Exhibit 10.2

MANAGEMENT SERVICES AGREEMENT

by and between

PRESTIGE SENIOR LIVING, L.L.C.

(Management Company)

and

CHP CORVALLIS-WEST HILLS OR TENANT CORP.

(Tenant)

WEST HILLS ASSISTED LIVING COMMUNITY

CORVALLIS, OREGON

MARCH 1, 2014

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TABLE OF CONTENTS

 

          Page  

ARTICLE 1.

     1   

1.1

   Definitions      1   

1.2

   Recitals      7   

ARTICLE 2. OPERATING TERMS AND APPOINTMENT AND EMPLOYMENT OF MANAGEMENT COMPANY

     7   

2.1

   Term      7   

2.2

   Employment of Management Company      7   

2.3

   Retention of Legal Ownership by Tenant      8   

2.4

   Management Services to be Provided by Management Company      8   

2.5

   Budget      14   

2.6

   Reports to Tenant      16   

2.7

   Bank Accounts and Cash Balance      20   

2.8

   Licenses, Permits and Certification      21   

2.9

   Intentionally deleted      21   

2.10

   Quality Controls      21   

2.11

   Use of Management Company’s Personnel      21   

2.12

   Taxes      21   

2.13

   Information Regarding the Facility      21   

2.14

   Management Company Liability      22   

2.15

   Tenant Liability      22   

ARTICLE 3. MANAGEMENT FEE

     23   

3.1

   Management Fee      23   

3.2

   Subordination of Base Management Fee      24   

 

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ARTICLE 4. OTHER TRANSACTIONS WITH MANAGEMENT COMPANY OR ITS AFFILIATES

     24   

4.1    

   Transactions with Management Company and Its Affiliates      24   

ARTICLE 5. INSURANCE

     25   

5.1

   Insurance      25   

ARTICLE 6. REPRESENTATIONS AND WARRANTIES

     25   

6.1

   Representations and Warranties of Tenant      25   

6.2

   Representation and Warranties of Management Company      26   

ARTICLE 7. TERMINATION

     27   

7.1

   Tenant Termination      27   

7.2

   Management Company Termination      28   

7.3

   Performance Termination      29   

7.4

   Force Majeure      29   

7.5

   Termination without Cause      29   

7.6

   Termination Upon Sale      30   

7.7

   Casualty/Condemnation      30   

7.8

   Foreclosure      30   

7.9

   Management Company’s Obligations After Termination or Expiration of Agreement
     31   

ARTICLE 8. MISCELLANEOUS COVENANTS

     31   

8.1

   Indemnification by Tenant      31   

8.2

   Indemnification by Management Company      32   

8.3

   Additional Covenants of Management Company      32   

8.4

   Additional Covenants of Tenant      34   

8.5

   Binding Agreement      35   

8.6

   Relationship of Parties      35   

8.7

   Notices      35   

 

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8.8

   Entire Agreement      36   

8.9

   Governing Law      37   

8.10

   Captions and Headings      37   

8.11

   Non-Recourse Nature of Tenant’s Obligation      37   

8.12

   HIPAA Compliance      37   

8.13

   Additional Reports      37   

8.14

   Subordination      37   

8.15

   Operational Transfer      38   

TABLE OF EXHIBITS AND SCHEDULES

 

A  

Required Insurance

   B  

Approved Operating Budget and Approved Capital Budget for First Fiscal Year

   C  

Quarterly Certification

   Schedule 1.1  

Affiliated Agreements

   Schedule 6.2(E)  

Management Company Organizational Chart

  

 

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THIS MANAGEMENT SERVICES AGREEMENT, is made as of the 1st day of March, 2014
(the “Effective Date”) by and between CHP CORVALLIS-WEST HILLS OR TENANT CORP.,
a Delaware corporation (“Tenant”), and PRESTIGE SENIOR LIVING, L.L.C., an Oregon
limited liability company (hereinafter “Management Company”).

RECITALS:

A. CHP Partners, LP (“CHP”) entered into a Purchase and Sale Agreement with West
Assisted Living Community LLC, an Oregon limited liability company (“Seller”),
dated as of August 21, 2013, as amended from time to time (the “Purchase and
Sale Agreement”), which was assigned by CHP to CHP Corvallis-West Hills OR
Owner, LLC (“Landlord”), pursuant to which Landlord has acquired fee title to
that certain senior living facility known as West Hills Assisted Living
Community located at 5595 SW West Hills Road, Corvallis, Oregon (the
“Facility”).

B. Tenant and Landlord have entered into, or prior to the Commencement Date
shall enter into, a lease agreement with respect to the Facility.

C. Effective as of the Effective Date, Tenant wishes to engage Management
Company, and Management Company wishes to provide certain services to Tenant
during the term of this Agreement from and after the Commencement Date, as
hereinafter defined, relating to the management of the Facility, on the terms
and conditions set forth herein.

NOW, THEREFORE, the parties hereto, intending to be legally bound, in
consideration of the mutual provisions and covenants herein contained, agree as
follows:

ARTICLE 1.

1.1 Definitions. The following terms shall have the meanings set forth below
when capitalized herein:

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

“Administrator” means such individual employed by Management Company, at the
expense of the Facility as an Operating Expense. The Administrator will be under
the direct supervision of the Management Company, who is responsible for the
daily operations of the Facility.

“Affiliate” means the following: two entities are “Affiliates” if

 

  (a) one of the entities is a Subsidiary of the other entity;

 

  (b) both of the entities are Subsidiaries of the same entity; or

 

  (c) both of the entities are Controlled by the same Person.

 

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“Affiliated Agreement(s)” means those certain twelve (12) Management Services
Agreements by and between Management Company and certain Affiliates of Tenant
more particularly described on the attached Schedule 1.1.

“Agreement” means this Management Services Agreement, together with any
amendments hereto entered into by the parties from time to time.

“Approved Capital Budget” has the meaning set forth in Section 2.5(e).

“Approved Operating Budget” has the meaning set forth in Section 2.5(e).

“Base Management Fee” has the meaning set forth in Section 3.1(a).

“Budget” has the meaning set forth in Section 2.5(b)(ii)(c).

“Business Day” means any day other than a Saturday, Sunday or legal holiday in
the State where the Property is located.

“Capital Expenditures” means certain expenses for renovations, replacements,
maintenance, alterations, improvements or renewals to the Facility that are
typically classified as capital expenditures in accordance with GAAP; provided
however, the parties acknowledge and agree that unit turnover costs shall not be
deemed to be Capital Expenditures.

“Commencement Date” means the date Landlord acquires title to the Facility
pursuant to the Purchase and Sale Agreement.

“Consumer Price Index” means the Consumer Price Index, All Urban Consumers, All
Items, U.S. Cities Average, most recently announced by the US Bureau of Labor
Statistics (1982-84=100) or any comparable successor index agreed upon by Tenant
and Management Company. Any adjustment based upon the Consumer Price Index shall
be an adjustment by the percentage change in the Consumer Price Index from one
period earlier. (By way of example, the percentage change Consumer Price Index
for December 2012 compared with the Consumer Price Index for December 2011,
would be the appropriate percentage change for an annual adjustment to be made
in January 2013.)

