. The term “Manager Pooling Agreement” means the
Manager Pooling Agreement dated as of the date hereof by and among Manager,
Owner along with tenants at certain other facilities managed by Manager, and
Parent, as the same may be amended from time to time.

Manager Receivables. The term “Manager Receivables” is defined in Section 18.24.

 

 

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Manager’s Standards. The term “Manager’s Standards” means, from time to time,
the (1) operational standards (for example, housekeeping, food service,
activities, staffing levels, resident care and health care policies and
procedures) and (2) the physical standards (for example, life safety equipment
and policies and procedures, amounts and quality of FF&E, frequency of FF&E
replacement) that are then implemented or in the process of being implemented at
seventy-five percent (75%) or more of similarly situated, in Manager’s
reasonable judgment, assisted living and/or independent living communities in
Manager’s System, but in any event not less than the operational and physical
standards of other senior living communities of similar size and market
orientation; provided that in no event shall Manager’s Standards be permitted to
fall below the operational and physical standards as in effect as of the
Effective Date.

Manager’s System. The term “Manager’s System” means at any particular time the
system or group of assisted living and/or independent living communities then
owned and/or operated or managed by Manager (or one or more of its Affiliates).

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

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.

Monthly Reports. The term “Monthly Reports” is defined in Section 4.03(k).

Mortgagee. The term “Mortgagee” means the holder, from time to time, of a
Facility Mortgage or any replacement of a Facility Mortgage.

Net Operating Income. The term “Net Operating Income” means, for each Accounting
Period or Fiscal Year, as applicable, all Gross Revenues in excess of Facility
Expenses. For purposes of calculating Net Operating Income, any capital
expenditure (determined in accordance with GAAP) and FF&E Reserve necessary to
operate and maintain the Facility shall not be included in the definition of
Facility Expenses.

Non-Compliance Costs. The term “Non-Compliance Costs” is defined in
Section 16.01(b).

Non-Routine Capital Expenditures. The term “Non-Routine Capital Expenditures”
means all other capital projects and/or items not provided for in Section 11.02,
including, without limitation, (i) renovations, replacements and maintenance to
the Facility which are included in the Approved Budget and which are normally
capitalized consistent with Manager’s Standards and GAAP such as flooring in
common areas and full replacement of roofs and parking areas, and (ii) any other
expenses necessary for alterations, improvements, renewals or replacements to
the Facility building’s structure or exterior facade or to its mechanical,
electrical, heating, ventilating, air conditioning, plumbing, or vertical
transportation systems which are classified as capital expenditures under GAAP.

 

 

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OD Loan. The term “OD Loan” (Operating Deficit Loan) is defined in Section 5.03.

Offered Purchase Price. The term “Offered Purchase Price” is defined in
Section 18.12(d).

Operating Year. The term “Operating Year” shall mean a twelve (12) month period
commencing at midnight on January 1 and ending at 11:59 p.m. on December 31 of
each calendar year during the Term.

Owner. The term “Owner” is defined in the Recitals of this Agreement.

Owner Indemnitee(s). The terms “Owner Indemnitee” and “Owner Indemnitees” are
defined in Section 8.02.

Parent. The term “Parent” is defined in the Preamble of this Agreement.

Permitted Expenditure Limit. The term “Permitted Expenditure Limit” is defined
within the definition of “Facility Expenses” in Section 1.01.

Person. The term “Person” means any individual, partnership, corporation,
limited liability company, trust or other legal entity.

Proposed Budget. The term “Proposed Budget” is defined in Section 7.01.

Proprietary Marks. The term “Proprietary Marks” means 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. 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.

Purchase Notice. The term “Purchase Notice” is defined in Section 18.12(d).

Qualified Broker. The term “Qualified Broker” is defined in Section 12.04(c).

Qualified Transferee. The term “Qualified Transferee” means (a) CNL Healthcare
Trust, Inc., a Maryland corporation, provided that such entity (A) has total
assets in excess of Two Hundred Million Dollars ($200,000,000), (B) has as its
advisor (pursuant to an advisory agreement as to management, acquisition,
advisory and administrative services) an Affiliate of CNL Financial Group, Inc.,
a Florida corporation, (C) is not known in the community as being of bad moral
character, and (D) is not in control of or is controlled by any one or more
persons who have been convicted of a felony involving turpitude in any state or
federal court, (b) any other real estate investment trust, provided that such
entity (A) has total assets in excess of Two

 

 

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Hundred Fifty Million Dollars ($250,000,000), (B) is not known in the community
as being of bad moral character, and (C) is not in control of or is controlled
by any one or more persons who have been convicted of a felony involving
turpitude in any state or federal court, or (c) a bank, saving and loan
association, investment bank, insurance company, trust company, commercial
credit corporation, pension plan, pension fund or pension advisory firm, mutual
fund, United States government entity or plan, investment company, money
management firm or “qualified institutional buyer” within the meaning of Rule
144A under the Securities Act of 1933, as amended, or an institutional
“accredited investor” within the meaning of Regulation D under the Securities
Act of 1933, as amended which is regularly engaged in the business of directly
or indirectly owning or operating real estate and which has total assets (in
name or under management) in excess of Two Hundred Fifty Million Dollars
($250,000,000); provided that, in the case of subsection (c) of this definition,
such Person (i) does not, either directly or indirectly, have an ownership
interest (excluding that of a mere franchisee or a mere passive investor with a
non-controlling interest) in a brand of retirement communities totaling at least
ten (10) retirement communities, if such brand of retirement communities
competes with Manager, (ii) does not, either directly or indirectly, have an
ownership interest (excluding that of a mere franchisee or a mere passive
investor with a non-controlling interest) in a group of retirement communities
totaling at least ten (10) retirement communities that are not affiliated with a
brand but that are marketed and operated as a collective group, if such group of
retirement communities competes with Manager, (iii) is not affiliated with a
brand or group described in (i) and (ii) above, (iv) is not known in the
community as being of bad moral character, and (v) is not in control of or is
controlled by any one or more persons who have been convicted of a felony
involving turpitude in any state or federal court.

Replacement Management Agreement. The term “Replacement Management Agreement”
shall mean a management agreement for the management of the Facility executed by
Manager and a Person which replaces the Management Agreement in effect
immediately prior to the replacement.

Residents. The term “Residents” is defined in Section 2.02.

Response. The term “Response” is defined in Section 18.12(d).

Routine Expenditures. The term “Routine Expenditures” is defined in
Section 11.02.

Sale Notice. The term “Sale Notice” is defined in Section 18.12(b).

Sale Offer. The term “Sale Offer” is defined in Section 18.12(d).

Second Notice. The term “Second Notice” is defined in Section 12.04(c).

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.

 

 

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Term. The “Term” shall begin on the Effective Date, and, unless sooner
terminated, shall continue until the thirtieth (30th) anniversary of the first
day of the month immediately after the Effective Date.

Termination Date. The term “Termination Date” is defined in Section 14.07.

Termination Fee. The term “Termination Fee” is equal to the amount determined by
multiplying (a) five (5) by (b) an amount equal to the aggregate of (i) the Base
Management Fee payable to Manager during the twelve (12) month period preceding
the Termination Date and (ii) if any Incentive Fee (as defined in the Manager
Pooling Agreement) is payable to Manager on account of the pooled Facilities’
performance during the twelve (12) month period preceding the Termination Date,
an amount equal to twenty-six and two tenths percent (26.2%) of the Incentive
Fee payable to Manager on an annualized basis for such period.

Trademark License. The term “Trademark License” is defined in Section 17.04.

Venue. The term “Venue” is defined in Section 18.17.

ARTICLE II

APPOINTMENT OF MANAGER AND PRIMARY GOAL OF AGREEMENT

2.01. Appointment of Manager. Owner hereby appoints Manager and Manager hereby
accepts appointment, subject to the terms and conditions of this Agreement, as
the sole and exclusive manager for the daily operation and management of the
Facility. Except as otherwise provided herein, Manager shall have responsibility
and complete and full control and discretion in the operation, direction,
management and supervision of the Facility in accordance with Manager’s
Standards and the Approved Budget. Manager accepts said appointment and agrees
to operate the Facility during the Term of this Agreement in accordance with the
terms and conditions herein set forth.

2.02. Goals.

(a) It is the joint goal of Owner and Manager to:

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

(2) Provide quality services to residents of the Facility (the “Residents”) in a
manner consistent with the form of resident agreement in use at the Facility and
the Approved Budget (as hereinafter defined);

(3) Establish appropriate marketing programs and maintain a public image of
excellence for the Facility;

(4) Maintain a sufficient number of well trained and quality staff at the
Facility;

(5) Operate the Facility on a sound financial basis;

 

 

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(6) Institute a sound financial accounting system for the Facility;

(7) Institute adequate internal fiscal controls through proper budgeting,
accounting procedures, and timely financial reporting;

(8) Establish sound billing and collection procedures and methods;

(9) Conform operations at the Facility to all applicable Legal Requirements,
including without limitation, those pertaining to licensing; and

(10) Take such other steps as are necessary to provide high quality care to the
Residents.

ARTICLE III

MANAGEMENT FEES

3.01. Base Management Fee. As compensation for the services to be rendered by
Manager pursuant to this Agreement, during the Term, Owner hereby instructs
Manager to pay itself, through retention or other means, on a monthly basis, in
arrears, a management fee (the “Base Management Fee”) equal to six percent
(6%) of Gross Revenues per month. The Base Management Fee will be paid in
accordance with Section 5.03 by determining such fee from the Gross Revenues for
the Accounting Period to which such Base Management Fee applies.

ARTICLE IV

DUTIES AND RIGHTS OF MANAGER

4.01. Authority of Manager; Right of Possession. Facility operations shall be
under the exclusive supervision and control of Manager who, except as otherwise
specifically provided in this Agreement and as set forth in the Approved Budget,
shall be responsible for the proper and efficient operation of the Facility.
Manager shall have discretion and control, in all matters relating to day-to-day
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; credit policies; food and beverage services; employment policies;
executing, modifying and terminating licenses and concessions for commercial
space within the Facility in accordance with Section 4.03 below (provided that
the term of any such license or concession shall not extend beyond the Term of
this Agreement); receipt, holding and disbursement of funds; maintenance of bank
accounts; procurement of inventories, supplies and services; promotion and
publicity; and, generally, all activities necessary for the operation of the
Facility.

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

(a) Direct the marketing efforts for the Facility.

(b) Plan and implement community outreach, public relations and special events
programs.

 

 

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(c) Arrange and contract for all advertising and promotion of the Facility which
Manager in its reasonable discretion deems necessary or appropriate for the
operation of the Facility, to the extent the costs of such advertising and
promotion are included in the Approved Budget.

4.03. Management Duties. As manager of the Facility, Manager shall, subject to
adequate funds being available from Gross Revenues or otherwise provided by
Owner, implement all aspects of the operation of the Facility in accordance with
the terms of this Agreement, the Approved Budget and Manager’s Standards, and
shall have responsibility and commensurate authority for all such activities. In
addition to any other duties set forth in this Agreement, Manager shall, subject
to adequate funds being available from Gross Revenues or otherwise provided by
Owner:

(a) Enter into all contracts, leases and agreements required in the ordinary
course of business for the supply, operation, maintenance and service of the
Facility (including but not limited to food procurement, trash removal, pest
control and elevator maintenance) and, subject to adequate funds being available
from Gross Revenues or otherwise provided by Owner, pay the costs of all such
services when due; provided that Owner’s consent shall be required, not to be
unreasonably delayed, withheld or conditioned, for any leases for the occupancy
of space at the Facility, except for resident agreements as permitted hereunder
and leases permitted under Section 4.08 below which are in connection with
services customarily provided at facilities of similar size and class as the
Facility.

(b) Purchase inventories, provisions, food, supplies and other expendable items.

(c) Recruit, hire, supervise and train all employees to be employed at the
Facility.

(d) Provide care to Residents of the Facility as provided for in the resident
agreement agreed to by the parties.

(e) Set all resident fees and use its commercially reasonable efforts to collect
such fees.

(f) Oversee and manage all day-to-day operations.

(g) 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.

(h) Establish and revise, as necessary, administrative policies and procedures
including, without limitation, policies and procedures for the control of
revenue and expenditures, for the purchase of Household Supplies and services,
for the control of credit, and for the scheduling of maintenance.

(i) Make or install, or cause to be made or installed, in the name of Owner, 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

 

 

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business, that Manager deems necessary or appropriate for the proper operation
and maintenance of the Facility in accordance with Manager’s Standards and
otherwise in accordance with this Agreement and the Approved Budget.

(j) Except as otherwise provided in any Loan Documents, open and maintain the
bank accounts as required by this Agreement.

(k) Prepare and deliver to Owner the Proposed Budget, the reports and financial
statements required pursuant to Article VI (the “Monthly Reports”) 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.

(n) Operate the Facility in compliance with any Facility Mortgage, and, promptly
after obtaining knowledge of the same, notify Owner of any notice of violations
or default under any Facility Mortgage. Notwithstanding the foregoing sentence,
so long as no Affiliate of Manager holds a direct or indirect ownership interest
in Owner, Manager shall have the obligation to comply with the provisions of any
Facility Mortgage only to the extent that Owner has provided written notice to
Manager of the terms of the Facility Mortgage with which Owner requires Manager
to comply with and such terms do not prevent Manager from operating the Facility
in compliance with Legal Requirements and Manager’s Standards. In all events,
Manager shall only have the obligation to comply with the provisions of any
Facility Mortgage to the extent that there are sufficient funds available to
Manager out of Gross Revenues or otherwise provided by Owner to cover the costs
and expenses incurred by Manager in connection with the compliance by Manager
with the terms of the Facility Mortgage.

(o) Conduct such other operations from time to time as may be required under
this Agreement.

4.04. Manager’s Home Office Employees. As part of the provision of the services
provided by Manager, Manager shall from time to time make its employees who are
not working directly at the Facility (the “Home Office Employees”) available to
the on-site management staff for consultation and advice related to the Facility
(exclusive of the Facility Shared Services). Home Office Employees include
Manager’s home office staff and staff at other facilities managed by Manager and
its Affiliates with experience in areas such as accounting, budgeting, finance,
human resources, construction, development, marketing, food service and
purchasing. Owner may reasonably request such services, but the decision to
provide Home Office Employees shall be within the reasonable discretion of
Manager. Except as provided with respect to Facility Shared Services, which
shall be a Facility Expense hereunder, the services of Home Office Employees
shall be provided at no additional charge to Owner. Should Owner request a type,
form or level of service that Home Office Employees do not provide in the normal
course of operations to carry out the scope of services described in this
Agreement and which do not constitute a Facility Shared Service hereunder,
Manager shall (1) provide such services by Home Office Employees for an
additional cost to be agreed to in advance by Manager and Owner, which cost
shall be a Facility Expense, or (2) if such services cannot be

 

 

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provided by Manager’s Home Office Employees or if Manager and Owner cannot agree
on the cost thereof, and Owner so directs Manager in writing, use commercially
reasonable efforts to locate and contract for such services from outside
consultants, the cost of which shall be a Facility Expense.

4.05. Personnel Administration. The personnel at the Facility shall be employed
by Manager, and the salaries, costs and benefits of such employees shall be
Facility Expenses. Manager shall be responsible for recruiting, hiring,
training, promoting, assigning, supervising and discharging the personnel of the
Facility and shall be responsible for the formulation, implementation,
modification and administration of wage scales, rates of compensation, employee
insurance, employee taxes, in-service training, attendance at seminars or
conferences, staffing schedules, job descriptions and personnel policies with
respect to the personnel of the Facility in accordance with the Approved Budget.

4.06. 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. Any purchase by Manager made
pursuant to or otherwise ancillary to this Agreement shall be made with Manager
acting for and at the expense of the Facility or Owner. Owner 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 Manager for use at
the Facility, implied or otherwise. In the event that Manager receives any
competitive discounts or rebates due to its relationships with vendors, Manager
covenants to allocate a fair and reasonable portion of any such discounts or
rebates to the Facility in order to reduce Facility Expenses.

4.07. Resident Agreements. Owner acknowledges and agrees that it has received
from Manager the forms of resident agreement, resident lease or resident
occupancy agreement contemplated to be used by Manager at the Facility and has
approved such forms. Manager shall act on behalf of Owner in executing resident
agreements, resident leases and resident occupancy agreements and amendments and
renewals thereof, substantially in the form of the form approved by Owner as of
the Effective Date with any changes to such form as Manager may determine in its
discretion to be necessary or desirable for the operation of the Facility,
provided that such changes meet Legal Requirements and Manager’s Standards.
Notwithstanding the immediately preceding sentence, in the event any changes to
any resident agreement, resident lease or resident occupancy agreement would
result in a materially adverse consequence to Owner, Manager shall obtain the
approval of Owner in connection with such changes.