“Control” means:

 

  (a) the right to exercise, directly or indirectly, a majority of the votes
which may be voted at a meeting of (i) the shareholders of the corporation, in
the case of a corporation, (ii) the shareholders of the general partner, in the
case of a limited partnership, or (iii) the equity holders or other voting
participants of a Person that is not a corporation or limited partnership; or

 

  (b) the right to elect or appoint, directly or indirectly, a majority of
(i) the directors of the corporation, in the case of a corporation, (ii) the
directors of the general partner, in the case of a limited partnership, or
(iii) a majority of the Persons who have the right to manage or supervise the
management of the affairs and business of a Person that is not a corporation or
limited partnership,

 

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  (c) and “Controlled” has a corresponding meaning.

“Effective Date” has the meaning set forth in the first paragraph of this
Agreement.

“Emergency and Evacuation Procedures” has the meaning set forth in
Section 2.4(p).

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

“Facility” has the meaning set forth in Recital A of this Agreement.

“Facility Mortgage” means any mortgage or deed of trust secured by the Facility.

“Facility Operational Materials” has the meaning set forth Section 2.13.

“Facility Revenues” means for the applicable period of time the sum of
“Revenues” as defined in and under each of the Affiliated Agreements and this
Agreement.

“Fiscal Year” means each calendar year during the Term. The period from the
Commencement Date through December 31, 2014 shall be the first Fiscal Year.

“Fixed Asset Supplies” means supply items necessary for the operation of the
Facility.

“FF&E Reserve” has the meaning set forth in Section 2.7(b).

“FF&E Reserve Payment” means the amount equal to $350 multiplied by the total
number of rental units in the Facility on an annual basis (but prorated for any
partial Fiscal Year during the Term), and increasing on each Increase Date by
three percent (3%) over the FF&E Reserve Payment for the prior year, and as may
be further adjusted by Tenant and Management Company in connection with the
required amounts set forth in the approved Budget pursuant to the terms of
Section 2.5.

“GAAP” means generally accepted accounting principles in the United States.

“HIPAA” has the meaning set forth in Section 8.12.

“Incentive Management Fee” has the meaning set forth in Section 3.1(b).

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

“Increase Date” means January 1st of each Fiscal Year, commencing January 1,
2015, and continuing through the remainder of the Term.

“Inventories” means inventories as defined by GAAP and provisions in storerooms,
medical supplies, other merchandise intended for sale, mechanical supplies,
stationery and other expenses, supplies and similar items.

 

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“Landlord” has the meaning set forth in Recital A of this Agreement.

“Legal Requirements” means any (i) law, code, rule, ordinance or regulation
applicable to Tenant, Management Company and/or the Facility or the operation
thereof; (ii) any order of any governmental authority having jurisdiction over
Tenant, Management Company and/or the Facility or the operation thereof; and
(iii) any law, code, rule, regulation, bulletin, decision, ruling or opinion
applicable to reimbursement by Medicare, Medicaid or any other governmental
healthcare program for services or items rendered by the Facility.

“Licenses” has the meaning set forth in Section 2.2.

“Management Company” has the meaning set forth in Recital A of this Agreement.

“Management Company Default” has the meaning set forth in Section 7.1.

“Management Company Expenses” means those expenses that unless otherwise
approved as a part of the Budget, or otherwise approved by Tenant, that shall be
paid by Management Company, without reimbursement by Tenant, including without
limitation:

 

  (i) any expenses for Management Company’s corporate office physical plant,
equipment or supplies;

 

  (ii) any overhead expense of Management Company incurred in its general
offices or salaries of any non-Facility specific executive personnel of
Management Company, but excluding Management Company personnel allocated to
initiatives for the Facility such as additional marketing or special capital
projects as contained in the Budget or approved in writing by the Tenant;

 

  (iii) salaries, wages, and expenses allocable to any personnel for activities
with regard to providing in-house accounting services;

 

  (iv) any salaries, wages, and expenses for any corporate office personnel
located at the Facility;

 

  (v) any computer time, equipment, payroll processing service or other expense
used or incurred in processing payroll as such expense relates to non-Facility
specific Management Company personnel employed by the Management Company, the
books and records of the Facility or in preparing any statements or reports
(other than the annual audits, tax returns and/or specialized reports required
by outside agencies).

“Management Company Losses” has the meaning set forth in Section 8.1.

“Management Fees” means the Base Management Fee together with the Incentive
Management Fee.

 

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“Mortgagee” means the holder of any Facility Mortgage.

“NOI” means Revenues less Operating Expenses.

“Operating Account” has the meaning set forth in Section 2.7(a).

“Operating Expenses” means any or all, as the context requires, of the
following: (i) all costs and expenses incurred in connection with the operation,
management and maintenance of the Facility, including, without limitation, all
administrative, financial reporting, and general expenses, expenses relating to
employment of employees at the Facility (“at cost” with no additional fee or
mark-up) including salaries, payroll taxes, benefits, cost of payroll, etc.;
(ii) advertising and business promotion expenses; (iv) Management Fees; (v) the
cost of Inventories and Fixed Asset Supplies consumed in the operation of the
Facility; (vi) costs and expenses for preparation of claims and billing
submissions and collection of Receivables and other monies; (vii) insurance
costs; (viii) all real property and personal property taxes and assessments;
(ix) those costs and expenses that are expressly identified as Operating
Expenses in this Agreement; (x) budgeted costs related to accounting software
fees and Management Company’s server utilization fees; (xi) costs incurred to
prepare a unit for an incoming resident; (xiii) costs of maintenance and repairs
not included in Capital Expenditures; (xiv) food; (xv) cost of compliance with
Legal Requirements; (xvi) expenses related to the provision of services
including, except to the extent billed directly to residents of the Facility,
home health services; and (xvii) any other non-capital costs and expenses
incurred in connection with the operation of the Facility or as are specifically
provided for elsewhere in this Agreement. Operating Expenses shall not include
any Management Company Expenses or deductions for interest for property debt
service, or depreciation or amortization, income, taxes, franchise taxes or
similar taxes, or rent payable from Tenant to Landlord pursuant to the lease for
the Facility, or costs relating to the Landlord’s or Tenant’s ownership
structure (all of which shall be paid directly by Landlord or Tenant, as the
case may be).

“Person” means any natural person, firm, corporation, general or limited
partnership, limited liability company, association, joint venture, trust,
estate, Governmental Authority or other legal entity, in each case whether in
its own or a representative capacity.

“Pooling Agreement” means that certain Pooling Agreement dated as of December 1,
2013, by and between Tenant, and certain of its Affiliates, and Management
Company.

“Proposed Capital Budget has the meaning set forth in Section 2.5(b)(i).

“Purchase and Sale Agreement” has the meaning set forth in Recital A of this
Agreement.

“Proposed Operating Budget” has the meaning set forth in Section 2.5(b)(ii).

“Receivables” means all billed and unbilled accounts receivable, trade
receivables, work in progress, notes receivable and other receivables arising
out of or related to the Facility.

“Revenues” means, for the applicable period of time, but without duplication,
all gross revenues and receipts of every kind derived by or for the benefit of
Tenant, Management Company or their affiliates from operating or causing the
operation of the Facility and all

 

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departments and parts thereof, determined in accordance with GAAP for each
accounting period (with the exception of any pass-through fees), including, but
not limited to: income from both cash and credit transactions (after reasonable
deductions for rent concessions or rebates given, paid or returned in ordinary
course of obtaining Revenues, bad debt allowance, discounts for prompt or cash
payments, refunds and credit card payment fees) from rental or subleasing of
every kind; community fees; monthly occupancy fees; healthcare fees and
ancillary service fees received pursuant to various agreements with residents of
the Facility; license, lease and concession fees and rentals, off premises
catering, if any, and parking; income from vending machines; proceeds, if any,
from business interruption (but only to the extent it reimburses Tenant for lost
income and not for additional or other expenses) or other loss of income
insurance; club membership fees; income from food and beverage and catering
sales; wholesale and retail sales of merchandise (other than proceeds from the
sale of furnishings, fixtures and equipment no longer necessary to the operation
of the Facility); and service charges, to the extent not distributed to Facility
employees as gratuities; all determined in accordance with GAAP; provided,
however, that Revenues shall not include the following: (i) management fees or
reimbursements paid by Tenant to Management Company pursuant to this Agreement;
(ii) gross receipts of revenue generated by lessees, sublessees, licensees or
concessionaires and not paid to Tenant, Management Company or their affiliates;
(iii) gratuities to Facility employees; (iv) federal, state or municipal excise,
sales, occupancy, use or similar taxes collected directly from residents or
guests of the Facility or included as part of the sales price of any goods or
services; (v) proceeds of any insurance policy (except for loss of income
insurance as provided above) or condemnation or other taking; (vi) any proceeds
from any sale of the Facility or any other capital transaction; (vii) proceeds
of any financing or refinancing of any debt encumbering the Facility or any
portion thereof; (viii); proceeds from the disposition of furnishings, fixtures
and equipment or any capital asset no longer necessary for the operation of the
Facility; (ix) interest received or accrued with respect to amounts deposited in
any operating or reserve accounts of the Facility; (x) security deposits until
such time as the same are applied to current fees due for services rendered for
the Facility; (xi) awards of damages, settlement proceeds and other payments
received by Tenant in respect of any litigation other than litigation to collect
fees due for services rendered from the Facility or otherwise compensating
Tenant or Landlord for lost revenue; and (xii) payments under any policy of
title insurance. Any community fees or deposits or other amounts that are
refunded to a resident shall be credited against Revenues during the month in
which such refunds are made, if previously included in Revenues.

“Shared Services” means costs incurred by Management Company in connection with
providing services to, and allocated equitably among, senior living communities
operated by Management Company or its Affiliates, which shall not include
general corporate overhead. Shared Services allocated to the Facility shall be
an Operating Expense to the extent set forth in the Approved Operating Budget
for each Fiscal Year. Tenant shall have the right to approve, in its reasonable
discretion, any increase in the Shared Services expenses at the Facility over
the amount set forth in the Approved Operating Budget for Fiscal Year 2013.

“Subordinated Base Management Fee” has the meaning set forth in Section 3.2.

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

 

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“Subsidiary” means, in respect of any Person:

 

  (a) any corporation of which more than 50% of the outstanding capital stock
having ordinary voting power to elect the majority of the board of directors of
such corporation is at the time directly or indirectly owned by (i) such Person,
(ii) such Person and one or more subsidiaries of such Person, or (iii) one or
more subsidiaries of such Person; or

 

  (b) any limited or general partnership, joint venture, limited liability
company or other entity as to which (i) such Person, (ii) such Person and one or
more of its subsidiaries, or (iii) one or more subsidiaries of such Person owns,
more than a 50% ownership, equity or similar interest or has power to direct or
cause the direction of management and policies, or the power to elect the
general partner or managing partner (or equivalent thereof), of such limited or
general partnership, joint venture, limited liability company or other entity,
as the case may be.

“Tenant” has the meaning set forth in the first paragraph of this Agreement.

“Tenant Default” has the meaning set forth in Section 7.2.

“Tenant Losses” has the meaning set forth in Section 8.2.

“Term” has the meaning set forth in Section 2.1.

“Threshold Shortfall” has the meaning set forth in Section 3.2.

1.2 Recitals. The recitals set forth above are hereby incorporated as if set
forth herein in their entirety.

ARTICLE 2.

OPERATING TERMS AND APPOINTMENT AND EMPLOYMENT OF

MANAGEMENT COMPANY

2.1 Term. The term of this Agreement shall commence on the Commencement Date and
shall continue for a period of ten (10) years thereafter subject to earlier
termination as set forth in Article 7 hereof (the “Term”).

2.2 Employment of Management Company. Tenant hereby appoints Management Company
as the sole and exclusive operator of the Facility and, in accordance with all
Legal Requirements, Management Company agrees to act as the operator of the
Facility. In connection therewith, Management Company shall supervise, direct
and control the day to day business activities and management of the Facility
and all phases of its operations in the name of and on behalf of Tenant upon the
terms and conditions hereinafter stated. Management Company shall be responsible
for managing the Facility and all its assets and services in a professional,
competent and business-like manner, in compliance in all material respects with
all Legal Requirements and the terms and provisions of this Agreement.
Management Company shall, subject to compliance of Tenant with its obligations
hereunder, do all things as may be reasonably required to maintain and preserve
all necessary licenses, permits, authorizations, certifications and approvals to
operate the Facility (collectively, the “Licenses”) so as to comply in all
material respects with all applicable Legal Requirements.

 

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2.3 Retention of Legal Ownership by Tenant. Tenant shall at all times continue
to exercise legal ownership over the assets and operations of the Facility, and
Management Company shall perform its responsibilities as described in this
Agreement as agent to Tenant in accordance with written policies and directives
adopted by Tenant. By entering into this Agreement, Tenant does not delegate to
Management Company any of the powers, duties, and responsibilities vested in the
Tenant by Legal Requirements, or by its Articles of Organization or Operating
Agreement. Management Company will propose written policies and directives from
time to time for adoption by the Tenant. Tenant, may, according to the terms of
this Agreement (i) direct Management Company to implement existing policies and
procedures at the Facility as approved by Management Company, (ii) consent to
the adoption of policies and procedures at the Facility recommended by
Management Company, or (iii) adopt as the policies and procedures of the
Facility the Tenant’s own proposals as approved by Management Company, subject
to any limitations stated herein. Whenever this Agreement calls for the approval
of Tenant, such approval shall be expressed in writing, which may be by email,
and executed by a duly authorized officer of Tenant. In the absence of any
requirement for Tenant consent, then Management Company shall be entitled, to
the extent permitted by Legal Requirements, to rely upon its business judgment,
consistent with the terms of this Agreement and the Budget, and act accordingly
as agent for the Tenant. Notwithstanding anything herein to the contrary, Tenant
shall have all the requisite power and authority to operate the Facility as
required by Legal Requirements.

2.4 Management Services to be Provided by Management Company. During the Term,
Management Company shall, as agent and on behalf of Tenant, manage all aspects
of the day-to-day operation of the Facility. In connection therewith, to the
extent permitted by Legal Requirements and in accordance with the Budget,
Management Company (either directly or through supervision of Management Company
employees at the Facility), shall:

 

  (a)

Select, employ, supervise, train and discharge as Facility employees, an
adequate staff of housekeepers, maintenance, food service, activity, office and
other employees, including an Administrator for the Facility (each of whom may
be replaced, from time to time), and promote, direct, assign and discharge all
such employees at Management Company’s sole discretion except as provided in the
last sentence of this clause (a). All employees shall be employees of Management
Company rather than of Tenant and the Tenant shall reimburse Management Company
for all salary, payroll taxes and benefits, and other employment related fees
and charges of all Management Company employees at the Facility. As described
above, payment of amounts due to Management Company as reimbursement for the
cost of employing the Management Company employees at the Facility (including
salaries and benefits) will be made as Operating Expenses of the Facility, “at
cost,” with no additional fee or mark-up for such expenses. Management Company
hereby agrees to indemnify and hold harmless Tenant from any losses, damages,
claims, expenses or other liabilities, including reasonable legal fees and court
costs, arising out of or in connection with a breach or alleged breach of
employment laws, regulations, or contracts wherein Management

 

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  Company is proven to have been grossly negligent or to have engaged in willful
misconduct in the performance of its duties and responsibilities. Tenant hereby
indemnifies Management Company against any such claims or losses including
reasonable legal fees and court costs, arising out of or in connection with a
breach or alleged breach of such laws, regulations or contracts wherein
Management Company acts in good faith and in a non-negligent manner and in
accordance with the terms and conditions of this Agreement. Management Company
shall provide for and maintain a basic employee training and testing program
with objective standards for all categories of employees which meets or exceeds
all governmental and industry requirements for minimum levels of training and
degrees of experience, and will provide at least the minimum required level of
staffing for all categories of employees pursuant to Legal Requirements.
Management Company shall provide for and maintain fidelity bonds and other
appropriate protections with respect to any person with access to funds
belonging to the Facility.