4.08. Ancillary Activities. Manager and/or its Affiliates shall have the right,
to utilize the Facility for ancillary activities the revenues from which will
not be included in Gross Revenues, so long as (i) any such ancillary activities
are separately contracted for by Manager and/or its Affiliates and outside the
scope of the assisted living and independent living services being provided to
Residents in the Manager’s System (such as providing rehabilitation, hospice or
other intensive care services to certain Residents), (ii) such ancillary
activities are outside the scope of the services being provided to Residents on
a usual basis, (iii) no such ancillary activities impair the health and safety
of the Residents or the quality of services provided to them by Manager under
this Agreement, (iv) Owner receives a fair market rental and reimbursement for
any space or equipment in the Facility being utilized or utilities being
consumed in

 

 

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connection therewith, (v) no employees of Manager whose salaries and benefits
are being paid by Owner shall be utilized in the conduct of any ancillary
activities and (vi) any such ancillary activities would not have a materially
adverse economic impact on the Facility. The foregoing shall not prohibit
employees at the Facility from making referrals to prospective Residents to more
appropriate services, and receiving fees for such referrals to the extent
referral fees are permitted under applicable federal, state and local laws,
provided that Manager demonstrates to Owner’s reasonable satisfaction that such
ancillary activities may be reasonably expected to provide long-term benefit to
the business of the Facility. For example, but not by way of limitation, the
referral of a prospective Resident to an at-home care program, where such
prospective Resident is not yet in need of assisted living or independent living
services, provides contact and marketing opportunities which encourage the
individual to become a Resident on a later date when assisted living or
independent living services are appropriate. No program shall be established
where it is more beneficial to refer an individual to a different service than
to have the individual become a Resident. In connection with the delivery of the
Proposed Budget in accordance with Section 7.01 Manager shall deliver a written
or oral notice to Owner describing Manager’s anticipated ancillary activities
during the fiscal year to which the Proposed Budget pertains. If Owner believes
that a proposed ancillary activity is in violation of this Section 4.08 and
Owner refuses to consent to such ancillary activity, then Owner shall have the
right to submit the dispute to Arbitration in accordance with Section 18.17.

4.09. Notice of Licensure Issues. If Manager receives a notice from a
Governmental Authority which presents or reasonably would be expected to present
a threat to the continued licensure of the Facility, Manager shall promptly
provide Owner with a copy of such notice.

ARTICLE V

COLLECTIONS AND PAYMENTS; GROSS REVENUE DISTRIBUTION; OD LOAN;

CREDITS AND COLLECTIONS; WORKING CAPITAL; IMPOSITIONS

5.01. Collections and Payments. Manager shall be responsible for collecting all
Gross Revenues and fees billed to Residents and for paying Facility Expenses as
agreed in the Approved Budget.

5.02. Manager Pooling Agreement. So long as the Facility is subject to the
Manager Pooling Agreement, in each Fiscal Year, Gross Revenues shall be
distributed, to the extent available, as provided in the Manager Pooling
Agreement and the provisions of Section 5.03 shall not apply.

5.03. Distribution of Gross Revenues; OD Loan.

(a) Distributions. For any period during which the Facility is not subject to
the Manager Pooling Agreement, no later than the twentieth (20th) day following
the end of each Accounting Period, the following items shall be paid by Manager
from Gross Revenues, to the extent cash, revenues and receipts derived from
operating the Facility are on hand and available with respect to such Accounting
Period, in the following order of priority:

 

 

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(1) pay Facility Expenses (including the Base Management Fee) payable during
such Accounting Period,

(2) transfer into the FF&E Reserve those amounts required to be deposited into
the FF&E Reserve pursuant to this Agreement, plus any FF&E Reserve Balance,

(3) pay Debt Service under the Facility Mortgage,

(4) pay any outstanding principal and accrued interest under any OD Loan,

(5) pay the remainder of the Gross Revenues, to Owner.

If and to the extent cash, revenues and receipts on hand and available are
insufficient to satisfy the foregoing distribution, such deficiency shall be
paid on the next distribution date on which cash, revenues and receipts on hand
are sufficient to pay such distribution. In determining the amount of Gross
Revenues available for distribution pursuant to Section 5.03(a), Manager shall
use the accrual method of accounting. If at any time, including pursuant to the
annual audit, Manager or Owner establishes that the distributions made pursuant
to this subsection (a) with respect to a particular Accounting Period have not
been correctly made, each party agrees that it will pay the appropriate amount
to the other party to correct any mistakes; provided that there shall be no such
obligation after the conclusion of two consecutive annual audits of the
particular Accounting Period. All monthly distributions under this Section 5.03
shall initially be based upon the aggregate results anticipated as reflected in
the Approved Budget for the Facility. If actual results vary from the Approved
Budget, then Manager shall adjust the distributions of Gross Revenues based on
its good faith estimate of anticipated results for the remainder of the full
Fiscal Year, which estimate shall be based on actual year-to-date performance,
and subject to ongoing cumulative reconciliation and repayment, if applicable,
on a quarterly basis, to be conducted by Manager. For any period during which
the Facility is not subject to the Manager Pooling Agreement, if the portion of
Gross Revenues to be paid pursuant to Sections 5.03(a)(1), (2), (3), and
(4) above is insufficient in any Fiscal Year to pay such amount in full for such
Fiscal Year, any amount left unpaid shall accrue beyond such Fiscal Year and if
Owner does not promptly fund such deficit as it relates to payments for Sections
5.03(a)(1), (2) and (3), Manager may (but shall have no obligation to) fund such
deficit pursuant to an OD Loan.

(b) OD Loan. If, during any Accounting Period, Gross Revenues during such period
are insufficient to pay the amounts set forth in Section 5.03(a)(1), (2) and
(3) in full for such period, Owner shall fund any such shortfall within ten
(10) days after notice from the Manager of such shortfall. If Owner shall fail
to fund any such shortfall, such failure shall be an Event of Default by Owner
under this Agreement. Nevertheless, Manager or an Affiliate of Manager shall
have the right (but not the obligation) to advance the necessary funds to cover
such shortfall and such funds shall be deemed to be a loan to Owner (the “OD
Loan”). The OD Loan will initially bear no interest, will be unsecured and will
be repayable by Owner to Manager or an Affiliate of Manager within thirty
(30) days after written notice of the amount of the OD Loan is delivered to the
Owner. Thereafter, if the OD Loan remains unpaid following the expiration of
such thirty (30) day period, Manager shall have the right to withdraw an amount

 

 

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equal to the OD Loan (including accrued interest) pursuant to Section 5.03(a)
above. In addition, Manager shall have the right, but not the obligation, to
offset any unpaid OD Loan amounts against any amounts owed to Owner as a Cure
Amount under Section 2.1(c) of the Manager Pooling Agreement. The outstanding
principal amount of the OD Loan shall bear interest at the rate of Interest
accruing from the 31st day after funding until its repayment based on a 360 day
year for the actual number of days elapsed.

5.04. Credits and Collections. Manager shall install credit and collection
policies and procedures, and Manager shall institute reasonable steps necessary
to effectuate monthly billing by the Facility, and the collection of accounts
and monies owed to the Facility. This also includes the institution of legal
proceedings in the name of Owner, Manager and/or the Facility to collect such
accounts or to enforce the rights of Owner or Manager as creditor under any
contract in connection with the rendering of any service or the purchase of any
goods, if necessary after Manager has used commercially reasonable efforts to
collect such accounts, or to enforce such rights without the institution of such
proceedings. 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.

5.05. Depositories for Funds.

(a) Manager shall maintain accounts and investments in such banks, savings and
loan associations, and other financial institutions designated by Manager and
reasonably approved by Owner. These accounts shall be in Manager’s name as agent
for Owner, and withdrawals from such accounts shall be made solely by
representatives of Manager whose signatures have been authorized to access the
accounts, and the Manager shall be responsible for reimbursement of any amounts
misappropriated from such accounts by its employees. These accounts shall be
segregated from other of Manager’s accounts and investments. Manager shall
maintain such balances therein as Manager 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 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. Any interest earned on the amounts in such
funds (but not in the FF&E Reserve) shall be treated as Gross Revenues of the
Facility. It is Owner’s responsibility to provide the funds needed to operate
the Facility in a manner designed to meet the mutual goals of Owner and Manager
set forth in Section 2.02 above, consistent with the terms of this Agreement.
Upon Owner’s request, Manager shall provide to Owner a list of all bank accounts
maintained by Manager with respect to the Facility. Reasonable petty cash funds
shall be maintained at the Facility.

(b) Notwithstanding anything to the contrary contained herein, all accounts and
investments maintained by Manager or Owner hereunder shall be subject to the
terms and conditions of any Loan Documents. In the event of any conflict between
the Loan Documents and this Agreement with respect to such accounts or
investments, the Loan Documents shall govern.

 

 

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5.06. Working Capital.

(a) As used herein, “Working Capital” means assets which are reasonably
necessary and used for the day-to-day operation of the Facility’s business,
including, without limitation, amounts sufficient for the maintenance of petty
cash funds, amounts deposited in operating bank accounts, receivables, prepaid
expenses, and funds required to maintain inventories and pay all Facility
Expenses as they become due, less accounts payable and accrued current
liabilities. Owner shall be responsible for ensuring that Manager has sufficient
Working Capital at all times for operation of the Facility in accordance with
the Approved Budget and in accordance with Manager’s Standards.

(b) During the period that the Facility is subject to the Manager Pooling
Agreement, the Manager Pooling Agreement shall apply for determining Working
Capital needs of the Facility.

(c) Manager will manage the Working Capital of the Facility prudently and in
accordance with the Approved Budget. During the period that the Facility is not
subject to the Manager Pooling Agreement, if Manager reasonably determines that
levels of Working Capital drop below levels generally consistent with Manager’s
Standards and as are reasonably required to satisfy Manager’s Standards, Manager
may submit to Owner an estimate of additional Working Capital needed, together
with reasonable backup explaining the cause for such shortfall. Owner shall
provide such additional Working Capital to Manager no later than fifteen
(15) days after receipt of a written request for the same, and shall give notice
to Manager within five (5) Business Days after receipt of such written request
if Owner disputes the need for such additional Working Capital. In the event
that Owner disputes Manager’s request for additional Working Capital, the
dispute will be resolved exclusively by arbitration pursuant to Section 18.17.
Either party may initiate such arbitration. Owner shall pay such disputed
additional Working Capital to Manager to be held in escrow by Manager until such
time as the arbitrator renders its decision and Owner shall disburse any
undisputed amount directly to Manager to be used as additional Working Capital.

(d) Any Working Capital provided by Owner shall remain the property of Owner
throughout the Term of this Agreement. Working Capital shall be available for
use by Manager in accordance with this Agreement. Upon termination of this
Agreement, Owner shall retain any of its unused Working Capital.

5.07. Impositions.

(a) 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. Owner shall within five (5) Business Days after the receipt
of any invoice, bill, assessment, notice or other correspondence relating to any
Imposition, furnish Manager with a copy thereof. Owner 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.

 

 

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(b) The term “Impositions” means all levies, taxes, assessments and similar
charges, including, without limitation, the following: real estate taxes, sales
taxes, goods and services 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 charges by a Governmental
Authority of any kind or nature whatsoever, whether general or special, ordinary
or extraordinary, foreseen or unforeseen, or hereinafter levied or assessed of
every character (including all interest and penalties thereon), which at any
time during or in respect of the Term of this Agreement may be assessed, levied,
confirmed or imposed on Owner or Manager with respect to the Facility or the
operation thereof, or otherwise in respect of or be a lien upon the Facility
(including, without limitation, on any of the inventories or Household
Replacements now or hereafter located therein). Impositions shall not include
any of the following: (1) any income or franchise taxes payable by Owner or
Manager, or (2) any franchise, corporate, estate, inheritance, succession,
capital levy or transfer tax imposed on Owner, all of which shall be paid solely
by the party against whom such expense was assessed, 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, provided that Manager shall not be responsible for Impositions
if Manager’s fault for such Impositions (i) is caused by an Event of Default by
Owner, (ii) is caused by lack of funding by Owner, or (iii) is a result of the
fact that Owner did not follow Manager’s recommendations for establishing
sufficient funds in the Approved Budget. In the event that Manager and Owner
disagree as to whether an Imposition is appropriate for reimbursement as a
Facility Expense, the dispute will be resolved exclusively by arbitration
pursuant to Section 18.17. Either party may initiate such arbitration.

ARTICLE VI

FINANCIAL RECORDS

6.01. Accounting and Financial Records. Manager shall, at its own expense,
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 (including profit and loss statements) in
accordance with the requirements of Exhibit C-1 attached hereto. Such interim
reporting shall compare monthly and year-to-date results with the Approved
Budgets. Manager shall prepare annual financial reporting in accordance with
GAAP and reasonably cooperate with the Accountants in the annual audit. Manager
shall also cooperate with Owner to provide any third-party lenders on the
Facility with any reasonable Facility related financial information required by
such third-party lenders under the terms of any loan secured by a Facility
Mortgage, provided that Manager shall receive reasonable additional compensation
for any different reporting formats required. If required by such third-party
lenders, Manager shall certify such reports as true and correct in all material
respects. The reasonable costs of the annual audit shall be a Facility Expense.

 

 

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6.02. Reports. In addition to the Monthly Reports, Manager shall keep Owner
informed as to the financial status, condition, and operation of the Facility
and as to any State or local reporting requirements in connection with the
licenses and permits necessary for Manager to operate the Facility, with written
reports and such other or special reports as Manager may from time to time
determine are necessary or which Owner may reasonably request. From and after
such time Sunrise Senior Living Investment, Inc. (“SSLII”) is no longer required
to deliver to CHT SL IV Holding, LLC (“CHT”) a quarterly certification under
that certain Delegation Agreement, dated as of the date hereof, between SSLII
and CHT, Manager shall also provide Owner, within twenty (20) days following the
end of each quarter during the Fiscal Year, a quarterly certification in the
form set forth on Exhibit C-2 attached hereto. So long as Owner is indirectly
owned by SSLII and/or CHT, Manager shall maintain a system of internal controls
necessary for SSLII’s and CHT’s Sarbanes-Oxley certifications in the manner
currently maintained by Manager.

6.03. Access; Audit. Owner shall have the right at least three (3) business days
notice to Manager and at all reasonable times during the usual business hours of
the Facility, to audit, examine and make copies of books of account maintained
by Manager with respect to the Facility. Such right may be exercised through any
agent or employee designated by Owner or by the Accountants. Further, at the end
of the Term of this Agreement, or upon other 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 each Facility, are to be promptly delivered to Owner in a form readable by
generally available software. Manager shall have the right to locate any and all
books of account and other records maintained by Manager with respect to the
Facility either at Manager’s corporate office, located in McLean, Virginia or at
the Facility. In the case of books of account and other records located at
Manager’s corporate office, Manager shall make adequate space available to Owner
at Manager’s corporate office to audit, examine and make copies of such books of
account and other records, and Manager shall be under no obligation to relocate
such records to the Facility for Owner’s review. In the event of any such audit,
the final accounting shall be controlling over any interim accountings and the
parties agree to make any necessary corrective financial adjustments determined
by any such audit.

ARTICLE VII

ANNUAL OPERATING BUDGET

7.01. Annual Operating Budget. (a) Manager shall, within the time limits set
forth on Exhibit C-1, deliver to Owner (i) a draft annual operations budget for
the next Fiscal Year for the Facility in the form attached hereto as Exhibit D
(the “Proposed Budget”), for Owner’s approval, (ii) an estimate, on an
Accounting Period basis, of Gross Revenues and Facility Expenses, and (iii) 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 the cost of Facility Expenses, a line-item
detail of any shared Facility Expenses, and all other factors differing from the
then current Fiscal Year. The Proposed Budget shall be considered by the Owner
and, upon consultation with Manager, a final annual operations

 

 

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budget (the “Approved Budget”) shall be approved based on the Proposed Budget.
If there is a delay in the finalization of a new Approved Budget, or if the
Proposed Budget is not approved as aforesaid, Manager shall operate the Facility
pursuant to the prior Fiscal Year’s Approved Budget, increased by the greater of
(i) three and one-half percent (3.5%) or (ii) any increase in the Index, until
the Proposed Budget is approved by Owner. The amount of the Index increase for
each Fiscal Year shall be determined by multiplying the Approved Budget for the
previous Fiscal Year by a fraction, the numerator of which shall be (i) the
Index most recently published immediately prior to the next Fiscal Year, minus
(ii) the Index most recently published immediately prior to the immediately
preceding Fiscal Year, and the denominator of which shall be the Index most
recently published immediately prior to the immediately preceding Fiscal Year.
Mathematically, the Index increase calculation may be expressed as (current
Index - last year Index) ÷ last year Index. Provided that Manager is not an
Affiliate of a Person holding a direct or indirect ownership interest in Owner,
if consensus cannot be reached between the parties as to the Proposed Budget
within sixty (60) days of Owner’s receipt of the Proposed Budget, the dispute
will be resolved exclusively by arbitration pursuant to Section 18.17 (it being
acknowledged that if Manager is an Affiliate of a Person holding a direct or
indirect ownership interest in Owner, such dispute will be resolved subject to
and in accordance with the JV Agreement). Either party may initiate such
arbitration. Manager shall use commercially reasonable efforts to adhere to the
Approved Budgets, it is understood, however, that the Approved Budget is only a
projection by Manager of estimated results and that various circumstances such
as, but not limited to, the cost of labor, material, services and supplies,
casualty, operation of law, or economic and market conditions may make
achievement of the Approved Budget impracticable or not obtainable. Except for
expenditures necessary to satisfy any Emergency Requirements, Manager will
secure Owner’s prior approval if actual aggregate annual expenditures exceed the
aggregate annual expenditures set forth in the Approved Budget by more than 10%
(the “Permitted Variance”). Notwithstanding the foregoing, Owner’s approval
shall not be required if such excess actual aggregate annual expenditures (in
excess of 10%) results in a Net Operating Income margin consistent with that in
the Approved Budget for the applicable year. Notwithstanding anything contained
herein to the contrary, any references to actions of Manager being “in
accordance with the Approved Budget” or words of similar import shall mean the
Approved Budget as adjusted by the Permitted Variance.