 

  (b) Establish general salary scales, personnel policies and appropriate
employee benefits for all Management Company employees. Employee benefits may
include insurance benefits, incentive plans for key employees, and holiday,
vacation, personal leave and sick leave policy, consistent with the current
policies of the Management Company;

 

  (c) Issue appropriate bills for services and materials furnished by the
Facility and use its best efforts to collect Receivables and monies owed to the
Facility; design and maintain customary accounting, billing, resident and
collection records; and prepare and file insurance claims, and any and all other
necessary or desirable applications, reports and claims related to revenue
production. All rates for services provided by Tenant and for the use of the
Facility, and any changes therein, shall be subject to approval through the
Budget. Tenant expressly assigns, to the extent permitted by Legal Requirements,
to Management Company the full right, power and authority as its agent to
administer, process and collect on Tenant’s behalf and in its name, all
Receivables. Tenant hereby grants Management Company the right to enforce
Tenant’s rights as creditor under any contract relating to the rendering of any
services at the Facility for purpose of collecting accounts receivable and
monies owed to the Facility, and Management Company shall use its best efforts
to collect all such Receivables and monies owed to the Facility. Any and all
refunds, volume discounts, rebates, reduced rates for timely payment, or other
benefits derived from business done at, on or through the Facility shall be
credited to Tenant and not to Management Company;

 

  (d)

Plan, supervise and conduct a program of regular maintenance and repair of the
Facility. Management Company shall not make any additions to the Facility
increasing or decreasing the square foot area, unit count, or licensed bed
capacity, without the prior written approval of Tenant.

 

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  Management Company shall maintain a maintenance log of all repairs,
replacements or improvements made to the Facility which are capitalized under
generally accepted accounting principles;

 

  (e) Provide directly, or through contracts, all necessary services, food,
beverages, cleaning and other supplies, equipment, furniture and furnishings for
the operation and maintenance of the Facility. Unless the consent of Tenant is
otherwise obtained, all contracts or agreements entered into by Management
Company for the account of the Tenant shall be for a term of one (1) year or
less and be less than fifty thousand and no/100 ($50,000) in expected annual
compensation (or one hundred thousand and no/100 dollars ($100,000.00) in
expected annual compensation provided such contract may be terminated by Tenant
without fee or penalty upon no more than thirty (30) days’ notice), and shall
provide for payments within the then current Budget. Notwithstanding the
immediately preceding sentence, Management Company shall comply with the
restrictions and requirements that relate to contracts or agreements entered
into by Management Company for the account of Tenant and that are established
from time to time by any Mortgagee pursuant to any Facility Mortgage (and/or
related loan documents). To the extent permitted by Legal Requirements and the
terms offered by vendors, Management Company will offer to the Facility the
opportunity to participate in any group or volume purchasing contracts in which
the Management Company may from time to time participate wherein such
participation by the Facility, in the sole opinion of Management Company, is
deemed to be appropriate and practical, provided that if any such group or
volume purchasing contract provides for an administrative fee payable to
Management Company or its Affiliates, (i) such administrative fee shall be first
disclosed to Tenant before the Facility participates in such contract and
(ii) Tenant shall have the right to disapprove the Facility’s participation in
such contract. The Facility shall receive, pro rata if applicable, the financial
benefits of any purchasing contract concessions, discounts or rebates with
respect to any such contracts in which it participates. Any contracts, the
expense of which is not provided for in the Budget, will be subject to the
approval of the Tenant.

 

  (f) Administer, supervise and schedule resident and other services of the
Facility as required under any residency agreement, including the provision of
food, and other ancillary services;

 

  (g) Provide for the orderly payment of accounts payable, employee payroll,
taxes, insurance premiums and all other customary obligations of the Facility,
and timely file all applicable sales tax and/or personal property tax returns
for the Facility;

 

10

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  (h) Institute standards and procedures for admitting and discharging
residents, for charging residents for services and for collecting the charges
from residents or third parties;

 

  (i) Furnish to the Facility any and all policy manuals needed for the
operation of the Facility and propose revisions to said policy manuals as is
needed from time to time to assure, to the best of Management Company’s ability,
that the Facility complies with all applicable Legal Requirements, provided that
the foregoing does not constitute a guaranty of such compliance by Management
Company. All manuals, procedures, guidelines, work product, and other materials
generated by Management Company, however, are and shall remain the physical and
intellectual property of Management Company and shall remain the exclusive
property of Management Company even upon the expiration or termination of this
Agreement;

 

  (j) Procure at all times the insurance set forth in Article 5 and Exhibit A by
and in compliance with the terms described therein or as may be required from
time to time by a Mortgagee.

 

  (k) Negotiate and enter into, in the name of and on behalf of Tenant, such
agreements, contracts and orders on a competitive price basis as it may deem
necessary or advisable for the furnishing of services, concessions and supplies
for the operation and maintenance of the Facility, subject to the limitations
set forth in Section 2.4(e).

 

  (l) Handle and settle all employee relations matters, provided however, that
except as may be required by any Legal Requirements, without the prior
participation and consent of Tenant, which may be withheld in its sole and
absolute discretion, Management Company shall not contact, recognize, initiate
or respond formally to communication with any organized labor union regarding
the Facility by any means including, without limitation, execution of any
instrument which recognizes any labor union with respect to Facility employees,
any collective bargaining agreement, neutrality or any labor contract resulting
therefrom, or voluntarily agree to collectively bargain with employees in any
proposed bargaining unit at the Facility;

 

  (m) Assist in maintaining, and/or obtaining, all Licenses in the name of
Tenant or Management Company, as applicable, required by Legal Requirements for
the operation of the Facility;

 

  (n) Maintain an accounting and internal control system using accounts and
classifications consistent with those used in similar communities and as may be
directed by Tenant from time to time, including suitable books and records of
control and accounts as are necessary or required in order to comply in all
material respects with all Legal Requirements;

 

11

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  (o) Coordinate the provision of home health care and other ancillary services
to residents of the Facility as Management Company may deem reasonable,
necessary or desirable in connection with the operation of the Facility; and
Management Company shall contract on behalf of Tenant with such consultants or
other professionals in connection with the providing and delivering such
services on a competitive price basis as Management Company shall elect in its
reasonable business judgment, subject to the Budget.

 

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

 

  (q) Management Company shall take such action as shall be reasonably necessary
to ensure that the Facility and the operation thereof by Management Company
comply in all material respects with all Legal Requirements applicable to the
Facility or the operation thereof by Management Company, including any Legal
Requirements applicable to assisted living communities owned by for-profit
organizations. In the event the terms of this Agreement or the actions taken
hereunder by Management Company or Tenant, at any time, shall fail to comply
with any Legal Requirements such failure immediately shall be cured by
Management Company so long as such failure is a direct result of the actions of
Management Company and not due to the terms of this Agreement. Expenses incurred
as the result of the failure and/or cure shall be the responsibility of Tenant.
Management Company shall promptly provide to Tenant as and when received by
Management Company, all notices, reports or correspondence from governmental
agencies that assert deficiencies or charges against the Facility or that
otherwise relate to the suspension, revocation, or any other action adverse to
any approval, authorization, certificate, determination, license or permit
required or necessary to own or operate the Facility.

 

  (r)

Management Company shall take such action as may be necessary to comply promptly
with any and all orders, evaluations, reports, or other Legal Requirements in
all material respects, or, with Tenant’s prior consent, appeal or otherwise
contest any action taken by any governmental agency against the Facility. In
connection with any such appeal, Tenant

 

12

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  shall adequately secure and protect the Management Company from loss, cost,
damage or expense by bond or other means reasonably satisfactory to Management
Company in order to contest by proper legal proceedings the validity of any such
Legal Requirement. Notwithstanding the foregoing, Tenant shall have no
obligation to secure and protect Management Company from any loss, cost, damage
or expense that arises directly out of Management Company’s breach of any of its
covenants under this Agreement. Tenant, after having given its written approval,
shall cooperate with Management Company with regard to the contest, and Tenant
shall pay all reasonable attorneys’ fees incurred with regard to the contest
from the Operating Accounts. Counsel for any such contest shall be selected by
Management Company and approved by Tenant. Management Company shall, at Tenant’s
cost and expense, process all third party payment claims for the services
provided at the Facility, including, with the consent of Tenant, the exhaustion
of all applicable administrative proceedings or procedures, adjustments and
denials by governmental agencies or their fiscal intermediaries as third party
payors. Management Company shall take such action as may be necessary to comply
promptly with any and all orders, evaluations, reports, or other requirements of
any federal, state, regional, county, or municipal authority affecting the
Facility or the operation thereof, and orders of the Board of Fire Underwriters
or other similar bodies. Any expenses incurred for such compliance shall be the
responsibility of Tenant.

 

  (s) To the extent modification of this Agreement is required to comply with
Legal Requirements, Management Company and Tenant agree to make such
modification to cause this Agreement to comply with all Legal Requirements.
Expenses incurred as the result of the noncompliance, cure and/or appeal shall
be the responsibility of Tenant. Management Company, however, shall not take any
action under this Section so long as Management Company has been informed that
Tenant is contesting, or has affirmed its intention to contest any such order or
requirement, unless a failure to comply promptly with any such order or
requirement would expose Management Company to civil or criminal liability.
Management Company and Tenant shall promptly, and in no event more than
five-days after receipt, notify each other of any and all governmental or other
orders, notices, evaluations, reports or other requirements from any source
which could directly or indirectly impact on the operation of the Facility

 

  (t) Management Company shall immediately deliver to Tenant copies of all
notices received by it or received at the Facility from any Mortgagee. Tenant
shall immediately deliver to Management Company copies of all notices received
by Tenant from any Mortgagee that relate to a Facility Mortgage and that
materially affect the Management Company’s rights or obligations under this
Agreement.

 

13

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  (u) Oversee all capital projects involving Capital Expenditures set forth in
the Approved Capital Budget provided however that for any major capital
improvement, addition, or replacement wherein the estimated cost exceeds fifty
thousand and no/100 dollars ($50,000) or involves more than one contractor with
whom Tenant must directly contract, the Management Company or Tenant may
identify and contract with an independent consultant to provide construction
planning and supervision of any such major capital improvement project or
addition, or the Tenant may authorize the Management Company to provide these
services on reasonable terms mutually agreed to in advance by Tenant and
Management Company. Except as otherwise approved in writing by an officer or
authorized representative of Tenant, all Capital Expenditures shall be made only
in accordance with an Approved Capital Budget. In the event of any emergency
requiring prompt action for the protection and safety of the Facility or the
residents and staff therein, in which it is not practicable to obtain prior
approval from the Tenant or a representative of the Tenant, Management Company
shall be entitled to take any required or necessary action without Tenant’s
prior approval. Management Company shall provide a report to Tenant as soon as
practicable outlining the emergency situation and the actions taken.

 

  (v) Management Company shall establish and maintain records and procedures to
account for any resident funds deposited with the Facility. One or more
“Resident Trust Accounts” shall be established in accordance with the terms
hereof and all disbursements therefrom and records and procedures relating
thereto shall conform with the requirements of third party reimbursement,
licensure and all other applicable requirements and the terms hereof.

 

  (w) Management Company shall maintain adequate systems and procedures governed
by written policies and procedures covering all aspects of its operational and
fiscal processes and sufficient to ensure that the Facility’s assets and
business are safeguarded in all material respects.

2.5 Budget.

 

  (a) The Approved Operating Budgets and Approved Capital Budget(s) for the
first Fiscal Year are attached hereto as Exhibit B.

 

  (b) For each Fiscal Year thereafter, Management Company shall submit to
Tenant, at least 60 days prior to the beginning of such Fiscal Year during the
Term, an annual budget covering the operations of, and proposed Capital
Expenditures to be made with respect to, the Facility containing the following
items:

 

  (i)

A capital expenditure budget (the “Proposed Capital Budget”) setting forth, on
an accrual basis, an estimate of the Capital

 

14

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  Expenditures to be incurred for the Facility, on a monthly basis for the next
Fiscal Year. Tenant may approve or reject each proposed Capital Expenditure,
except those required by Legal Requirements. All Capital Expenditures shall be
paid from the FF&E Reserve. Notwithstanding anything herein to the contrary, if
and as required pursuant to any Facility Mortgage, the Proposed Capital Budget
shall generally provide for at least $350 per unit of Capital Expenditures for
the Facility to be expended from the FF&E Reserve on a rolling twelve (12) month
basis;

 

  (ii) An operating budget (the “Proposed Operating Budget”) setting forth, on
an accrual basis, an estimate of the following items for the Facility, on a
monthly basis for the next Fiscal Year:

 

  (a) unit occupancy;

 

  (b) Revenues;

 

  (c) Operating Expenses, including the costs for repairs and maintenance not
included in Capital Expenditures, and including expenditures for advertising,
promotion, and personnel training programs to be undertaken by Management
Company; and

 

  (d) Management Fees.

 

  (c) Tenant shall approve or disapprove of the Proposed Operating Budget and
Proposed Capital Budget in writing to Management Company, detailing the basis
for disapproval, within thirty (30) days after receipt. If Tenant does not
approve or disapprove of the Proposed Operating Budget or Proposed Capital
Budget within such thirty (30) day period then Tenant shall be deemed to have
approved the Proposed Operating Budget or Proposed Capital Budget, as
applicable. If Tenant disapproves the Proposed Operating Budget or Proposed
Capital Budget, Management Company will resubmit the Proposed Operating Budget
or Proposed Capital Budget within fifteen (15) days after initial rejection.
Tenant shall approve or disapprove any such resubmitted Proposed Operating
Budget or Proposed Capital Budget within fifteen (15) days of its receipt
thereof. The Tenant shall not unreasonably withhold its approval of any Proposed
Operating Budget or Proposed Capital Budget submitted by the Management Company.
The Operating Budget and the Capital Budget as so finally approved by Tenant
shall constitute the “Approved Operating Budget” and the “Approved Capital
Budget”, respectively, for purposes hereof. The Approved Operating Budget and
the Approved Capital Budget shall be known collectively as the “Budget” for
purposes hereof. Should the budgeting process be delayed for any reason, until
such delay is resolved Management Company will operate the Facility under the
prior Fiscal Year’s Budget adjusted for the change in the Consumer Price Index
from the prior year, and adjusting for occupancy changes on a per resident day
basis.