ARTICLE VIII

ENVIRONMENTAL MATTERS

8.01. Owner Responsibility and Indemnification. In the event of the discovery of
non-compliance with any Environmental Law related to Hazardous Materials (as
defined below) on any portion of the Facility during the Term of this Agreement,
Owner shall promptly remedy such matter to achieve compliance, including if
required the removal of such Hazardous Materials, together with all contaminated
soil and containers and shall otherwise remedy the problem in accordance with
all Environmental Laws, except Manager shall bear the costs of such remediation
at its own cost and expense if and to the extent such problem is the result of
Manager’s gross negligence or willful misconduct. Owner shall indemnify, defend
and hold harmless Manager, 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 “Manager Indemnitees” and, individually, a “Manager
Indemnitee”) for, from and against any and all debts, liens, claims, causes of
action,

 

 

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administrative orders or notices, fines, penalties, expenses, loss, costs,
liability and damage (including, without limitation, engineers fees, attorneys’
fees and expenses and the cost of litigation) arising from the aforementioned
non-compliance with Environmental Laws; and this indemnification obligation of
Owner shall survive for one (1) year after termination of this Agreement. This
duty includes, but is not limited to, costs associated with personal injury or
property damage claims as a result of the presence of Hazardous Material in,
upon or under the soil or ground water of the Facility in violation of any
Environmental Law prior to the expiration or sooner termination of this
Agreement. Owner shall undertake any litigation defense through its own legal
counsel (at its sole cost and expense) of any indemnification duties arising
from this Section 8.01. If Manager determines that the Manager Indemnitee’s
interests in the outcome of such litigation conflicts with Owner’s interest,
Manager shall have the right to participate in any litigation defense through
its own legal counsel at Owner’s sole cost and expense, provided that Owner
shall not be liable for any attorney fees incurred by Manager and Manager
Indemnitees if it is determined by a judicial, administrative or arbitral
proceeding that the presence of Hazardous Materials (which served as the basis
of the Environmental Law violation) was caused by Manager’s gross negligence or
willful misconduct (with no contributory negligence or willful misconduct on the
part of Owner), in which case Manager shall be responsible for both its own and
Owner’s legal costs and expenses incurred in connection with this Section 8.01.
“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. All
costs and expenses of the aforesaid removal of Hazardous Materials from the
Facility and of the aforesaid compliance with all Environmental Laws shall be
paid as a Facility Expense or from the FF&E Reserve (and Owner shall promptly
replenish the FF&E Reserve to the extent funds from the FF&E Reserve were used
in connection with any such action). Any amounts paid to Manager pursuant to the
indemnity set forth in this Section 8.01, shall be paid by Owner from its own
funds not as a Facility Expense nor from the FF&E Reserve.

8.02. Manager Responsibility and Indemnity. To the extent not otherwise covered
by insurance maintained by either Manager or Owner, Manager shall protect,
indemnify and hold harmless Owner, 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 “Owner Indemnitees” and, individually, a “Owner
Indemnitee”) for, from and against any and all debts, liens, claims, causes of
action, administrative orders or notices, fines, penalties, expenses, loss,
costs, liability and damage (including, without limitation, engineers fees,
attorneys’ fees and expenses and the cost of litigation) imposed upon, incurred
by or asserted against any Owner 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 Owner Indemnitee.
This duty includes, but is not limited to, costs associated with personal injury
or property damage

 

 

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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 Owner Indemnitees, Manager shall
undertake any litigation defense through its own legal counsel (at its sole cost
and expense) of any indemnification duties set forth under this Section 8.02. If
Owner determines that the Owner Indemnitee’s interests in the outcome of such
litigation conflicts with Manager’s interest, Owner shall have the right to
participate in any litigation defense through its own legal counsel at the sole
cost and expense of Manager, provided that Owner shall be liable for any and all
attorney fees incurred by Manager and the Owner Indemnitees if it is determined
by a judicial, administrative or arbitral proceeding that the presence of
Hazardous Materials (which served as the basis of the Environmental Law
violation) was not caused by Manager’s gross negligence or willful misconduct.
The Owner and Indemnities, at their own expense, will cooperate fully with
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 18.10 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, Owner shall bear such costs and shall promptly pay such expenses.

ARTICLE IX

OTHER FINANCIAL MATTERS

9.01. Charges. As part of the Approved Budget and at other times as determined
by Manager, Manager will establish the overall rate structure of the Facility,
including, without limitation, residency room charges, charges for all ancillary
services, and charges for supplies, medication, and special services performed
by Facility personnel. All such charges shall take into account the financial
obligations of the Facility, the level of rates at other comparable facilities,
and the importance of providing housing, services and care at a competitive
rate, all considered in a manner most likely to achieve the goals set forth in
Section 2.02 above.

9.02. Tax Status. Subject to the provisions of this Agreement, Manager shall use
its reasonable efforts to cause the Facility to be operated in a manner to
assure that Owner and the Facility receive all benefits of Federal, State,
county, municipal and city or district tax exemptions and/or credits available
thereto. Manager shall provide Owner reasonably available data in its
possession, or otherwise reasonably available to Manager, relating to the
Facility which Owner may need for the preparation of Federal and State tax
returns. Manager shall

 

 

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provide such information upon request by Owner and in a timely manner so that
Owner shall have sufficient time to prepare and file any necessary tax returns.
Manager shall not be responsible for the preparation of any of Owner’s tax
returns.

9.03. Employee Withholding. Manager shall use commercially reasonable efforts to
comply with all applicable local, State and Federal requirements concerning the
withholding of taxes from employee wages.

ARTICLE X

GENERAL COVENANTS AND OWNER AND MANAGER OBLIGATIONS

10.01. Owner’s Obligations. Owner hereby agrees to comply with all of the
applicable provisions of this Agreement and to perform all obligations of Owner
as otherwise set forth herein. Owner further agrees to take all steps reasonably
necessary to facilitate Manager’s provision of management services hereunder in
accordance with the terms of this Agreement and Manager’s Standards, and to
ensure, consistent with the provisions herein, that Owner, and Owner’s employees
and agents, provide necessary assistance and cooperation to Manager in
connection therewith.

10.02. Manager’s Obligations. Manager hereby agrees to comply with all of the
provisions in this Agreement and to perform all obligations of Manager as
otherwise set forth herein.

10.03. Quiet Enjoyment. Owner covenants that, so long as Owner has not
terminated this Agreement by reason of (a) an Event of Default by Manager under
this Agreement, or (b) the exercise by Owner of any right of Owner 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 Owner or other party claiming under, through or by
right of Owner. Owner agrees to pay and discharge any payments and charges and,
at its expense, to prosecute all appropriate actions, judicial or otherwise,
necessary to assure such free and quiet occupancy except those resulting from
any act or failure to act on the part of Manager in violation of this Agreement.
Nothing set forth in the preceding sentence, however, shall be deemed to create
a recourse obligation by Owner to pay any payment or charge pursuant to a
contract that is otherwise, by its terms, non-recourse to Owner.

10.04. Financing of the Facility.

(a) Facility Mortgage. Manager shall use commercially reasonable efforts to
cooperate with Owner, as may be reasonably requested by Owner, in its efforts to
obtain financing or replacement financing (a “Financing”) for the Facility on
favorable terms (e.g., providing prospective lender with information about
Manager generally available to the public from a publicly traded company). Owner
shall have the right to encumber all of the assets that comprise the Facility,
any part thereof, or any interest therein, including the common elements on
which the Facility is located, the Facility building and all improvements
thereto and all FF&E and equipment and operating supplies placed in or used in
connection with the operation of the Facility as contemplated in any Facility
Mortgage that is entered into by Owner, provided that any Mortgagee under such
Facility Mortgage grants reasonable non-disturbance to Manager,

 

 

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further provided that the Facility Mortgage shall not allow such Mortgagee to
use any Working Capital or FF&E Reserve amounts to pay debt service on the
Facility Mortgage as such Working Capital and FF&E Reserve amounts shall be used
exclusively for the operation of the Facility.

(b) Owner Consent. If the loan documents executed in connection with a Financing
or any subordination, non-disturbance and attornment agreement executed by
Manager in connection with the Financing (the “Loan Documents”) contain
provisions requiring Manager (upon default under the Financing or upon various
other stipulated conditions) to pay certain amounts which are otherwise due to
Owner under the Management Agreement (after the payment of Facility Expenses) to
the lender or its designee (rather than to Owner), Owner hereby gives its
consent to such provisions, which consent shall be deemed to be irrevocable
until the entire Financing debt secured by the Facility has been discharged.

(c) Modification of Manager’s Obligations. The parties acknowledge that a lender
under a proposed Financing may impose requirements on the operations of the
Facility that exceed those or are different from those set forth in this
Agreement or the Manager Pooling Agreement pursuant to the terms and conditions
of the Loan Documents. Manager shall comply with those obligations under the
Loan Documents that are within the scope of Manager’s duties under this
Agreement or the Manager Pooling Agreement, and execute an amendment to this
Agreement or the Manager Pooling Agreement reflecting any additional obligations
or duties required by the Loan Documents but only to the extent that (i) any
additional duties or obligations shall be subject to Manager’s reasonable
ability to perform, (ii) no budgetary or other restriction which might be
imposed by any lender shall in any way impair Manager’s ability to maintain all
appropriate licenses for the Facility nor expose Manager to any potential
liability for inadequate care, (iii) adequate funds are provided to Manager
(either by the Facility’s cash flow or by Owner), and (iv) such additional
duties or obligations do not diminish the formula for the fees or reimbursements
becoming due to Manager under this Agreement or the Manager Pooling Agreement
and do not otherwise (A) adversely affect Manager’s rights and interests under
this Agreement or the Manager Pooling Agreement or (B) create any additional
liabilities or obligations on the part of Manager under this Agreement or the
Manager Pooling Agreement.

ARTICLE XI

REPAIRS, MAINTENANCE AND REPLACEMENTS

11.01. Routine Repairs and Maintenance. Manager shall maintain the Facility in
good repair and condition and in conformity with applicable Legal Requirements
(or in conformity with Manager’s Standards, if higher), and shall make or cause
to be made such routine maintenance, repairs and minor alterations, and
Emergency Expenditures which are not capitalized under GAAP, the cost of which
can be expensed under GAAP, as it, from time to time, deems necessary for such
purposes. The cost of such maintenance, repairs and alterations shall be paid
from Gross Revenues and treated as a Facility Expense in determining Net
Operating Income. All repairs shall be made in a good, workmanlike manner,
consistent with Manager’s Standards, in accordance with all applicable Legal
Requirements relating to such work.

 

 

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11.02. FF&E Reserve and Routine Expenditures.

(a) FF&E Reserve. Manager, on behalf of Owner, shall establish an interest
bearing reserve account (the “FF&E Reserve”) at a bank designated by Owner to
cover the cost of the following (collectively “Routine Expenditures”). All
interest earned on the funds in the FF&E Reserve shall be added to and shall
remain a part of the FF&E Reserve. Such account shall be established in Owner’s
name and control for the purposes set forth in this Agreement. All funds in the
FF&E Reserve, all interest earned thereon and all property purchased with funds
from the FF&E Reserve shall be and shall remain the property of Owner:

(1) Replacements, renewals and additions to the Facility’s FF&E as required to
meet Manager’s Standards and Legal Requirements; and

(2) Certain routine refurbishments to the Facility buildings as required to meet
Manager’s Standards and Legal Requirements and which are normally capitalized
under GAAP such as exterior and interior repainting, resurfacing building walls,
floors, roofs and parking areas, but which are not Non-Routine Capital
Expenditures.

(b) Throughout the Term, Manager shall transfer into the FF&E Reserve one
twelfth (1/12) of the FF&E Reserve Payment each Accounting Period.

(c) Manager shall submit by November 30th of each Fiscal Year an estimate (the
“FF&E Estimate”) of the expenditures necessary for (i) replacements, renewals
and additions to the Facility’s FF&E described in Section 11.02(a)(1), and
(ii) repairs to the Facility of the nature described in Section 11.02(a)2,
during the ensuing Fiscal Year, and shall submit such FF&E Estimate to Owner for
its review. Manager will at all times give good faith consideration to Owner’s
suggestions regarding any FF&E Estimate. In the event that such FF&E Estimate
projects a deficit in the FF&E Reserve, Owner and Manager will work together in
good faith to prepare an alternate estimate which will reduce or eliminate such
deficit, but also take into account the needs of the Facility. All expenditures
from the FF&E Reserve will be both reasonable and necessary, given the objective
that the Facility will be maintained and operated in accordance with Manager’s
Standards.

(d) Manager shall from time to time make such (1) replacements, renewals and
additions to the Facility’s FF&E described in Section 11.02(a)(1), and
(2) repairs to the Facility of the nature described in Section 11.02(a)(2), as
it deems necessary, provided that Manager shall not expend more than the balance
in the FF&E Reserve without the prior approval of Owner. Manager will endeavor
to follow the applicable FF&E Estimate, but shall be entitled to depart
therefrom, in its reasonable discretion, provided that (A) such departures from
the applicable FF&E Estimate result from circumstances which could not
reasonably have been foreseen at the time of the submission of such FF&E
Estimate or (B) such departures from the applicable FF&E Estimate result from
circumstances which require prompt repair and/or replacement or are necessary to
comply with Legal Requirements or Emergency Requirements. Following any such
departures that exceed the FF&E Estimate by more than ten percent (10%) in the
aggregate, Manager shall submit to Owner a revised FF&E Estimate for the balance
of the Fiscal Year for Owner’s approval, not to be unreasonably withheld. At the
end of each Fiscal Year, any amounts remaining in the FF&E Reserve shall be
retained in the FF&E Reserve and shall be carried forward to the next Fiscal
Year.

 

 

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(e) Upon a sale of the Facility, funds in the FF&E Reserve will not be affected
(or, if withdrawn, Owner will require that funds in the FF&E Reserve will be
replaced by the purchaser of the Facility) and all dispositions of such funds
(both before and after such sale of the Facility) will continue to be made
exclusively pursuant to the provisions of this Agreement. 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 (i) proceeds from the disposition of FF&E, nor
(ii) interest which accrues on amounts held in the FF&E Reserve, shall either
(x) result in any reduction in the required contribution to the FF&E Reserve set
forth in subsection (b) above or (y) be included in Gross Revenues. Manager
shall be authorized to lease (rather than purchase) shuttle vans, postal
machines, photocopiers and other office equipment. Lease payments with respect
to such leases shall be paid from Gross Revenues and will be a Facility Expense
if it is an operating lease; if it is a capital lease, lease payments shall be
paid from the FF&E Reserve. It is understood that Manager shall not be required
to guarantee or otherwise stand behind any lease obligations of Owner.

(f) FF&E Reserve Payments. The amount of the annual FF&E Reserve payment (the
“FF&E Reserve Payment”) shall be One Thousand Dollars ($1,000.00) per unit per
annum during the period commencing on the Effective Date and ending on the day
immediately preceding the first anniversary of the Effective Date. On each
anniversary of the Effective Date (each, an “Adjustment Date”), the FF&E Reserve
Payment shall be increased by any increase in the Index during the preceding 12
month period, as determined calculating a fraction, the numerator of which shall
be (A) the Index most recently published immediately prior to the particular
Operating Year in question, minus (B) the Index most recently published
immediately prior to the immediately preceding Operating Year, and the
denominator of which shall be the Index most recently published immediately
prior to the immediately preceding Operating Year. Mathematically, the Index
increase calculation may be expressed as (current Index - last year Index) ÷
last year Index.