 

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  (d) An Approved Operating Budget shall constitute authorization for Management
Company to expend funds to operate and manage the Facility pursuant to such
Approved Operating Budget, and Management Company may do so without further
approval. Management Company shall use its best efforts to adhere to the
Approved Operating Budget providing, however, that Management Company may exceed
the Approved Operating Budget for any given month provided the excess
expenditure does not exceed the greater of five percent (5%) or five thousand
and no/100 dollars ($5,000.00) for each operating expense functional line item
of the Approved Operating Budget and provided that aggregate Operating Expenses
shall not exceed the total amount therefore set forth in the Operating Budget
without Tenant approval.

 

  (e) If at any time circumstances indicate that the Approved Operating Budget
does not properly take into account the projected needs of the Facility,
Management Company shall notify Tenant of the same and shall submit to Tenant a
proposed revision to the Approved Operating Budget which Tenant shall approve or
disapprove within thirty (30) days after submission. If the proposed revision is
disapproved by Tenant, Tenant and Management Company shall endeavor to agree on
a revised Approved Operating Budget. Once and if approved, Management Company’s
authority as to any revised Approved Operating Budget is the same as that
authorized for the original Approved Operating Budget.

 

  (f) The Approved Capital Budget shall constitute authorization for Management
Company to make the Capital Expenditures contemplated thereby. If Management
Company believes the purchase or installation of new or replacement equipment or
other capital items not contemplated by the Approved Capital Budget is or will
be necessary or desirable, Management Company shall advise Tenant thereof, but
shall cause such items to be purchased and installed only after obtaining the
prior written authorization of Tenant. Tenant shall respond to any such written
request for authorization within thirty (30) days after receipt of such request,
provided, however, that any failure of Tenant to so respond shall be deemed as
Tenant not authorizing the purchase or installation of the new or replacement
equipment or other capital items that are the subject of the request.

2.6 Reports to Tenant.

 

  (a)

During the Term, Management Company shall deliver to Tenant the following
statements for the Facility prepared in accordance with GAAP applied
consistently from period to period (which shall be certified by an

 

16

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  officer of Management Company as being true and accurate in all material
respects) by the tenth (10th) Business Day of the month, except for the Rent
Roll which shall be submitted within the fifth (5th) Business Day of the month.

 

  (i) Balance sheet and income statement (in Microsoft Excel format or YARDI, to
the extent compatible with Excel);

 

  (ii) Trial balance with 3 columns (balance forward, net debits/credit, and
ending balance in Microsoft Excel format)

 

  (iii) Rent Roll;

 

  (iv) Report of daily census for the month;

 

  (v) Marketing report in a form used for such reports by the Management Company
internally;

 

  (vi) Twelve month rolling cash flow projection;

 

  (vii) Detail of Management Fee calculations;

 

  (viii) Capital Expenditure reconciliation to the Approved Capital Budget;

 

  (ix) Disclosure of any material communications with regulatory agencies and
state surveys;

 

  (x) Reconciliation Statement that sets forth any activity in the equity
account of Tenant resulting from additional deposits into or withdrawals from
the FF&E Reserve or the Operating Account by Tenant or one of its Affiliates;

 

  (xi) Most recent sales tax and personal property tax filings, if and as
applicable, with the monthly reporting submittals;

 

  (xii) Report showing expenditures that vary from what is allocated in the
Budget by the greater of five percent (5%) or five thousand and no/100 dollars
($5,000.00) with a written explanation for such variance; and

 

  (xiii) any other information relating to the Facility reasonably requested by
Tenant.

 

  (b)

As an Operating Expense, prepare the following reports consistent with GAAP
(which reports shall be certified by an officer of Management Company as being
true and accurate in all material respects) to be submitted to Tenant within ten
(10) Business Days after the end of each

 

17

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  calendar quarter (other than the item to be delivered pursuant to
Section 2.6(b)(i) which is to be submitted within ten (10) Business Days after
the end of each February, May, August and December);

 

  (i) A balance sheet reconcilement;

 

  (ii) Check register from the first day of the subsequent month to search for
unrecorded liabilities;

 

  (iii) Certification executed by the CFO of Management Company in the form
attached hereto as Exhibit C

 

  (iv) Detailed calculations of Incentive Management Fee, if any, and
Subordinated Base Management Fee, if any

 

  (v) Management Company will cooperate in providing other reports as reasonably
requested by the Tenant.

If due to extraordinary circumstances, Management Company identifies
expenditures after the last day of the month which are in fact properly
chargeable to that month but which are not reflected on statements submitted
pursuant to this Section, Management Company shall promptly notify Tenant of
said expenditures, if material. All statements required by this Section shall be
prepared in accordance with GAAP.

 

  (c) As an Operating Expense, Management Company shall prepare the following
final reports consistent with GAAP (which shall be certified by an officer of
Management Company as being true and accurate in all material respects) and
management status reports of the Facility, to be submitted to Tenant within
seventy-five (75) days after the end of each Fiscal year:

 

  (i) Balance sheet and income statement;

 

  (ii) Revenues, Operating Expenses, and NOI, ;

 

  (iii) Calculations of Management Fee;

 

  (iv) Fixed asset additions;

 

  (v) Capital expense reconciliation to the Approved Capital Budget;

 

  (vi) Communications with any regulatory agencies; and

 

  (vii) Management Company will cooperate in providing other reports as
reasonably requested by Tenant.

 

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  (d) Management Company shall also provide any assistance as reasonably
requested by the independent accountants for the Facility, selected by Tenant,
in the preparation of audited financial statements for the Facility. Such
audited financial statements shall be prepared at Tenant’s expense in accordance
with GAAP and delivered to Management Company and Tenant.

 

  (e) Management Company shall also provide the following services related to
the monthly and annual reports:

 

  (i) Management Company shall make available to Tenant for inspection and/or
copying by Tenant upon request, all books, records and financial data relating
to the Facility in Management Company’s possession. Tenant shall notify the
Management Company at least five (5) Business Days in advance of such inspection
and shall conduct such inspection during mutually agreeable business hours.

 

  (ii) Management Company shall promptly provide Tenant with copies of all
findings and reports made pursuant to all licensure and/ or certification
surveys conducted at the Facility, and all plans of correction submitted in
response thereto and all correspondence relating to any deficiencies noted
pursuant to such surveys.

 

  (iii) Management Company shall reasonably assist the Tenant and its
accountants in preparing and delivering to any lender any required monthly and
annual reports.

 

  (iv) Management Company will provide Tenant with a market analysis (“Annual
Market Report”) on or before the time of submission of the Operating Budget,
setting forth basic demographic data relating to the market area of the
Facility, including, population growth, employment and unemployment levels, age
and other significant demographic characteristics of the population, major
employers and housing starts.