(g) The FF&E Reserve Payment which is described in 11.02(f) is an estimate based
upon Manager’s prior experience with other comparable retirement communities. As
the Facility ages, this FF&E Reserve Payment may not be sufficient to keep the
FF&E Reserve at the levels necessary to make the replacements, renewals or
additions to the Facility’s FF&E described in Section 11.02(a)(1), or to make
the refurbishments to the Facility of the nature described in Section 11.02(a)2,
which are required to maintain the Facility in accordance with Manager’s
Standards. If any FF&E Estimate which is prepared in accordance with 11.02(c)
would require funding in excess of the FF&E Reserve Payment which is set forth
in 11.02(f) above, Owner may either:

(1) Agree to increase the FF&E Reserve Payment set forth in 11.02(f) up to the
level set forth in the FF&E Estimate, in order to provide the additional funds
required, such increases to be treated as Facility Expenses,

(2) Make a lump-sum contribution to the FF&E Reserve in the necessary amount to
increase the FF&E Reserve to a level sufficient to fund the items in the FF&E
Estimate; or

 

 

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(3) Provide Manager in writing with the specific reasons for its disapproval and
election to not increase the FF&E Reserve Payment pursuant to
Section 11.02(g)(1) or make a lump-sum contribution to the FF&E Reserve pursuant
to Section 11.02(g)(2) within thirty (30) days. Thereafter, in the fifteen
(15) day period following Manager’s receipt of Owner’s disapproval, the parties
will attempt to resolve in good faith the objections so specified by Owner.
Provided that Manager is not an Affiliate of a Person holding a direct or
indirect ownership interest in Owner, in the event that one or more of such
objections have not been resolved as of the end of such fifteen (15) day period,
any such matter shall be submitted to arbitration pursuant Section 18.17 (it
being acknowledged that if Manager is an Affiliate of a Person holding a direct
or indirect ownership interest in Owner, such dispute will be resolved subject
to and in accordance with the JV Agreement). The foregoing notwithstanding,
Manager may proceed with the implementation of any portion of its assessment and
recommendations that is not subject to dispute.

If Owner elects not to agree to either option (1), (2) or (3) above, or Owner
does not respond with respect to either option within thirty (30) days after
submission of the FF&E Estimate (or, if Owner has elected option (2), if Owner
fails to fund the required amount within a thirty (30) days of Manager’s request
therefor), such failure shall constitute an Event of Default by Owner and
Manager may (in addition to any other rights and remedies available to it),
treat such failure to fund as an election by Owner of the option set forth in
11.02(g)(1) above. In addition, the placing of any restrictions on the
expenditure by Manager of funds from the FF&E Reserve other than as set forth in
this Article XI or in Article 7 (including, without limitation, restrictions
resulting from (a) any litigation involving Owner or the Facility or (b) a
foreclosure) shall constitute and Event of Default by Owner.

11.03. Non-Routine Capital Expenditures.

(a) Capital Budget. Manager shall prepare an annual estimate (the “Capital
Budget”) of Non-Routine Capital Expenditures. Manager shall submit such Capital
Budget to Owner for Owner’s approval no later than December 15th of each Fiscal
Year. Owner shall not unreasonably withhold its consent with respect to such
Non-Routine Capital Expenditures which are: (1) required, in Manager’s
reasonable judgment, to keep the Facility in a competitive, efficient and
economical operating condition to meet Manager’s Standards, (2) reasonably
required to achieve material compliance with any applicable Legal Requirements
or in accordance with Manager’s Standards (if Manager’s Standards are higher
than the Legal Requirements), or (3) refurbishments or replacements of portions
of the Facility with respect to which it is no longer reasonably prudent to
perform only routine maintenance in order to keep the Facility in good condition
and repair, consistent with Manager’s Standards. In the event Owner disapproves
any portion of such Capital Budget that requires Owner’s consent, Owner will
provide Manager in writing with the specific reasons for its disapproval within
thirty (30) days of the date of submission of the Capital Budget to Owner.
Thereafter, in the twenty-five (25) day period following Manager’s receipt of
Owner’s disapproval, the parties will attempt to resolve in good faith any
objections so specified by Owner. Provided that Manager is not an Affiliate of a
Person holding a direct or indirect ownership interest in Owner, in the event
one or more of such objections have not been resolved as of the end of such
twenty-five (25) day period, the dispute will be resolved exclusively by
arbitration pursuant to Section 18.17 and

 

 

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either party may initiate such arbitration (it being acknowledged that if
Manager is an Affiliate of a Person holding a direct or indirect ownership
interest in Owner, such dispute will be resolved subject to and in accordance
with the JV Agreement). Pending a final resolution, Manager may proceed with the
implementation of any portion of such Capital Budget that is not subject to
dispute.

(b) The cost of all Non-Routine Capital Expenditures shall be paid from the FF&E
Reserve as set forth in the FF&E Estimate (subject to the Permitted FF&E Reserve
Variance). If and to the extent amounts in the FF&E Reserve are insufficient to
satisfy the cost of such Non-Routine Capital Expenditures, Owner shall be solely
responsible for the amount of such shortfall. The failure of Owner to fulfill
its obligations under this Section within thirty (30) days of Manager’s request
therefor shall constitute an Event of Default by Owner.

11.04. Emergency Expenditures. Notwithstanding anything to the contrary in this
Article XI, Manager shall be authorized to take appropriate remedial action
(including making any necessary expenditures from the FF&E Reserve for capital
items or exceeding the maintenance and repairs budget for non-capital Emergency
Expenditures), without receiving Owner’s prior approval, to remedy or respond to
any Emergency Requirements (provided that Manager shall give Owner notice of any
such remedial action that requires more than a de minimis expenditure of funds
from the FF&E Reserve or exceeds the repairs and maintenance budget)
(hereinafter “Emergency Expenditures”). Manager shall, as soon as reasonably
practical under the circumstances, notify Owner of any action that it may have
taken and any costs it may have paid or incurred utilizing the FF&E Reserve
under this Section 11.04 and shall cooperate with Owner in the pursuit of any
such action and shall have the right to participate therein. Owner shall
reimburse Manager for any such costs incurred by Manager in connection with any
such remedial action (and shall replenish the FF&E Reserve of the Facility, to
the extent funds from the FF&E Reserve were used in connection with any such
remedial action) within thirty (30) days after Owner’s receipt of written notice
from Manager of the amount of such costs.

11.05. Owner to Provide Funds; Failure of Owner to Fund.

(a) Owner shall timely provide sufficient funds required to be provided under
this Article XI, as they are incurred or become due. This obligation shall
continue throughout the Term without regard to the sufficiency of Gross
Revenues, or the existence of any Event of Default by Manager hereunder. With
respect to expenditures under 11.02, it is anticipated that this obligation will
be met by Manager, on Owner’s behalf, paying Facility Expenses, first from Gross
Revenues as made available to Manager for such purpose, then from available
Working Capital, then, if such funds are insufficient, from funds provided by
Owner. Notwithstanding Section 5.03(d), it is specifically agreed that Manager
has no obligation hereunder to provide either funds or its credit for the
benefit of Owner for the Facility. However, the parties acknowledge that
Residents, employees, contractors, suppliers and other third parties doing
business with the Facility may rely upon the credit, good name, and reputation
of Manager. Therefore, timely compliance by Owner of its obligations under this
Article XI is material in every respect and time is of the essence.

(b) An unreasonable failure or refusal by Owner to fund the amounts required to
be funded under this Article XI within a thirty (30) day period after Manager’s
request

 

 

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therefor shall be an Event of Default by Owner and shall entitle Manager to
terminate this Agreement and to exercise Manager’s remedies under Article XIV.
Such termination shall be evidenced by a written notice to Owner, which notice
shall be delivered to Owner no later than ninety (90) days after the expiration
of the thirty (30) day period described in the preceding sentence. The effective
date of such termination shall be the date stated by Manager in such notice,
provided that such effective date shall be no less than sixty (60) days after
the date of such notice.

11.06. Liens Arising From Repairs and Alterations. Manager and Owner shall use
commercially reasonable efforts to prevent any liens from being filed against
the Facility which arise from any maintenance, repairs, alterations,
improvements, renewals or replacements in or to the Facility. Each of Manager
and Owner shall cooperate fully in obtaining the release of any such liens, and
the costs thereof, if the lien was not occasioned by the fault of either party,
shall be treated the same as the cost of the matter to which it relates. If the
lien arises as a result of the fault of either party, then the party at fault
shall bear the cost of obtaining the lien release.

ARTICLE XII

INSURANCE; DAMAGE; CONDEMNATION; FORCE MAJEURE

12.01. General Requirements.

(a) Manager, in Manager’s name, 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 which will be provided to Owner and otherwise consistent with
sound management of the Facility and market availability, insuring Owner,
Manager and the Facility against the risks customarily insured against for such
a facility (the “Insurance Program”). The cost of the Insurance Program shall be
included in the Approved Budget and the Annual Operating Budget as a Facility
Expense. As of the date of this Agreement, the current coverages maintained
under the Insurance Program are set forth in Exhibit E attached hereto. If Owner
desires to increase the insurance coverage set forth in Exhibit E attached,
Owner shall notify Manager of its request and Manager will purchase additional
insurance provided that Owner timely provides Manager the required funds to
purchase such additional insurance if there is insufficient funds from the
Facility to pay for such additional expense. Manager shall obtain Owner’s
consent prior to decreasing the insurance coverage set forth in Exhibit E
attached.

(b) The amount of any insurance deductibles paid by Owner (or by Manager on
Owner’s behalf out of Gross Revenues) shall be a Facility Expense. Neither
Manager nor its Affiliates shall be required to pledge their credit in order to
obtain any letters of credit issued to the insurance carriers in connection with
any insurance policies.

(c) As soon as practicable following the issuance of any policy of insurance
required hereby, Manager shall provide Owner with a certificate or certificates
evidencing that policy. Any policy in the Insurance Program may be cancelled or
materially changed only upon not less than ninety (90) days prior written notice
by the insurer to the Named Insured. Such changes will be discussed with the
Owner.

 

 

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

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

12.04. Damage and Repair. The following provisions shall apply in the event the
Facility is damaged by a Major Casualty or a Minor Casualty, subject to the
requirements of any Facility Mortgage as to which Owner has complied with the
terms of Section 4.03(n).

(a) 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. Owner’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.
Owner 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. Manager shall be entitled to receive a
construction management fee equal to five percent (5%) of the total cost of all
work undertaken pursuant to this Section, provided that the same is payable from
insurance proceeds covering the cost of such repairs and/or replacements.

(b) Major Casualty. If, during the Term, the Facility suffers a Major Casualty,
Owner shall, 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. 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 Manager’s Standards. To the extent available, proceeds from
any casualty insurance shall be applied to such repairs and/or replacements. If
Owner fails to so promptly commence (no later than 30 days after receipt of the
insurance proceeds) and complete 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 be an Event of Default by Owner. The
Owner agrees to use commercially reasonable efforts to ensure that any Facility
Mortgage shall include a provision permitting the Owner to use casualty
insurance proceeds to complete the repairing and/or replacement of the Facility
so that it shall be substantially the same as it was prior to the damage or
destruction. If (i) the Owner is unable to obtain such entitlements and/or other
approvals of a Governmental Authority as may be necessary to undertake such
repair and/or replacement after Owner’s prompt and good faith efforts to obtain
such entitlements and/or approvals, or (ii) the amount of the insurance
deductibles and other uninsured out of pocket expenses of Owner in connection
with the repair and/or replacement of the Facility pursuant to this subsection
(b) are in the aggregate higher than Five Million Dollars ($5,000,000) (the
“Cost Limit”) with respect to a particular casualty as shown by good faith
estimates

 

 

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delivered to the Manager and Owner does not wish to pay for the amounts above
the Cost Limit, then either party may terminate this Agreement upon thirty
(30) days’ written notice to the other party. Such notice must be sent within
thirty (30) days after the date of the Major Casualty.

12.05. Condemnation. The following provisions shall apply in the event all or a
portion of the Facility is taken in any eminent domain, condemnation, compulsory
acquisition, or similar proceeding by any competent authority for any public or
quasi-public use or purpose, subject to the requirements of any Facility
Mortgage as to which Owner has complied with the terms of Section 4.03(n).

(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. Owner 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 12.05(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 Owner 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.

(c) Provided that Manager is not an Affiliate of a Person holding a direct or
indirect ownership interest in Owner, in the event of any proceedings described
in Section 12.05(a) or 12.05(b), and if Owner and Manager cannot agree on a fair
and equitable apportionment of any such award, the dispute shall be submitted by
either party to arbitration pursuant to Section 18.17 (it being acknowledged
that if Manager is an Affiliate of a Person holding a direct or indirect
ownership interest in Owner, such dispute will be resolved subject to and in
accordance with the JV Agreement).

12.06. Licensure Issues.

(a) The expiration, withdrawal or revocation of any license which is material to
the operation of the Facility in accordance with Manager’s Standards, where such
expiration, withdrawal or revocation: (1) is not due to either an Event of
Default by Manager or an Event of Default by Owner; and (2) is not otherwise
within the reasonable control of either Manager or Owner, shall not be either an
Event of Default by Manager or an Event of Default by Owner under Article XIV of
this Agreement. Manager and Owner shall each, in good faith, use all
commercially reasonable efforts (including the diligent pursuit of all available
appeals), during the period of one hundred twenty (120) days after the date of
such withdrawal or revocation, to have such License reinstated. If,
notwithstanding such efforts, such license is not reinstated prior

 

 

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to the expiration of the aforesaid period of one hundred twenty (120) days,
either Owner or Manager shall have the right, at its option, to terminate this
Agreement upon no less than thirty (30) days’ notice to the other party;
provided, however, that the terminating party must deliver such notice of
termination to the other party by no later than ninety (90) days after the
expiration of such one hundred twenty (120) day period; and provided further,
that no such termination shall be effective if, prior to the effective date of
such termination, such License is reinstated or such expiration, withdrawal or
revocation of such License is stayed.

(b) If an order, judgment or directive by a court or administrative body is
issued in connection with any litigation involving Owner, which restricts or
prevents Manager, in a material adverse manner, from operating the Facility in
accordance with Manager’s Standards, Manager shall be entitled, at its option,
to terminate this Agreement upon sixty (60) days’ notice. If Owner and Manager
disagree whether the order, judgment or directive of the court or administrative
body prevents Manager, in a material adverse manner, from operating the Facility
in accordance with Manager’s Standards, the parties will submit the matter to
arbitration for determination in accordance with the provisions of Section 18.17
of this Agreement.

ARTICLE XIII

TERMINATION OF AGREEMENT

13.01. General Termination; Termination by Parties.

(a) This Agreement shall automatically terminate at the end of the Term. Manager
shall be compensated for its services through the date of termination, but shall
not be entitled to any Termination Fee upon the natural expiration of the Term.

(b) Manager may terminate this Agreement, subject to the provisions of
Section 14.05 and in addition to any other rights expressly set forth in this
Agreement, if there is an Event of Default by Owner and may be entitled to a
Termination Fee.

(c) Owner may terminate this Agreement, subject to the provisions of
Section 14.04, and in addition to any other rights expressly set forth in this
Agreement, if there is an Event of Default by Manager, in which event a
Termination Fee shall not be owed to Manager provided that such Event of Default
was not caused by a prior Event of Default by Owner. In the event Manager
asserts that the Event of Default was caused by a prior Event of Default by
Owner, the parties will attempt to resolve in good faith the objections so
specified by Manager for a period of thirty (30) days. In the event the parties
have not resolved Manager’s objections as of the end of such thirty (30) day
period, any such dispute shall be submitted to arbitration pursuant
Section 18.17 of this Agreement.

13.02. Transition upon Termination. The following provisions shall apply in the
event of any termination or expiration of this Agreement:

(a) Upon termination of this Agreement for any reason, for a period of ninety
(90) days thereafter Manager agrees to reasonably cooperate in transferring
operational control of the Facility to Owner or a successor manager. Such
cooperation shall include but not be limited to:

(1) the transfer of computer data in non-proprietary machine readable format and
the transfer of any documents housed in Manager’s corporate headquarters
relating to the Facility (or copies of such documents if Manager is required by
law to maintain the originals);

 

 

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(2) the removal or covering of all signage on the Facility bearing the Sunrise
name or trademark within thirty (30) days of such termination, it being agreed
that Manager shall use reasonable care during any such removal and shall, at
Manager’s sole cost and expense, repair any damage to the Facility caused by
such removal;

(3) within One Hundred Twenty (120) days after the last day of the month in
which the effective date of termination occurs, the preparation of a final
accounting of Facility operations in accordance with the requirements of the
annual financial statements specified on Exhibit C-1, and the disbursement to
Owner of funds held by Manager on behalf of Owner, including, without
limitation, the FF&E Reserve; and

(4) the peaceful vacation and surrender of the Facility to Owner upon the
effective date of termination, it being agreed that Manager shall leave the
premises in a clean and orderly condition.

(b) Manager shall (to the extent permitted by law) assign to Owner or to the new
manager all operating licenses and permits for the Facility which have been
issued in Manager’s name; provided that if Manager has expended any of its own
funds in the acquisition of any of such licenses or permits, Owner shall
reimburse Manager therefor if it has not done so already. Additionally, so as to
avoid any disruption or delay of any services or amenities at the Facility, if
licenses or permits held in Manager’s name cannot be transferred or cannot be
transferred immediately to Owner or the successor manager, Manager will continue
to provide management services to Owner under an interim management arrangement
with Owner or the successor manager, in form and substance reasonably acceptable
to Manager, but in any event no less favorable to Manager than this Agreement,
until the completion of the assignment of licenses and permits, or the issuance
of a replacement licenses or permits, or until the parties otherwise agree.

(c) After Manager shall have received all amounts due to Manager under this
Agreement, Manager shall turn over, assign and transfer to Owner:

(1) All Facility assets, including all cash in Manager’s custody and control,
whether segregated or commingled with the monies of Manager and/or other
parties, which has been generated in connection with or arising from operations
of the Facility;

(2) All coupons, instruments for the payment of money, certificates of deposit,
accounts receivable or other contract rights or intangible personal property
arising in connection with the operation of the Facility;

 

 

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(3) All equipment, supplies, keys, locks, safe combinations, computer passwords,
telephone and fax numbers associated with the Facility, alarm access codes, and
key cards; and

(4) All of Owner’s non-proprietary books and records respecting the Facility,
and all contracts, leases, and other documents respecting the Facility and which
are in custody or control of Manager (and Owner or the successor manager shall
assume all contracts made in accordance with this Agreement).

13.03. Repayment of Operating Deficit Loan upon Termination. Upon termination of
this Agreement for any reason, any and all amounts due to Manager under the OD
Loan shall become immediately due and payable, whether such amounts are
otherwise due and payable at such time and Manager shall have the right to
offset any amounts outstanding under the OD Loan (including accrued but unpaid
interest) against any amounts held by Manager on behalf of Owner as FF&E
Reserve, Working Capital or Non-Routine Capital Expenditures.

ARTICLE XIV

DEFAULTS

14.01. Default by Manager. Manager shall be deemed to be in default (each, an
“Event of Default by Manager”) under this Agreement (a) in the event 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 default shall continue (1) for a period of ten (10) Business Days after
Manager receives written notice from Owner specifying the default in the case of
monetary defaults or (2) for a period of thirty (30) days after Manager receives
written notice from Owner in the case of non-monetary defaults; provided,
however, that if such non-monetary default cannot be cured within such thirty
(30) day period, then Manager shall be entitled to such additional time as is
reasonable under the circumstances to cure such default, provided Manager is
capable of curing same, has proceeded to commence cure of such default within
said period, and thereafter diligently prosecutes the cure to completion, or
(b) any of the events in Section 14.03 occurs with respect to Manager.

14.02. Default by Owner. Owner shall be deemed to be in default (each, an “Event
of Default by Owner”) under this Agreement (a) in the event Owner shall fail to
keep, observe or perform any material covenant, agreement, term or provision of
this Agreement to be kept, observed or performed by Owner, to the extent such
default continues (1) for a period of ten (10) Business Days after written
notice thereof by Manager to Owner in the case of monetary defaults or (2) for a
period of thirty (30) days after written notice thereof by Manager to Owner in
the case of non-monetary time defaults; provided, however, if such default
cannot be cured within such thirty (30) day period, then Owner shall be entitled
to such additional time as is reasonable under the circumstances to cure such
default, provided that Owner is capable of curing same, has proceeded to
commence cure of such default within said period, and thereafter diligently
prosecutes the cure to completion, (b) any of the events in Section 14.03 occurs
with respect to Owner or (c) if Owner elects to close the Facility or
substantial portion of the Facility for any reason other than a casualty or
condemnation event if expressly permitted under this Agreement.

 

 

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14.03. Insolvency Default. The occurrence of any of the following shall
constitute a default hereunder:

(a) Either party files a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law, or the admission of either
party that it is unable to pay its debts as they become due; or

(b) Either party consents to an involuntary petition in bankruptcy or fails to
vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party; or

(c) Any court of competent jurisdiction enters an order, judgment or decree
adjudicating either party as bankrupt or insolvent or approving a petition
seeking reorganization or appointing a receiver, trustee or liquidator of a
substantial part of such party’s assets, and such order, judgment or decree’s
continuing unstayed and in effect for an aggregate of sixty (60) days (whether
or not consecutive).

14.04. Remedies of Owner. Upon the occurrence of an Event of Default by Manager
as specified in Section 14.01 of this Agreement (as such Event of Default by
Manager may occur upon the expiration of any applicable cure period provided by
this Agreement), Owner shall be entitled to exercise its rights at law or in
equity, including the right to terminate this Agreement without payment of a
Termination Fee or to compel specific performance of Manager’s obligations
hereunder.

14.05. Remedies of Manager. Upon the occurrence of an Event of Default by Owner
as specified in Section 14.02 of this Agreement (as such Event of Default by
Owner may occur upon the expiration of any applicable cure period provided by
this Agreement), Manager shall be entitled either: (a) to specific performance
of Owner’s obligations under this Agreement or (b) to terminate this Agreement
and to recover the Termination Fee.

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

14.07. Termination Fee. If Owner fails to pay the Termination Fee in full within
thirty (30) days after the Termination Date, then Manager shall have the right
(without affecting

 

 

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Manager’s other remedies under this Agreement) to withhold the amount of such
fee from the FF&E Reserve, the Working Capital funds or any other funds of Owner
held by or under the control of Manager. The “Termination Date” shall mean the
date of termination of this Agreement specified in any notice of termination
given by Manager pursuant to the exercise by Manager of any termination right
hereunder.

14.08. Failure to Pay. 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 a rate equal to (a) if CHT or an
Affiliate or successor thereof (“CHT Partner”) holds a direct or indirect
ownership interest in Owner, five percent (5%) plus the rate of return then
payable to CHT Partner under Section 8.1 of the Amended and Restated Limited
Liability Company Agreement of Parent (the “JV Agreement”) (or the highest
interest permitted under applicable law if that is lower) or (b) if CHT Partner
does not hold a direct or indirect ownership interest in Owner, eighteen percent
(18%) (or the highest interest permitted under applicable law if that is lower,
in each case from and after the date on which such payment was originally due to
the non-defaulting party until such payment is made.

14.09. Manager’s Right to Specific Performance for Owner’s Wrongful Termination.
Owner hereby acknowledges that (a) Manager has an interest in this Agreement
beyond the fees Manager will earn pursuant to the provisions of this Agreement,
(b) the termination of this Agreement by Owner when Owner is not entitled to
terminate this Agreement pursuant to the provisions of this Agreement will be
injurious to Manager’s business conducted beyond Owner’s Facility, and will
damage Manager’s Proprietary Marks, (c) Manager’s Proprietary Marks are unique,
Manager’s exclusive rights of possession under this Agreement are unique, the
Facility is unique and Manager is entitled to an exclusive license to operate
Manager’s business at the Facility and to promote Manager’s Proprietary Marks at
the Facility, which license is irrevocable except pursuant to the express
provisions of this Agreement, (d) it would be impossible to calculate the
damages that Manager would sustain if Owner terminated this Agreement when Owner
is not entitled to terminate this Agreement pursuant to the provisions of this
Agreement, and (e) the remedy of specific performance of Owner’s obligations
under this Agreement is fair, equitable and practicable. Accordingly, Owner
agrees that for as long as Manager is an Affiliate of Sunrise Senior Living,
Inc. (X) Owner shall not breach this Agreement by terminating, or purporting to
terminate, this Agreement when Owner has no right to terminate this Agreement
pursuant to the provisions of this Agreement, and (Y) Owner consents to the
issuance by any court of competent jurisdiction of injunctive relief prohibiting
Owner from terminating, or purporting to terminate, this Agreement or from
evicting Manager from the Facility, and Owner consents to the award by a court
of competent jurisdiction of specific performance of the obligations of Owner
under this Agreement, without the requirement for posting of any bond.
Notwithstanding the foregoing, if Manager receives the Termination Fee (as set
forth in Section 14.07 above), Manager waives any and all other rights to seek
damages with respect to the termination of this Agreement, including, but not
limited to, the right to sue for specific performance.

 

 

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ARTICLE XV

LEGAL ACTIONS, INDEMNITIES, AND LIMITATION OF LIABILITY

15.01. Legal Actions. Manager shall have the right to institute or defend, in
the name of Owner, any legal action affecting the Facility and take any actions,
in the name of Owner, necessary to protest or litigate to a final decision in
any appropriate court or forum, any violation, order, rule, or regulation
affecting the Facility. Owner shall assist and cooperate with Manager in the
defense or prosecution of any such action. All actions arising out of the
operation of the Facility and not attributable to the gross negligence or
willful misconduct of Manager, and any and all legal actions or proceedings to
collect charges, third party payments, rents, or other incomes for Manager,
Owner or the Facility (“Collection Proceedings”), or to lawfully evict or
dispossess Residents or other Persons in possession thereunder, or to lawfully
cancel, modify, or terminate any lease, license, or concession agreement in the
event of breach or default thereof, or to defend any action brought against
Owner, the Facility or Manager in connection with the Facility, shall be paid
out of Gross Revenues and be treated as Facility Expenses. Manager shall provide
written notice to Owner of all actions arising out of the operation of the
Facility except for Collection Proceedings.

15.02. Indemnities.

(a) By Manager. Manager will defend, indemnify and hold Owner and any of its
Affiliates, and their respective directors, officers, shareholders, members,
employees and agents harmless from and against any and all claims, losses,
expenses (including reasonable attorney fees), costs, suits, actions,
proceedings, demands or liabilities that are asserted against, or sustained or
incurred by them as a result of, or in connection with, Manager’s gross
negligence, fraud, or willful misconduct in the performance of Manager’s duties
under this Agreement.

(b) By Owner. Owner will defend, indemnify, and hold Manager, and any of its
Affiliates, and their respective directors, officers, shareholders, employees
and agents harmless, from and against any and all claims, expenses (including
reasonable attorney fees), losses, costs, suits, actions, proceedings, demands,
or liabilities that are asserted against, or sustained or incurred by them as a
result of, or in connection with, the performance of Manager’s duties under this
Agreement or otherwise while acting within the scope of this Agreement except to
the extent that such claims, losses, expenses (including reasonable attorney
fees), costs, suits, actions, proceedings, demands or liabilities are a result
of Manager’s gross negligence, fraud, or willful misconduct in the performance
of Manager’s duties under this Agreement.

(c) Recovery upon an indemnity contained in this Agreement shall be reduced
dollar-for-dollar by any applicable insurance collected by the indemnified party
with respect to the claims covered by such indemnity.

(d) The indemnities contained in this Section 15.02 shall survive for a period
of one (1) year after the termination of this Agreement.

 

 

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15.03. Limitation of Liability.

(a) Limitation of Liability. Notwithstanding any other provisions of this
Agreement to the contrary, the maximum liability of Manager to Owner (but not to
any third party or any third party claim passed through Owner to Manager) for
any breach of this Agreement or for any claims arising hereunder shall be
limited to the amount of insurance carried by Manager pursuant to Article XII
hereinabove and the amount of the Base Management Fees paid as of the date of
such breach or claim.

(b) Standard of Care. Manager agrees to use its commercially reasonable efforts
to exercise, with respect to all services provided by Manager under or pursuant
to this Agreement, a high and qualified standard of care, skill, and diligence
in accordance with Manager’s Standards.

(c) Non-Recourse. To the maximum extent permitted by applicable law, no member,
partner, shareholder, officer, director, employee or agent of any party to this
Agreement shall have any personal liability with respect to the liabilities or
obligations of such party under this Agreement or any document executed by such
party pursuant to this Agreement.

ARTICLE XVI

REGULATORY AND CONTRACTUAL REQUIREMENTS

16.01. Regulatory and Contractual Requirements.

(a) Manager shall use commercially reasonable efforts to cause all things to be
done in and about the Facility reasonably necessary to comply with the
requirements of any applicable Legal Requirement, or order of any Governmental
Authority or quasi-governmental regulatory body or agency, or board of fire
underwriters respecting the use of the Facility or the construction,
maintenance, or operation thereof. Manager shall use commercially reasonable
efforts to obtain and maintain all Federal, State and county permits and
licenses needed for its management of a licensed assisted living and/or
independent living (as applicable) facility providing personal care services in
the State. Owner agrees upon request by Manager to sign promptly and without
charge applications for licenses, permits or other instruments necessary for
operation of the Facility in accordance with Legal Requirements and to provide
such information and perform such acts relative to the ownership of the Facility
as are required by law, regulation or practice of a Governmental Authority in
order for Manager to obtain and/or maintain any license, permit, instrument,
certificate, certification or approval with respect to the operation of the
Facility in accordance with the terms of this Agreement. Manager shall keep its
corporate organization in good standing in the State and shall maintain all
corporate permits and licenses required by the State.

(b) The parties understand and agree that certain deficiencies or situations of
non-compliance with various Legal Requirements (such as building codes, OSHA,
ADA, 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 a breach or Event of Default by Manager hereunder, provided that,
(a) they are not materially beyond the general experience of similar facility
operations located in the State in terms of scope, seriousness, or frequency,
and (b) Manager takes all reasonable actions in a timely manner to cure such
deficiencies or situations of non-compliance. The costs (including fines for
non-compliance) of curing such

 

 

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deficiencies or circumstances of non-compliance (collectively, “Non-Compliance
Costs”) shall constitute Facility Expenses unless incurred by reason of
Manager’s willful misconduct or gross negligence. Any Non-Compliance Costs
resulting from Manager’s willful misconduct or gross negligence shall be paid by
Manager from its own funds and not as a Facility Expense. So long as Manager is
not an Affiliate of a Person holding a direct or indirect an ownership interest
in Owner, then in the event that Manager and Owner disagree as to whether a
Non-Compliance Cost is appropriate for reimbursement as a Facility Expense, the
disagreement will be resolved exclusively by arbitration pursuant to
Section 18.17 and either party may initiate such arbitration (it being
acknowledged that if Manager is an Affiliate of a Person holding a direct or
indirect ownership interest in Owner, such dispute will be resolved subject to
and in accordance with the JV Agreement).

16.02. Equal Employment Opportunity. Without limitation of any provision set
forth herein, Owner and Manager expressly agree to abide by any and all
applicable Federal and/or State equal employment opportunity statutes, rules and
regulations, including, without limitation, Title II of the Civil Rights Act of
1964, 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.

16.03. Equal Housing Opportunity. Without limitation of any provision set forth
herein, Owner and Manager expressly agree to abide by any and all applicable
Federal and/or State equal housing opportunity statutes, rules and regulations,
all as may be from time to time modified or amended.

ARTICLE XVII

PROPRIETARY MARKS; INTELLECTUAL PROPERTY

17.01. Proprietary Marks. During the Term of this Agreement, the Facility may be
known as a “Sunrise” Facility, with such additional identification as may be
necessary and agreed to by Owner and Manager to provide local identification. If
the name of Manager’s System is changed, Manager shall have the right (with
Owner’s written consent, which shall not be unreasonably withheld) to change the
name of the Facility to conform thereto.

17.02. Ownership of Proprietary Marks. The Proprietary Marks shall in all events
remain the exclusive property of Manager, and nothing contained herein shall
confer on Owner the right to use the Proprietary Marks. Upon termination of this
Agreement, any use of or right to use the Proprietary Marks by Owner shall cease
forthwith and Owner shall promptly remove, at Manager’s expense, from the
Facility any signs or similar items that contain the Proprietary Marks. If Owner
has not removed such signs or similar items promptly upon termination, Manager
shall have the right to remain at the Facility as long as is necessary for Owner
to do so. 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.

17.03. Intellectual Property. All Intellectual Property shall at all times be
proprietary to Manager or its Affiliates, and shall be the exclusive property of
Manager or its Affiliates. During the Term of this Agreement, Manager shall be
entitled to take all reasonable steps to ensure that the Intellectual Property
remains confidential. Upon termination, all Intellectual Property shall be
removed from the Facility by Manager, without compensation to Owner.

 

 

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17.04. Trademark License. Manager hereby grants to Owner a non-exclusive right
and license (“Trademark License”) to use “Sunrise” solely as part of the name of
the Facility. Owner shall not be permitted to use “Sunrise” in connection with
the identification or operation of any other business or property, or at any
other location, except as may otherwise be provided in other agreements between
Owner and Manager (or one of its Affiliates). Owner acknowledges and agrees that
Manager (or one of its Affiliates) is the owner of all right, title, and
interest in and to “Sunrise” and the goodwill associated with and symbolized by
that mark. Owner’s use of “Sunrise” and its derivatives pursuant to this
Trademark License shall not give Owner any ownership, apart from this Trademark
License, to “Sunrise,” and that all goodwill arising from Owner’s use of
“Sunrise” shall inure solely to Manager’s benefit. This Trademark License shall
immediately terminate upon termination or expiration of this Agreement.

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

ARTICLE XVIII

MISCELLANEOUS PROVISIONS

18.01. 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.

18.02. Right to Inspect. Owner or its agents shall have access to the Facility
at any and all reasonable times for the purpose of inspection or showing the
Facility to prospective purchasers, investors, tenants, or mortgagees.

18.03. Estoppel Certificates. Each party to this Agreement shall at any time and
from time to time, upon not less than thirty (30) day’s prior notice from the
other party, execute, acknowledge and deliver to such other party, or to any
third party specified by such other party, a statement in writing:
(a) certifying that this Agreement is unmodified and in full force and effect
(or if there have been modifications, that the same, as modified, is in full
force and effect and stating the modifications); (b) stating whether or not to
the best knowledge of the certifying party: (x) there is a continuing default by
the non-certifying party in the performance or observation of any covenant,
agreement or condition contained in this Agreement; or (y) there shall have
occurred any event which, with the giving of Notice or the passage of time or
both, would become such a default, and, if so, specifying such default or
occurrence of which the certifying party may have knowledge; and (c) stating
such other information as the non-certifying party may reasonably request. Such
statement shall be binding upon the certifying party and may be relied upon by
the non-certifying party and/or such third party specified by the non-certifying
party as aforesaid. The obligations set forth in this Section 18.03 shall
survive

 

 

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termination (that is, each party shall, on request, within the time period
described above, execute and deliver to the non-certifying party and to any such
third party a statement certifying that this Agreement has been terminated).