 

  (v) Management Company shall provide Tenant annually with information
concerning any new competing community, and shall provide Tenant annually with
any revisions to the Marketing Plan for the Facility, and an annual competitive
analysis showing the Facility’s position in the market with a survey of
pertinent data of competing communities (to the extent requested by Tenant).

 

19

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2.7 Bank Accounts and Cash Balance.

 

  (a) Upon receipt, Management Company shall deposit all Revenues received into
a separate, segregated bank account (the “Operating Account”) established in
Tenant’s name at a bank approved by Tenant and Management Company, and shall
supervise the disbursements from the Operating Account on behalf of Tenant of
such amounts and at such times as the same are required in Management Company’s
reasonable business judgment, and in accordance with the provisions of this
Agreement. Management Company shall discharge such supervisory responsibilities
in accordance with reasonable and customary business standards and practices.
All Operating Expenses shall be paid out of the Operating Account. The
Management Fees shall be paid out of the Operating Account. Tenant and
Management Company shall specify the signatory or signatories of Management
Company required on all checks or other documents of withdrawal submitted by
Management Company on the Operating Account. Funds in the Operating Accounts
shall not be commingled with any other funds controlled by Management Company,
unless approved by Tenant and will be disbursed only in accordance with this
Agreement and, from time to time, upon the specific instructions of Tenant.
Management Company shall not withdraw any monies from the Operating Account to
pay any item other than Operating Expenses permitted pursuant to the Approved
Operating Budget or the Approved Capital Budget, as applicable, but specifically
excluding the Management Fee and all amounts due Management Company or its
affiliates pursuant to any other agreement in respect of the Facility.

 

  (b) Tenant shall, or Management Company shall at Tenant’s direction, establish
a reserve account (the “FF&E Reserve”) at a bank approved by Management Company,
such approval not to be unreasonably withheld or delayed. Each month during the
Term, Management Company shall transfer into the FF&E Reserve an amount equal to
one twelfth (1/12) of the FF&E Reserve Payment. Transfers into the FF&E Reserve
shall be made on or before the fifteenth (15th) day of each month. Funds
deposited into the FF&E Reserve shall be disbursed in accordance with the
Approved Capital Budget. Management Company and Tenant or Landlord shall each be
signatories on the FF&E Reserve; provided, however, Management Company’s rights
as a signatory shall cease upon, and continue until the cure of, a Management
Company Default.

 

  (c) All rights granted to Management Company under the terms of this
Agreement, including the payment of Management Fees, are and shall be
subordinate to the liens of lenders securing the current indebtedness of Tenant,
provided, however, that any Management Fees which are not paid when due as a
result of the foregoing subordination provision shall continue to accrue.

 

20

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  (d) Tenant will maintain a minimum cash balance fifty thousand and NO/100
dollars ($50,000.00) in the Operating Account.

2.8 Licenses, Permits and Certification.

 

  (a) Management Company, as agent of Tenant, shall assist Tenant in its
application for and maintenance, in Tenant’s name, of all Licenses from all
governmental agencies which have jurisdiction over the Tenant and operation of
the Facility.

 

  (b) Neither Tenant nor Management Company shall knowingly take any action or
fail to take any action which could reasonably be expected to cause a
governmental authority having jurisdiction over the operation of the Facility to
institute any proceeding to suspend, rescind or revoke any License.

2.9 Intentionally deleted.

2.10 Quality Controls. Management Company shall activate and maintain on a
continuing basis, a quality assurance program which provides objective
measurements of the quality of services provided at the Facility. In connection
therewith, Management Company shall utilize such techniques (e.g. resident
interviews and periodic inspections) as Management Company may reasonably deem
necessary to maintain the quality of the Facility.

2.11 Use of Management Company’s Personnel. Representatives of Management
Company shall visit the Facility as often as Management Company deems necessary.
All out-of-pocket expenses arising from travel and lodging connected with such
visitations shall be borne by the Management Company, except personnel that
float between properties and any travel beyond fifty (50) miles if such
arrangement can be shown to reduce overall employment costs at the Facility.

2.12 Taxes. Any applicable income taxes of Tenant, any federal, state or local
taxes, assessments or other governmental charges imposed on the Facility are the
obligations of Tenant, not of Management Company, and all of the foregoing, with
the exception of any applicable income taxes, shall be paid out of the Operating
Account of the Facility. With the Tenant’s prior written consent, Management
Company may, and at Tenant’s direction shall, contest the validity or amount of
any such tax or imposition on the Facility in the same manner as described in
Section 2.4(a) hereof. Management Company, on behalf of Tenant, shall cause all
Social Security and federal and state income tax withholding and other employee
taxes related to the Management Company’s employees which may be due and payable
to be paid promptly from the Operating Account of the Facility before the
payment of any other Operating Expenses therefrom.

2.13 Information Regarding the Facility. Management Company shall maintain and
provide to Tenant, upon Tenant’s request or upon termination of this Agreement,
a complete set of the following:

 

  (a) books and records of the Facility held by Management Company;

 

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  (b) inventories of personal property relating to the Facility;

 

  (c) service contracts relating to the Facility;

 

  (d) all necessary records relating to the operation of the Facility and the
personal property located at the Facility belonging to Tenant;

 

  (e) all licenses, permits, operating or occupancy certificates, employment
contracts, service contracts, cooperation agreements, and transfer or
transportation agreements, relating to the maintenance and operation of the
Facility; and

 

  (f) a copy of the Management Company’s documented crisis and/or disaster
communication and management plan for the Facility in form and substance
required by applicable Legal Requirements.

Management Company shall be responsible for the due and proper maintenance of
all items on the foregoing lists.

Management Company, upon request by the Tenant, will make available for review
by Tenant at the corporate offices of Management Company, all facility
operational materials, including policy and procedure manuals and standard
operational materials and other similar materials. Management Company agrees to
change any policy and/or procedure that violates any Legal Requirement and any
other change required by Tenant, except for any change which would adversely
affect the operations or the quality of care provided to residents of the
Facility or which would be unreasonably burdensome to Management Company.
Management Company will consider other changes recommended by Tenant for
operation policies and procedures but will not be required to implement changes
which are based solely on business considerations. Any and all changes in the
standard Management Program of the Management Company will be documented and
clearly expressed in the “Policies and Procedures Exceptions Manual” which will
be maintained in the Facility. This Manual and the standard operational
materials, together, will comprise the “Facility Operational Materials.”

2.14 Management Company Liability. Management Company shall act in good faith
and use its best reasonable efforts to perform its obligations hereunder, but
shall have no liability to Tenant for any decisions made with respect to or any
actions taken or in the omission of any actions in connection with the
Facility’s operations, so long as such decisions, actions or omissions were made
or taken in good faith and in accordance with Section 2.4 hereof. The liability
of Management Company to Tenant is limited to actual damages suffered by Tenant
as a direct and proximate result of Management Company’s gross negligence or
intentional misconduct in performing Management Company’s obligations under
Section 2.4 herein or willful breach of this Agreement.

2.15 Tenant Liability. The liability of Tenant to Management Company is limited
to actual damages suffered by Management Company, including all reasonable legal
fees and costs, if any, as a direct and proximate result of any of the matters
set forth in Section 8.1 hereof.

 

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ARTICLE 3.