18.04. Consents, Approval and Discretion. Except as expressly provided herein to
the contrary, whenever this Agreement requires any consent or approval to be
given by either party or either party must or may exercise discretion, the
parties agree that such consent or approval shall not be unreasonably withheld
or delayed and such discretion shall be reasonably exercised in good faith.

18.05. 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.

18.06. Notices. Any and all notices, including any demands, consents, approvals,
offers, elections and other communications required or permitted under this
Agreement shall be deemed adequately given if in writing, addressed to the
recipient of the notice at the addresses set forth below (or to such other
addresses as the parties may specify by due notice to the others parties) and if
delivered either (a) in hand, in which case it will be deemed delivered on the
date of delivery or on the date delivery was refused by the addressee, (b) by
United States mail, postage prepaid, registered or certified, with return
receipt requested, in which case it will be deemed delivered on the date of
delivery as established by the return receipt (or the date on which the return
receipt confirms that acceptance of delivery was refused by the addressee),
(c) by Federal Express or similar expedited commercial carrier, with all freight
charges prepaid, in which case it will be deemed delivered on the date of
delivery as established by the courier service confirmation (or the date on
which the courier service confirms that acceptance of delivery was refused by
the addressee), or (d) by facsimile transmission with a hard copy to follow by
any of the other methods above, in which case it will be deemed delivered on the
day and at the time indicated in the sender’s automatic acknowledgment. If a
notice is sent to a party, then copies of such notice under this Section shall
also be sent by the same delivery method to the copy recipients. Whenever under
this Agreement a notice is required to be delivered on a day which is not a
Business Day or is required to be delivered on or before a specific day which is
not a Business Day, the day of required delivery shall automatically be extended
to the next Business Day. All such notices shall be addressed as follows:

 

Owner or Parent:

 

c/o CNL Healthcare Trust, Inc.

CNL Center at City Commons

450 South Orange Ave

Orlando, Florida 32801

Attention: Joseph T. Johnson, SVP and CFO and

        Holly Greer, SVP and General Counsel

Facsimile: (407) 540- 2544

Copy to:  

Sunrise Senior Living, Inc.

7900 Westpark Drive, Suite T-900

McLean, Virginia 22102

Attention: General Counsel

Facsimile: (703) 854-0334

 

 

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Copy to:  

Willkie Farr & Gallagher

787 Seventh Avenue

New York, New York 10019

Attention: Eugene A. Pinover

Facsimile: (212) 728-9254

and a copy to:  

Lowndes, Drosdick, Doster, Kantor & Reed, P.A.

215 N. Eola Drive

P O Box 2809

Orlando, Florida 32801

Attention: Peter L. Lopez, Esq.

Facsimile: 407 843-4444

Manager:  

Sunrise Senior Living Management, Inc.

7900 Westpark Drive, Suite T-900

McLean, Virginia 22102

Attn: Chief Operating Officer

Facsimile: (703) 744-1628

Copy to:  

c/o Sunrise Senior Living, Inc.

7900 Westpark Drive, Suite T-900

McLean, Virginia 22102

Attention: General Counsel

Facsimile: (703) 854-0334

Copy to:  

c/o CNL Healthcare Trust, Inc.

CNL Center at City Commons

450 South Orange Ave

Orlando, Florida 32801

Attention: Joseph T. Johnson, SVP and CFO and

        Holly Greer, SVP and General Counsel

Facsimile: (407) 540- 2544

Copy to:  

Willkie Farr & Gallagher

787 Seventh Avenue

New York, New York 10019

Attention: Eugene A. Pinover

Facsimile: (212) 728-9254

By notice given as provided in this Section, the parties to this Agreement and
their respective successors and assigns shall have the right from time to time
to change their respective addresses effective five (5) Business Days after the
date of receipt by the other parties of such notice and each party shall have
the right to specify as its address any other address within the United States
of America.

 

 

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18.07. 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.

18.08. 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.

18.09. 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.

18.10. Confidentiality of Information. Manager and Owner agree to keep
confidential and not to use or to disclose to others, except as expressly
consented to in writing by the other party, any and all of their respective
secrets or confidential technology, proprietary information, customer lists, or
trade secrets, or any confidential matter or confidential items ascertained
through their association with each other; provided, however, that either party
may disclose the existence and/or terms and conditions of this Agreement without
the consent of the other party (i) to any Mortgagee, (ii) to either party’s
directors, officers, members, partners, employees, legal counsel, accountants,
engineers, architects, financial advisors and similar professionals and
consultants to the extent such party deems it necessary or appropriate (and such
party shall inform each of the foregoing parties of the obligations of each
party under this Section 18.10 and shall secure the agreement of such parties to
be bound by the terms hereof), (iii) if so required by law or applicable
regulation other than laws or regulations regarding securities, so long as such
party first provides a copy of any written request for disclosure to the other
party and consults with such other party with respect to the content of the
disclosure and (iv) if so required by applicable securities laws or regulations
so long as such party provides copies of such disclosures to the other party.
Manager and Owner further agree that should Manager leave the active service of
Owner, Manager will turn over to Owner any and all Facility information of any
kind, subject to compliance with HIPAA and similar privacy regulations, and in
any case excluding Manager’s Intellectual Property, reasonably necessary for
Owner or a new manager to continue to operate the Facility, including but not
limited to information of any kind pertaining to Residents of the Facility,
business, sales, financial condition or products and Owner will return to
Manager any and all of Manager’s confidential information obtained by Owner. All
funds related to and accounts opened on behalf of the Facility also will be
returned to Owner. Notwithstanding any terms or conditions in this Agreement to
the contrary, but subject to restrictions reasonably necessary to comply with
federal or state securities laws, any person may disclose to any and all
persons, without limitation of any kind, the tax treatment and tax structure of
the transaction and all materials of any kind (including opinions or other tax
analyses) that are provided relating to such tax treatment and tax structure.
For the avoidance of doubt, this authorization is not intended to permit
disclosure of the names of, or other identifying information regarding, the
participants in the transaction, or of any information or the portion of any
materials not relevant to the tax treatment or tax structure of the transaction.

 

 

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18.11. Right to Perform. In the event that Owner or Manager shall fail to
perform any duty or fulfill any obligation hereunder to the material detriment
of the other, Owner or Manager, in addition to any rights or remedies available
to it under law, shall have the right, but not the obligation, after notice and
the expiration of all applicable cure periods, to perform any such duty or
fulfill any such obligation, but in no way obligating the party beyond any
termination period allowable hereunder.

18.12. Assignment by Manager or Owner; Controlling Interest Sale; Facility Sale.

(a) Assignment. Manager shall have the right to assign this Agreement to an
Affiliate of Manager after fifteen (15) days written notice to Owner. Manager
shall not have the right to assign this Agreement to any non-Affiliate without
Owner’s prior written permission, which permission may be granted or withheld in
Owner’s sole and absolute discretion. Owner shall not have the right to assign
this Agreement without Manager’s prior written permission, which permission may
be granted or withheld in Manager’s sole and absolute discretion; provided,
however, that if this Agreement is assigned to the purchaser of the Facility in
connection with the sale of the Facility in accordance with this Section 18.12,
then the assignee (as Owner) of this Agreement shall also execute a counterpart
of this Agreement and become party to this Agreement; further provided, however,
that the Owner selling the Facility shall not be released of its obligations
under this Agreement arising prior to the date of execution of this Agreement by
its assignee. This Agreement will be binding upon, and will inure to the benefit
of, any permitted successor, assign, grantee or transferee of the assignor.

(b) Controlling Interest Sale or Facility Sale to a Qualified Transferee.

(1) If Parent or an Affiliate of Parent intends to enter into a Controlling
Interest Sale with a Person (including an Affiliate of Owner or Parent) that is
a Qualified Transferee, then prior to entering into the Controlling Interest
Sale Parent or such Affiliate shall deliver to Manager a notice of its intent to
sell the Controlling Interest (the “Sale Notice”) together with evidence that
the proposed transferee is a Qualified Transferee and the provisions of
Section 18.12(d) shall apply.

(2) If Owner intends to enter into a Facility Sale with a Person (including an
Affiliate of Owner or Parent) that is a Qualified Transferee, then prior to
entering into the Facility Sale, Owner shall deliver to Manager a Sale Notice of
its intent to sell the Facility together with evidence that the proposed
transferee is a Qualified Transferee and the provisions of Section 18.12(d)
shall apply.

(3) If Manager does not exercise its right of first offer pursuant to
Section 18.12(d) to the extent available, then Parent, its Affiliate or Owner,
as applicable, shall require, as a condition to the closing of the Controlling
Interest Sale or Facility Sale, as applicable, to a Qualified Transferee that:
(1) the Qualified Transferee and Manager either: (i) enter into an assignment of
this Agreement, or (ii) enter into a Replacement Management Agreement (under the
same terms and conditions as the then current Management Agreement except that
the term of any such Replacement Management Agreement shall consist only of the
balance of the term remaining under the then current Management Agreement),
(2) the Qualified Transferee replace the FF&E Reserve and the

 

 

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Working Capital required under the then current Management Agreement, and
(3) the Qualified Transferee provide for a replacement guarantor under the
Guaranty reasonably acceptable to Manager. Manager shall be obligated to enter
with the Qualified Transferee at the closing of the Controlling Interest Sale or
Facility Sale either into (x) an assignment of the then current Management
Agreement, or (y) enter into a Replacement Management Agreement as set forth in
Section 18.12(b)(2)(ii) above.

(c) Controlling Interest Sale or Facility Sale to a Non-Qualified Transferee.

(1) If Parent or an Affiliate of Parent intends to enter into a Controlling
Interest Sale with a Person (including an Affiliate of Owner or Parent) that is
not a Qualified Transferee, then prior to entering into the Controlling Interest
Sale Parent or such Affiliate shall deliver to Manager a Sale Notice of its
intent to sell the Controlling Interest and the provisions of Section 18.12(d)
shall apply.

(2) If Owner intends to enter into a Facility Sale with a Person (including an
Affiliate of Owner or Parent) that is not a Qualified Transferee, then prior to
entering into the Facility Sale, Owner shall deliver to Manager a Sale Notice of
its intent to sell the Facility and the provisions of Section 18.12(d) shall
apply.

(3) If Parent or its Affiliate intends to enter into a Controlling Interest Sale
with a Person (including an Affiliate of Owner or Parent) that is not a
Qualified Transferee or if the Owner intends to enter into a Facility Sale to a
Person (including an Affiliate of Owner or Parent) that is not a Qualified
Transferee, and Manager does not exercise its right of first offer pursuant to
Section 18.12(d) to the extent available, then Manager shall have the right to
elect, at its sole discretion, to continue the operation of the Facility under
the then current Management Agreement or to terminate the then current
Management Agreement and receive the Termination Fee at the closing of such
Controlling Interest Sale or Facility Sale. Manager shall notify Owner or Parent
or its Affiliate, as applicable, within thirty (30) days after receipt of the
Sale Notice with respect to a Controlling Interest Sale or Facility Sale, as
applicable, of its desire to continue to operate the Facility under the then
current Management Agreement (the “Continuation Notice”). If Manager does not
deliver a Continuation Notice within the thirty (30) day period, it is deemed to
have elected to terminate the then current Management Agreement and receive the
Termination Fee at the closing. If Manager delivers a Continuation Notice within
the thirty (30) day period, then Parent, its Affiliate or Owner, as applicable,
shall require, as a condition to the closing of the Controlling Interest Sale or
the Facility Sale, that the new owner of the Facility enter into an assignment
of the then current Management Agreement or (ii) enter into a Replacement
Management Agreement (under the same terms and conditions as the then current
Management Agreement except that the term of any such Replacement Management
Agreement shall consist only of the balance of the term remaining under the then
current Management Agreement), (2) replace the FF&E Reserve and the Working
Capital required under the then current Management Agreement, and (3) provide
for a replacement guarantor under the Guaranty reasonably acceptable to Manager.
Parent or its Affiliate shall not close a Controlling Interest Sale or Owner
shall not close a Facility Sale until the later of (x) the date on which Manager
and the Controlling Interest

 

 

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purchaser have agreed on the form of the Replacement Management Agreement and
the replacement guarantor, if a Continuation Notice was delivered, and (y) the
expiration of the thirty (30) day period for the delivery of the Continuation
Notice if no Continuation Notice is delivered.

(d) Manager’s Right of First Offer. If Owner intends to enter into a Facility
Sale or Parent or its Affiliate intends to enter into a Controlling Interest
Sale with any Person (including an Affiliate of Owner or Parent) and no Person
with a direct or indirect ownership interest in Owner is then an Affiliate of
Manager, then Owner shall provide notice to Manager and Manager shall have a
right of first offer to purchase the Facility upon the terms set forth below.

(1) Owner shall provide Manager with written notice (within the Sale Notice or
otherwise) of its intent to enter into the Facility Sale or Parent’s or its
Affiliate’s intent to enter into a Controlling Interest Sale, and Manager shall
have ten (10) Business Days following receipt of such notice to deliver a
written offer to Owner and Parent or its Affiliates (the “Purchase Notice”) with
the price offered by Manager for the purchase of the Facility (“Offered Purchase
Price”). Owner or Parent or its Affiliates, as applicable, shall respond to
Manager within five (5) Business Days after receipt of the Purchase Notice
whether or not it accepts the Offered Purchase Price (the “Response”). If the
Owner or Parent or its Affiliate, as applicable, accepts the Offered Purchase
Price within the five (5) Business Days’ period, then Manager shall deliver to
Owner and Parent or its Affiliate within ten (10) Business Days after the
Response is received, a proposed draft purchase agreement, and will deposit with
the Escrow Agent in cash an amount equal to the lesser of (i) five percent
(5%) of the Offered Purchase Price, or (ii) $500,000 (the “Downpayment”) within
three (3) Business Days after execution of the purchase agreement. If Owner
fails to deliver the Response within the five (5) Business Days’ period, Owner
shall be deemed to have accepted the Offered Purchase Price. If the Response
specifies that Owner or Parent or its Affiliate, as applicable, does not accept
the Offered Purchase Price, then Owner shall have the right to market the
Facility, but shall continue to be bound by the provisions of subsection
18(d)(4) below.

(2) The Escrow Agent shall hold the Downpayment in an interest bearing account
pursuant to a written agreement among Owner, Manager and the Escrow Agent, which
agreement shall be satisfactory to such parties in the exercise of their
respective reasonable discretion and shall provide, among other things, that the
Escrow Agent shall not commingle the Downpayment with any other funds. In the
event of a closing of a Facility Sale to Manager pursuant to the terms of this
Section 18.12(d), the Downpayment, together with any interest earned thereon,
shall be credited against the Offered Purchase Price. If Manager shall fail to
purchase the Facility in compliance with its obligations under this
Section 18.12(d), the Purchase Notice shall be deemed revoked and the
Downpayment, and any interest thereon, shall be paid to Owner by the Escrow
Agent promptly following written request therefor as Owner’s sole and exclusive
remedy and Section 18.12(d) shall apply. If the purchase agreement is terminated
by Manager in accordance with any allowable periods for termination as set forth
in the purchase agreement, then the Downpayment shall be returned to Manager and
the Purchase Notice shall thereafter be deemed revoked, with no liability to
Manager therefor and Section

 

 

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18.12(b)(3) shall apply. If Owner shall default in any of its obligations under
this Section 18.12(d), the Downpayment, and any interest earned thereon, shall
be returned to Manager promptly following written request therefor, and Manager
may pursue an action for specific performance or any other remedy available to
it by law. Upon acceptance or deemed acceptance of the Offered Purchase Price by
Owner as aforesaid, (i) a binding contract shall be deemed to exist between
Owner and Manager with respect to the purchase and sale of the Facility, and
(ii) Manager and Owner shall use good faith efforts to negotiate a definitive
agreement for the closing of the purchase and sale to be held at the principal
place of business of Manager (or as otherwise may be agreed to by the parties)
on a Business Day selected by Manager not less than thirty (30) days and not
more than one hundred twenty (120) days from Owner’s receipt of the Purchase
Notice. Manager shall pay the Offered Purchase Price (less the Downpayment and
any interest earned thereon) by wire transfer of immediately available federal
funds to an account (or account(s)) designated in writing by Owner. Each party
shall pay its own costs and expenses in connection with the conveyance of the
Facility to Manager pursuant to this Section 18.12(d). Any transfer, deed,
documentary, stamp or similar tax due in connection with a sale of the Facility
pursuant to this Section 18.12(d) shall be shared equally by Manager and Owner.
If the Manager and the Owner are unable to negotiate a definitive agreement for
the closing of the purchase and sale of the Facility as set forth in this
paragraph, then the dispute will be resolved exclusively by arbitration pursuant
to Section 18.17 of this Agreement. Either party may initiate such arbitration.

(3) If (x) Manager does not timely deliver a Purchase Notice or (y) the Manager
states in its Purchase Notice that it does not exercise its option purchase the
Facility, or (z) Manager’s Purchase Notice is deemed to have been revoked in
accordance with Section 18.12(d)(2) or if Owner or Parent or its Affiliate
rejects Manager’s Offered Purchase Price within the applicable time period,
Owner or Parent or its Affiliate are authorized for three hundred sixty-five
(365) days following the deadline for receipt of such Purchase Notice to accept
any offer for the purchase of the Facility or a Controlling Interest without
further offer to the Manager which complies with the specifications set forth in
items (i) and (ii) below (a “Sale Offer”), provided that any Facility Sale or
Controlling Interest Sale, as applicable, shall remain subject to the provisions
of Section 18.12(a).

(i) The Sale Offer must be an all cash offer for the purchase of the Facility or
the Controlling Interest, as applicable, in an amount not less than 105% of the
Offered Purchase Price; and

(ii) The Sale Offer must provide for the closing of the purchase of the Facility
or the Controlling Interest, as applicable, not sooner than thirty (30) days nor
later than three hundred sixty-five (365) days after (A) if Manager failed to
deliver a Purchase Notice, the date which is thirty (30) days after receipt of
the Sale Notice by Manager, (B) if Manager delivered a Purchase Notice and same
was deemed to have been revoked, the date of the deemed revocation of the
Purchase Notice or (C) if Manager delivered the Purchase Notice but the Offered
Purchase Price was rejected in the Response, the date the Response was received
by Manager.

 

 

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(4) If Owner or Parent or its Affiliate fails to close the Facility Sale or the
Controlling Interest Sale pursuant to the requirements of (as applicable)
subsection 18.12(d)(3) or if the Sale Offer does not comply with the provisions
of Section 18.12(d)(3)(i)-(ii), then any further Facility Sale or a Controlling
Interest Sale shall be again subject to the provisions of this Section 18.12(d).

18.13. Entire Agreement; Amendment. This Agreement supersedes all prior drafts
and discussions relating to this Agreement. This Agreement constitutes one
(1) agreement and shall be construed and interpreted in light of all such other
agreements between the parties including, but not limited to, the Manager
Pooling Agreement. 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.

18.14. Relationship Between the Parties. The relationship between Owner and
Manager pursuant to this Agreement shall not be one of general agency, but shall
be that of Owner with Manager being an independent contractor; provided,
however, that Manager shall have the authority to bind the Owner with respect to
third parties to the extent Manager is performing its obligations under this
Agreement or as otherwise authorized by Owner. Neither this Agreement nor any
agreements, instruments, documents or transactions contemplated hereby shall in
any respect be interpreted, deemed or construed as making Owner a partner or
joint venturer with Manager or as creating any similar relationship or entity,
and each party agrees that it will not make any contrary assertion, contention,
claim or counterclaim in any action, suit or other legal proceeding involving
the other. Owner hereby grants an irrevocable power of attorney to the Manager
to act on behalf of Owner vis-a-vis third parties as necessary in connection
with the performance of Manager’s obligations under this Agreement.

18.15. Force Majeure. As used in this Agreement, the term “Force Majeure” shall
mean any failure to perform an obligation under this Agreement when the party so
obligated is prevented from so performing by (i) Acts of God, (ii) strike,
lockouts, actions of labor unions or other labor trouble, (iii) sabotage,
(iv) fire or casualty, (v) order or regulation of or by any Governmental
Authority (other than orders or regulations of a Governmental Authority
resulting from the obligated party’s non-compliance with typical and ordinary
health, licensing and construction laws, rules or regulations), (vi) acts or
omissions of any Governmental Authority (including delays in obtaining any
required licenses, permits or approvals, provided such permits were timely and
accurately submitted to the applicable Governmental Authority), (vii) war
(declared or undeclared), acts of terrorism, riot, acts of the public enemy or
other civil commotion, (vii) rebellions, riots, insurrections or sabotage,
(ix) shortage of labor, materials or supplies; provided, however, that the lack
of financial resources or a failure to comply with existing laws shall never be
excused.

18.16. Subordination, Non-disturbance and Attornment Agreements.

(a) At such time that Manager receives from Mortgagee an executed and recordable
subordination, non-disturbance and attornment agreement in a form acceptable to
Manager in its sole discretion, this Agreement and any extensions, renewals,
replacements or modifications thereto, and all rights and interests of Manager
in the Facility, shall be subject and subordinate to any Facility Mortgage.

 

 

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(b) If the loan documents secured by the Facility Mortgage, or any
subordination, non-disturbance and attornment agreement executed by Manager
contains provisions requiring Manager (upon default under the Facility Mortgage,
or upon various other stipulated conditions) to pay certain amounts which are
otherwise due to Owner under this Agreement (after the payment of Facility
Expenses) to the Mortgagee or its designee (rather than to Owner), Owner hereby
gives its consent to such provisions, which consent shall be deemed to be
irrevocable until the entire debt secured by the Facility Mortgage has been
discharged.

18.17. Arbitration.

(a) Any dispute, disagreement, or controversy arising out of this Agreement for
which arbitration in accordance with this Section 18.17 is expressly provided
shall be resolved by arbitration (the “Arbitration Proceeding”) administered by
the American Arbitration Association (“AAA”) under its Commercial Arbitration
Rules and Expedited Procedures, in effect at the time of the demand for
arbitration, provided, however that to the extent any provision of this Section
modifies, adds to, or is inconsistent with any provisions of those rules and
procedures, the provisions of this Section shall control. The arbitration will
be conducted before a single arbitrator in Washington, D.C., Alexandria, VA,
McLean, VA, Bethesda, MD or Orlando, FL (the “Venue”). The parties hereby
acknowledge and agree that the party which did not initiate the Arbitration
Proceeding shall have the right to elect the Venue in its sole discretion, which
shall be binding on both parties. The choice of law provisions set forth in
Section 18.21 shall apply in any such Arbitration Proceeding. Any dispute,
disagreement, or controversy arising out of or relating to this Agreement for
which arbitration is not expressly provided as the means of resolution may be
resolved by litigation as provided in Section 18.21 or by other lawful means.
Notwithstanding anything to the contrary contained herein, so long as the JV
Agreement is in effect and Manager is an Affiliate of a Person holding a direct
or indirect ownership interest in Owner, any dispute, disagreement or
controversy arising out of this Agreement which also constitutes a dispute as to
a Major Decision (as defined in the JV Agreement) under the JV Agreement shall
not be submitted to an Arbitration Proceeding hereunder, but rather shall be
resolved pursuant to and in accordance with the terms and conditions of the JV
Agreement, and Manager and Owner agree that such resolution shall be binding.

(b) The party desiring arbitration shall provide written notice to the other
party (the “Arbitration Notice”) indicating (1) the matter in controversy and
(2) the name, contact information and professional resume of the proposed
arbitrator meeting the requirements for a qualified and independent arbitrator
set forth in Section 18.17(c) (“Initial Arbitrator”) to arbitrate such matter in
controversy. If the party receiving the Arbitration Notice rejects the Initial
Arbitrator set forth in the Arbitration Notice it shall object in writing
(“Objection Notice”) delivered to the other party within seven (7) Business Days
of the receipt of the Arbitration Notice. The Objection Notice shall contain the
name, contact information and professional resume of a different arbitrator
meeting the requirements for a qualified and independent arbitrator set forth in
Section 18.17(c) (“Secondary Arbitrator”) to arbitrate the matter in controversy
set forth in the Arbitration Notice. If the party receiving the Objection Notice
rejects

 

 

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the Secondary Arbitrator, it shall object in writing (“Secondary Objection
Notice”) to the other party within seven (7) Business Days after the receipt of
the Objection Notice. If neither the Initial Arbitrator nor the Secondary
Arbitrator is accepted by the parties, the party which delivered the Arbitration
Notice shall instruct the Initial Arbitrator and the Secondary Arbitrator to
agree, within five (5) Business Days after receipt of the Secondary Objection
Notice, upon an arbitrator (“Appointed Arbitrator”) meeting the requirements for
a qualified and independent arbitrator set forth in Section 18.17(c). If they
agree upon an Appointed Arbitrator who is prepared to act as the Appointed
Arbitrator, the Initial Arbitrator and Secondary Arbitrator shall deliver
written notice of the name, contact information and professional resume of the
Appointed Arbitrator to each party simultaneously. The appointment of the
Appointed Arbitrator shall be a final decision, which shall not be subject to
objection by either party, unless either party within five (5) Business Days
after such selection of an Appointed Arbitrator, notifies the other party, in
writing, that such Appointed Arbitrator fails to meet the requirements for a
qualified and independent arbitrator set forth in Section 18.17(c) and provides
specific information in such written notice as to the reasons why such failure
exists.

(c) In the event the Initial Arbitrator and the Secondary Arbitrator cannot
agree on an Appointed Arbitrator or if such appointed Arbitrator is unwilling to
act as the Appointed Arbitrator or if either party objects to the Appointed
Arbitrator within five (5) Business Days after the selection of such Appointed
Arbitrator, as permitted in this Section 18.17, then either party may petition
the AAA (or any successor body of similar function) to appoint an arbitrator
within five (5) Business Days of such petition using the following criteria:
such arbitrator shall be (1) with respect to physical property matters, a
licensed professional engineer or registered architect having at least ten
(10) years experience in the design or construction of similar senior housing
facilities, (2) with respect to financial matters, a partner in a “Big Four
Accounting Firm” with at least ten (10) years experience with the type of matter
in dispute, (3) with respect to property management issues, an individual who
shall have had at least ten (10) years experience managing similar senior
housing facilities and (4) be neutral and shall have had no prior notice,
information or discussions concerning such controversy and shall not be employed
by or associated with either party or any Affiliate of either of them, or any of
their respective agents or affiliates at such time or for the previous ten
(10) years. If the dispute involves more than one type of matter, then the
Appointed Arbitrator may be (X) an individual with expertise in any one of the
types of matters in dispute, or (Y) a retired judge.

(d) The Arbitration Proceedings shall commence fifteen (15) Business Days after
the engagement or appointment of the appropriate arbitrator pursuant to this
Section 18.17. The arbitrator shall make a determination within ten
(10) Business Days after conclusion of the Arbitration Proceeding.

(e) The costs and expenses of an Arbitration Proceeding including administrative
fees and costs, expert fees and the arbitrator’s fees and cost, shall be shared
equally by Owner and Manager, and each party shall bear its own counsel, expert,
administrative fees and other professional fees and expenses with respect to
such Arbitration Proceeding; provided, however, that the Appointed Arbitrator
may (but shall not be required to), in the exercise of his/her best judgment,
assess one party for a part or all of the costs of the other party, including
the costs of the Arbitration Proceeding.

 

 

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(f) Any arbitrator’s final decision and award shall be in writing and delivered
by the parties in an expedited manner, shall be binding on the parties and shall
be non-appealable, and counterpart copies thereof shall be delivered to both
parties. A judgment or award rendered by the arbitrator may be entered in any
court of competent jurisdiction. All actions necessary to implement the decision
of the arbitrator shall be undertaken as soon as possible, but in no event later
than three (3) Business Days after the rendering of such decision.

18.18. Cooperation. Should any claim, demand, suit or other legal proceeding be
made or instituted by either party which arises out of any of the matters
relating to this Agreement, each party shall give the other all non-privileged
and pertinent information possessed by or under the control of such party and
reasonable assistance in the defense or other disposition thereof. In addition,
in each instance where Manager’s performance under this Agreement is dependant
on receiving the cooperation of Owner, Owner shall promptly cooperate and
provide Manager with such requested assistance.

18.19. Manager Pooling Agreement as Controlling Agreement. The Manager Pooling
Agreement is intended to modify and amend this Agreement. If there is any
conflict or inconsistency between the terms of this Agreement and the terms of
the Manager Pooling Agreement, then the terms of the Manager Pooling Agreement
shall supersede and control in all respects.

18.20. Costs of Dispute. In any legal action or proceeding arising out of this
Agreement, other than an Arbitration Proceeding, the successful or prevailing
party or parties therein will be entitled to recover from the other party or
parties reasonable attorney’s fees and other costs incurred in that action or
proceeding, including those related to appeal of any such action. The recovery
of attorney’s fees and costs will be in addition to any other relief to which
the successful or prevailing party or parties may be entitled.

18.21. Governing Law; Litigation, Jurisdiction and Waiver of Jury Trial.

(a) This Agreement will be governed by, and construed in accordance with, the
laws of the Commonwealth of Virginia without regard to conflict of laws
principles.

(b) For the purposes of any suit, action or proceeding involving this Agreement,
the parties each hereby expressly and irrevocably submits to the jurisdiction of
all federal and state courts sitting in the Commonwealth of Virginia which
courts shall have the exclusive jurisdiction over any such suit, action or
proceeding commenced by any party. The parties consent to service of process,
wherever made, by certified mail return receipt requested, personal service or
any other method permitted by applicable law and the rules of the applicable
court. In furtherance of such agreement, the parties agree, upon the request of
any party, to discontinue (or agree to the discontinuance of) any such suit,
action or proceeding pending in any other jurisdiction.

(c) Each party hereby irrevocably waives any objection that either party may now
or hereafter have to the laying of venue of any suit, action or proceeding
arising out of or relating to this Agreement brought in any federal or state
court sitting in the Commonwealth of Virginia and hereby further irrevocably
waives any claim that any such suit, action or proceeding brought in any such
court has been brought in an inconvenient forum.

 

 

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(d) If for any reason, the state and federal courts sitting in the Commonwealth
of Virginia refuse to exercise jurisdiction over the proceeding or any party,
then litigation as permitted herein may be brought in any court of competent
jurisdiction in the United States of America.

(e) EACH PARTY HEREBY WAIVES, IRREVOCABLY AND UNCONDITIONALLY, TRIAL BY JURY IN
ANY ACTION BROUGHT ON, UNDER OR BY VIRTUE OF OR RELATING IN ANY WAY TO THIS
AGREEMENT OR ANY OF THE DOCUMENTS EXECUTED IN CONNECTION HEREWITH, THE FACILITY,
OR ANY CLAIMS, DEFENSES, RIGHTS OF SET-OFF OR OTHER ACTIONS PERTAINING HERETO OR
TO ANY OF THE FOREGOING.

18.22. Counterparts. 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.

18.23. Contracting with Affiliates. Manager shall be entitled to contract with
companies that are Affiliates (or companies in which Manager has an ownership
interest if such interest is not sufficient to make such company an Affiliate)
to provide goods and/or services to the Facility; provided that the prices
and/or terms for such goods and/or services are at a fair market
price. Additionally, Manager may contract for the purchase of goods and services
for the Facility with third parties that have other contractual relationships
with Manager and its Affiliates, so long as the prices and terms are at a fair
market price. Manager shall fully disclose to Owner any material interest of
Manager and/or its Affiliate in any vendor and Manager shall establish to
Owner’s reasonable satisfaction that any such purchase contracts were made at
fair market prices. In determining, pursuant to the foregoing, whether such
prices and/or terms are at a fair market price, they will be compared to the
prices and/or terms which would be available from reputable and qualified
parties for goods and/or services of similar quality, and the goods and/or
services which are being purchased shall be grouped in reasonable categories,
rather than being compared item by item. Any dispute as to whether prices and/or
terms are at a fair market price shall be referred to arbitration pursuant to
Section 18.17. The price paid may include overhead and the allowance of a
reasonable return to Manager and its Affiliates (or companies in which Manager
has an ownership interest if such interest is not sufficient to make such
company an Affiliate).

18.24. Parent Subordination. Parent and Owner acknowledge and agree that payment
of any fees or other amounts, including the Termination Fee, payable to Manager
under this Agreement or the Manager Pooling Agreement (the “Manager
Receivables”) shall be senior to the payment of any distributions or other
payments to Parent (including, without limitation, reimbursement payments to
Parent for Parent’s satisfaction of any Guaranteed Obligations (as defined in
the Guaranty)) and Parent hereby subordinates its right to receive any
distributions or other payments from Owner to Manager’s right to the Manager
Receivables.

 

 

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18.25. Facility Name. Owner and Parent hereby agree that during the term of the
Management Agreement, Manager shall have the right, in its sole discretion, to
publicly designate the Facility governed thereunder a “Sunrise” community, with
such additional identification to provide local identification.

18.26. Parent and Owner Consents. Manager shall be entitled to rely fully and
act upon all approvals, consents, authorizations and elections made by Owner
under this Agreement, without any obligation whatsoever to make inquiry of
Parent or seek confirmation that Parent has provided its authorization, or
approval, written or otherwise, to such Owner action and Manager shall not be
required to grant any additional time for Parent to instruct Owner with respect
to such matters.

18.27. REIT Compliance.

(a) Manager shall provide Owner written notice any time Manager or any of its
Affiliates acquires any of the shares of CNL Lifestyle Properties, Inc., or CNL
Healthcare Trust, Inc. (each, a “REIT”), and in any event neither Manager nor
any of Manager’s Affiliates shall own, at any time during the Term, more than
thirty-five percent (35%) of the shares of either REIT.

(b) Manager shall at all times qualify as an “eligible independent contractor”
as defined in Section 856(d) of the Internal Revenue Code. In the event that
Owner reasonably concludes that the terms of this Agreement will have an effect
as to cause rent under Owner’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 Owner modifying such terms in such a way as to cause rent under
Owner’s lease of the Facility to so qualify as “rents from real property” in the
reasonable opinion of Owner 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.

[Signatures Commence on Following Page]

 

 

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IN WITNESS WHEREOF, the parties hereto have caused this Management Agreement to
be executed under seal by their duly authorized offices, all as of the Effective
Date.

 

OWNER:

SUNRISE CONNECTICUT AVENUE

ASSISTED LIVING OWNER, L.L.C., a Virginia limited liability company

By:  

/s/ Joshua J. Taube

  Name:   Joshua J. Taube   Title:   Vice President

[Signatures continue on following page]

[Signature page to Management Agreement: Sunrise of Connecticut Avenue]

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MANAGER:

SUNRISE SENIOR LIVING MANAGEMENT,

INC., a Virginia corporation

By:  

/s/ Edward W. Burnett

  Name:   Edward W. Burnett   Title:   Vice President

[Signatures continue on following page]

[Signature page to Management Agreement: Sunrise of Connecticut Avenue]

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PARENT:

CHTSUN PARTNERS IV, LLC,

a Delaware limited liability company

By:   CHT SL IV HOLDING, LLC,   a Delaware limited liability company.   Managing
Member By:  

/s/ Joshua J. Taube

  Name:   Joshua J. Taube   Title:   Vice President

[Signature page to Management Agreement: Sunrise of Connecticut Avenue]

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EXHIBIT A

DESCRIPTION OF REAL PROPERTY

All of those lots or parcels of land located in the District of Columbia and
more particularly described as follows:

Lot 162 in Square 1989 in a subdivision made by Sunrise Connecticut Avenue
Assisted Living, LLC, and others, as per plat recorded in Liber No. 194 at folio
37 among the Records of the Office of the Surveyor for the District of Columbia.

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EXHIBIT B-1

FACILITY SHARED SERVICES

 

Accounts Payable Processing

  

Referral Fees - MIS

AOD Billing System

  

Regional Facilities Expense

Business Managers

  

Resident Billing Support

Clinical System

  

Resident Billing System

Connectivity-Shared

  

Sales System

Cost Report Expense

  

Sales Training - EBD

Engagement Surveys

  

Sales Training - Focus

Learning Delivery and Implementation

  

Sales Training- Excellence in Selling

Learning Design and Development

  

Sales Training- Selling Skills

Learning Logistics and Administration

  

Skilled Nursing

Medicare Billing

  

Tax Advice - Shared

Memory Care Training

  

Technology Help Desk

Payroll Staff, Training & Communication

  

Time & Attendance System

Recruitment Marketing and Advertising

  

Med Management

 

 

B-1-1

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EXHIBIT B-2

DIRECT EXPENSES

 

Audit Expense

  

Payroll Charge

Bank Service Charges

  

Predictive Index

Connectivity-Direct

  

Preventative Maintenance System

Desktop Software Licensing

  

Referral Subscriptions - APFM

Emergency Resources

  

Resident Bill Print & Delivery

E-Newsletter

  

TALX

Horizon

  

Tax Compliance - Direct

Internet Marketing

  

Training Materials-Liberty

Mystery Shop

  

Website

Learning Management System

  

Yellow Pages

 

 

B-2-1

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EXHIBIT C-1

FINANCIAL REPORTING REQUIREMENTS

 

Schedule of Reporting

                        

General Description

   Detailed Description   

Due Date

   Monthly    Quarterly    Annually

Financial Reporting

              

Financial Statements (balance sheet, income statement and trial balance)

   Sunrise’s standard
format    15th    X      

Cash Flow (Non GAAP)

      15th    X      

Capital Expenditures

   Sunrise’s standard
format    15th    X      

Insurance Claims

      15th    X      

Accounts Receivable Aging

      15th    X      

Distribution Schedule

   Actual    15th    X      

Captive Insurance Company Financials (audited)

   Annually    (June 30th)          X

Occupancy Report

   Flash Report    15th    X      

Variance Report

      15th    X      

Partners’ K-1’s

   Un-audited    60 Days         

Audit

   Final    March 20th (Manager to use best efforts to deliver by March 15th)   
     

Tax Returns

   Un-audited    90 Days         

Rent Roll

      15th    X      

Budgets

              

Property Annual Operating Budget

   Draft    Nov 30th          X

Property Annual Operating Budget

   Final    Dec 15th          X

Budget to Include:

              

Narrative with operating objectives and assumptions

      Dec 15th         

Competitive Set Analysis

   Annual Update    Dec 15th         

Real Estate Tax Summary

      Dec 15th         

Capital Expenditures

   1 year forecast    Dec 15th         

Distribution Projection

      Dec 15th         

 

 

C-1-1

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EXHIBIT C-2

QUARTERLY CERTIFICATION

 

1. Except to set forth on Exhibit A to this Quarterly Certification, to
Manager’s knowledge, the consolidated income statement and balance sheet (the
“Reports”) of CHTSun Partners IV, LLC (the “Partnership”) delivered on
             fairly present in all material respects the financial position and
results of operations of the Partnership at the dates and for the periods
presented in the Reports, with respect to the matters addressed by such Reports,
all in accordance with United States generally accepted accounting principles
consistently applied (subject to normal year end adjustments).

 

2. Except as set forth on Exhibit A to this Quarterly Certification, Manager is
not aware of any significant deficiencies or material weaknesses in Manager’s
design or operation of internal control over financial reporting which are
reasonably likely to adversely affect Manager’s ability to record, process,
summarize and report financial information with respect to the Partnership.

 

3. Except as set forth on Exhibit A to this Quarterly Certification, Manager is
not aware of any material fraud that involves management or other employees who
have a significant role in Manager’s internal control over financial reporting.

 

 

C-2-1

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EXHIBIT D

Form of Proposed Budget

 

Occupancy %

   All Departments   

Jan

  

Feb

  

Mar

  

Apr

  

May

  

Jun

  

Jul

  

Aug

  

Sep

  

Oct

  

Nov

  

Dec

  

Year
Total

Total Revenue ADR

   All Departments                                       

Margin

   All Departments                                       

Total Resident Fees

   All Departments                                       

Total Extended Care

                                         

Incontinence Management

                                         

Medication Management

                                         

Care Revenue

                                         

Ancillary and Therapy

                                         

Community Fee

                                         

Other Revenue

                                         

Rental Income-Affiliate

                                         

Revenue

                                         

Total Cost of Sales

                                         

Net Revenue

                                         

Productive Labor

                                         

Non Productive Labor

                                         

PR Tax & Benefits

                                         

Total Labor

                                         

Resident Food Cost

                                         

Utilities

                                         

Repairs and Maintenance

                                         

Paint Vinyl Sealing Coating

                                         

Workers Comp - Insurance

                                         

Insurance

                                         

Supplies Expense

                                         

Referral Fee Costs

                                         

Marketing and Advertising

                                         

Bad Debt Write-Offs

                                         

Contract Labor

                                         

Key Controllable Operating Expense

                                         

Legal, Professional Fees and Consulting

                                         

Non Resident Food Cost

                                         

 

 

 

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Program Costs

                                         

Telecommunications

                                         

Technology

                                         

Other Non-Op Income (Expense)

                                         

Travel Cost

                                         

Auto and Equipment

                                         

Business Office Cost

                                         

Employee Cost

                                         

Other Department Controllables

                                         

Operating Expense

                                         

NOI

                                         

Net Income

                                         

Stats MoveIns

   All Departments                                       

Occupancy %

   Total Assisted Living                                       

Occupancy %

   Total Reminiscence                                       

Occupancy %

   Total Independent Living                                       

Occupancy %

   Total Health Care                                       

Occupancy %

   All Departments                                       

Avg Number of Residents

   All Departments                                       

Resident Days

   All Departments                                       

Resident Days Capacity

   All Departments                                       

Units Occupied (Avg Monthly Balance-Units)

   All Departments                                       

Unit Capacity

   All Departments                                       

Unit Occupancy %

   All Departments                                       

Total Revenue ADR

   All Departments                                       

Net Resident Fees ADR

   Total Assisted Living                                       

Net Resident Fees ADR

   Total Reminiscence                                       

Net Resident Fees ADR

   Total Independent Living                                       

Net Resident Fees ADR

   Total Health Care                                       

Net Resident Fees ADR

   All Departments                                       

Extended Care ADR

   All Departments                                       

Margins

                                         

Cost of Sales

                                         

Productive Labor

                                         

Non Productive Labor

                                         

PR Tax & Benefits

                                         

 

 

 

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Total Labor

                                         

Res. Food Cost

                                         

Utilities

                                         

R&M

                                         

Paint Vinyl Sealing Coating

                                         

Worker’s Comp

                                         

Insurance

                                         

Supplies

                                         

Referrals

                                         

Marketing

                                         

Key Controllables

                                         

Other Controllable

                                         

House Profit

                                         

Mgmt Fee

                                         

Non-Dept

                                         

 

 

 

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Occupancy %

   All
Departments    Working    Working    Working    Working    Working    Working   
          Working    Working

Total Revenue ADR

   All
Departments    Q1    Q2    Q3    Q4    Year
Total    Year
Total          Year
Total    Year
Total

Margin

   All
Departments    2011    2011    2011    2011    2011    2010          2010   
2009       Budget    Budget    Budget    Budget    Budget    Forecast    $ Var
   % Var    Budget    Actual

Total Resident Fees

   All
Departments                              

Care Revenue

                                

Ancillary and Therapy

                                

Community Fee

                                

Other Revenue

                                

Rental Income-Affiliate

                                

Revenue

                                

Total Cost of Sales

                                

Net Revenue

                                

Productive Labor

                                

Non Productive Labor

                                

PR Tax & Benefits

                                

Total Labor

                                

Resident Food Cost

                                

Utilities

                                

Repairs and Maintenance

                                

Paint Vinyl Sealing Coating

                                

Workers Comp - Insurance

                                

Insurance

                                

Supplies Expense

                                

Referral Fee Costs

                                

Marketing and Advertising

                                

Bad Debt Write-Offs

                                

Contract Labor

                                

 

 

 

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Key Controllable Operating Expense

                                

Legal, Professional Fees and Consulting

                                

Non Resident Food Cost

                                

Program Costs

                                

Telecommunications

                                

Technology

                                

Other Non-Op Income (Expense)

                                

Travel Cost

                                

Auto and Equipment

                                

Business Office Cost

                                

Employee Cost

                                

Other Department Controllables

                                

Operating Expense

                                

House Profit

                                

Non Department Expense

                                

Total Operating Expenses

                                

NOI

                                

Investment Factors

                                

Net Income

                                

Stats MoveIns

   All
Departments                              

Occupancy %

   All
Departments                              

Avg Number of Residents

   All
Departments                              

Resident Days

   All
Departments                              

Resident Days Capacity

   All
Departments                              

Unit Occupancy %

   All
Departments                              

 

 

 

--------------------------------------------------------------------------------

Total Revenue ADR

   All
Departments                              

Net Resident Fees ADR

   All
Departments                              

Extended Care ADR

   All
Departments                              

Margins

                                

Cost of Sales

                                

Productive Labor

                                

Non Productive Labor

                                

PR Tax & Benefits

                                

Total Labor

                                

Res. Food Cost

                                

Utilities

                                

R&M

                                

Paint Vinyl Sealing Coating

                                

Worker’s Comp

                                

Insurance

                                

Supplies

                                

Referrals

                                

Marketing

                                

Key Controllables

                                

Other Controllable

                                

House Profit

                                

Mgmt Fee

                                

Non-Dept

                                

NOI

                                

 

 

 

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EXHIBIT E

CURRENT INSURANCE PROGRAM

The parties hereto mutually agree that the insurance requirements listed below
shall be subject to reasonable availability of such insurance in the marketplace
at time of procurement.

All insurers must have an A.M. Best rating of A-/VII or better. Certificates of
insurance for all coverages will be issued as soon as practicable after renewal
terms have been finalized.

Article I Lines of Insurance

1.01 Property Insurance

Coverage is full replacement cost value of the facility, including business
interruption under a $250,000,000 blanket limit. The values associated with each
property will be reviewed annually.

California Earthquake Coverage - $50,000,000 in blanket limits

National Flood Insurance Program (NFIP) coverage on all locations in Special
Flood Hazard Areas as defined by FEMA.

1.02 Commercial General and Professional Liability Insurance

$11,000,000 per occurrence

$11,000,000 annual aggregate

$21,000,000 policy period aggregate

Aggregate does not apply on a per location basis

1.03 Automobile Liability

$2,000,000 Combined Single Limit Each Accident

Automobile Physical Damage – Actual Cash Value

1.04 Workers’ Compensation (statutory limits) and Employers Liability Insurance

$2,000,000 each employee

$2,000,000 each accident

$2,000,000 policy limit

1.05 Excess Liability

Employer’s Liability and Automobile Liability:

$10,000,000 per Loss, $20,000,000 Annual Aggregate excess of $2,000,000 Each
Accident and Employer’s Liability only Policy Aggregate

 

 

E-1

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General and Professional, Employer’s and Automobile Liability

$40,000,000 per Occurrence excess of $11,000,000 per Occurrence (GL/PL) and
$12,000,000 Per Loss (EL/Auto)

$40,000,000 Annual Aggregate excess of $11,000,000 Annual Aggregate, $21,000,000
Policy Period Aggregate (GL/PL) and $12,000,000 Per Loss, $20,000,000 Annual
Aggregate (EL/Auto)

General, Employer’s Liability and Automobile Liability Only

$50,000,000 per Occurrence excess of $51,000,000 per Occurrence (GL) and
$52,000,000 per Occurrence (EL/Auto)

$50,000,000 Annual Aggregate excess of $51,000,000 Annual Aggregate, $61,000,000
Policy Aggregate, (GL/PL ) and $52,000,000 Annual Aggregate (EL/Auto)

1.06 Employment Practices Liability

$10,000,000 per occurrence

$10,000,000 aggregate

Article II Insurance Cost Allocation

Section 2.01 The cost associated with the insurance program, including projected
ultimate losses within deductible layers or self-insured retentions and
premiums, will be allocated to all facilities operated by Sunrise Senior Living
Management, Inc. (“Manager”) at the time of the Manager’s Insurance Program
renewal date. The allocations will be determined based on the following:

 

Property    Rate per $100 of Value GL/PL    Rate per Resident Capacity, by
State, Bed Type, and Loss Experience Excess Liability    Rate per Resident
Capacity Automobile    Rate per Vehicle Crime    Rate per Facility
Employee/Payroll California Earthquake    Allocated to facilities based on Risk
of Zone Flood    Allocated to facilities based on Risk of Zone Workers’
Compensation    Rate per $100 of Facility Payroll by State, Class Code, and Loss
Experience Employment Practices Liability    Rate per Payroll

 

 

E-2

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Article III Financial Responsibility

Section 3.01 For those lines of coverage to which a policy deductible or
self-insured retention applies, each Facility will be responsible for the cost
of a portion of the deductible or self-insured retention based on the projected
ultimate loss estimate. The projected ultimate loss estimate will be derived
using a third party actuarial analysis of Manager’s loss experience and other
external factors, including but not limited to, inflation and increased
litigation.

Within the projected ultimate loss estimate, each Facility will be responsible
for a deductible of up to $25,000 per occurrence or the amount of the per
occurrence deductible or self-insured retention under the insurance policy, if
less (the “Facility deductible”). Manager reserves the right to adjust the
Facility deductible by line of insurance coverage for certain high-risk
jurisdictions. Such Facility deductible will be paid as a Facility expense as
the Manager pays losses for the occurrence, up to the Facility deductible limit.

Section 3.02 In the event that any of the required insurance placements are
provided on a claims made basis, the Manager will provide an extended reporting
period coverage or “tail”, reasonably available in the commercial insurance
market for each such coverage or coverages, but in no event less than two years
after the expiration of such coverage. The cost of such tail coverage will be
treated as a Facility Expense.

Section 3.03 Upon Termination or sale of Facility by Owner, an escrow fund in an
amount reasonably acceptable to the Manager shall be established from the
proceeds of Gross Revenues (or, if such Gross Revenues are not sufficient, with
funds provided by the Owner) to cover the amount of any Facility deductible and
all other cost and expense which shall eventually have to be paid by either the
Owner or Manager with respect to pending or contingent claims, including those
that arise after Termination from causes arising during the Term of this
Agreement. Upon the final disposition of all such pending or contingent claims,
any unexpected funds remaining in such escrow shall be paid to Owner. Operating
Profit for the final Fiscal Year shall be recalculated as a result of any claims
paid and Manager and Owner shall each pay to the other such amounts as may be
required as a result of such adjustment.

 

 

E-3