MANAGEMENT FEE

3.1 Management Fee. Compensation to the Management Company shall include the
following:

 

  (a) Base Management Fee. Management Company shall receive a base management
fee (the “Base Management Fee”) for each month of the Term which shall be paid
to Management Company no later than fifteen (15) days following the end of such
month, as follows:

 

  (i) From the Effective Date until December 31, 2014, the Base Management Fee
shall be equal to four percent (4%) of the collected Revenues received each
month;

 

  (ii) From the January 1, 2015 until the expiration of this Agreement or its
earlier termination, the Base Management Fee shall be equal to five percent
(5%) of the collected Revenues received each month; and

 

  (iii) Notwithstanding the foregoing, in the event that the Facility Revenues
exceed the sum of the Pooled Revenues Targets of the Affected Facilities (as
those terms are defined in the Pooling Agreement) on a trailing twelve month
basis at any time during the Term, then the Base Management Fee shall thereafter
be equal to six percent (6%) of collected Revenues received each month through
the end of the Term so long as collected Revenues continue to exceed the sum of
the Pooled Revenues Targets of the Affected Facilities on a trailing twelve
(12) month basis.

 

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

 

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3.2 Subordination of Base Management Fee. Commencing on January 1, 2015, in the
event Adjusted NOI does not equal or exceed the Subordination Threshold for any
quarter in any given Fiscal Year (before funding debt service, but after Base
Management Fee) (a “Threshold Shortfall”), then the lesser of the amount of
(a) such Threshold Shortfall or (b) (i) fifty percent (50%) of the Base
Management Fee if the Base Management Fee is calculated pursuant to
Section 3.1(a)(i); (ii) forty percent (40%) of the Base Management Fee if the
Base Management Fee is calculated pursuant to Section 3.1(a)(ii); or
(iii) thirty three and 333/1000 percent (33.333%) of the Base Management Fee if
the Base Management Fee is calculated pursuant to Section 3.1(a)(iii) (the
lesser of such amounts, the “Subordinated Base Management Fee”) shall not be
paid for such quarter and shall accrue through such Fiscal Year and be payable
to Management Company in accordance with the terms of this Section 3.2. The
calculation shall be measured each quarter and reconciled on an annual basis;
notwithstanding the foregoing, however, in the event of any Threshold Shortfall
for any fiscal quarter, Management Company shall pay an amount equal to the
Subordinated Base Management Fee for such fiscal quarter to Tenant on or before
the fifteenth (15th) day following the end of such fiscal quarter. The
Subordinated Base Management Fee shall only then be payable to the Management
Company within fifteen (15) days of the end of the next fiscal quarter in which,
for the applicable Fiscal Year, the aggregate excess of the Adjusted NOI over
the aggregate Subordination Threshold for all fiscal quarters since the
Threshold Shortfall commenced has exceeded the Threshold Shortfall; provided,
however, that if the Threshold Shortfall is not recouped within the Fiscal Year
in which the Threshold Shortfall commenced, then such Subordinated Base
Management Fee shall not be payable to the Management Company. Each Fiscal
Year’s calculation shall stand alone and not accrue or accumulate from year to
year. In no event shall Subordinated Base Management Fee be paid from sources
other than cash flow resulting from Adjusted NOI above the Subordination
Threshold. The payment of the Subordinated Base Management Fee shall occur in
the same manner as the payment of the Incentive Management Fee, and shall be
subject to a reconciliation on a quarterly and annual basis.

ARTICLE 4.

OTHER TRANSACTIONS WITH MANAGEMENT COMPANY OR ITS AFFILIATES

4.1 Transactions with Management Company and Its Affiliates. Notwithstanding
anything else herein contained, Management Company shall not, without the prior
written consent of Tenant after full disclosure by Management Company of such
affiliation and interest, cause Tenant to enter into any contract with
Management Company or any Affiliate thereof for services required to be provided
by Management Company under this Agreement, or pay any amount to Management
Company or its Affiliates, other than Management Fees described in Article 3
hereof, or reimbursement of bona fide expenses to unrelated third parties;
provided however, the Parties acknowledge that Management Company desires to
engage Cypress Point Ventures, L.L.C., dba Propac Pharmacy (which is an
Affiliate of Management Company) pursuant to a pharmacy services agreement for
the account of Tenant effective no later than September 1, 2014 (the “Propac
Agreement”). Tenant shall have the right to review and approve the Propac
Agreement, such approval not to be unreasonably withheld, conditioned, or
delayed. In order to facilitate the entry into of the Propac Agreement, Tenant
shall terminate the current pharmacy services provider(s) in accordance with the
terms and conditions of the now existing pharmacy services agreement(s) for the
Facility no later than September 1, 2014. The parties also acknowledge that the
Management Company may also desire to contract for hospice

 

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services with Bristol Hospice and Homecare—Northwest, LLC, or one of its
Affiliates (“Bristol”) for hospice services. Tenant shall have the right to
review and approve the agreement with Bristol (the “Bristol Agreement”), which
approval shall not be unreasonably withheld, conditioned, or delayed. Manager’s
duty with respect to the negotiation, execution, delivery, administration,
amendment and termination of the Propac Agreement, and any other contract
entered into with an Affiliate of Management Company, shall be to act in good
faith and in a commercially reasonable manner as established by applicable
usages of trade and all such contracts shall be subject to terms of this
Agreement and shall, unless consented to in writing by Tenant in its sole and
absolute discretion, be in accordance with the Budget. Notwithstanding the
foregoing, in no event shall the Propac Agreement or Bristol Agreement be for
goods and/or services that (i) were previously provided by the employees of the
Facility and that generated Revenue for the Facility and/or decreased Operating
Expenses, or (ii) could reasonably be provided by the employees of the Facility
so as to generate Revenue for the Facility and/or decrease Operating Expenses.

ARTICLE 5.

INSURANCE

5.1 Insurance. Management Company shall procure and maintain as an Operating
Expense and with the prior written approval of Tenant, insurance as required and
set forth in Exhibit A to this Agreement. As of the Commencement Date, Tenant or
Landlord shall procure and maintain as an Operating Expense the property
insurance required pursuant to this Agreement. Said property insurance shall
include loss of business income (“BI”) coverage to cover the loss of income for
both parties to this agreement. Management Company shall procure and maintain as
an Operating Expense the Liability Insurance required as set forth in Exhibit A
to this Agreement and, at its option Employment Practices Liability insurance
(“EPLI”) or as may otherwise be required pursuant to this Agreement. The carrier
and the amount of coverage of each policy of insurance shall be satisfactory to
Tenant. Management Company shall be designated as the named insured with Tenant
included as an additional insured, and/or loss payee to the extent of its
interest in any liability loss payment under each insurance policy procured by
Management Company. If Management Company fails to do so, Tenant or Landlord may
elect, in its sole discretion, to procure and maintain as an Operating Expense
some or all insurance policies required and set forth on Exhibit A, except for
Management Company’s Workers’ Compensation, Employer’s Liability, and
Professional Liability insurance policies, upon thirty (30) days written notice
to Management Company. In the event Tenant or Landlord elects to procure
directly any of the required insurance policies, then Tenant or Landlord shall
be the named insured under each policy and Management Company shall be named as
an additional insured.

ARTICLE 6.

REPRESENTATIONS AND WARRANTIES

6.1 Representations and Warranties of Tenant. Tenant makes the following
representations and warranties which are material representations and warranties
upon which Management Company relied as an inducement to enter into this
Agreement:

 

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  (a) Status of Tenant. Tenant is a corporation duly organized and validly
existing in good standing under the laws of the State of Delaware; is qualified
to transact business as a foreign corporation in those other jurisdictions where
necessary in order to conduct its business; and has all necessary power to carry
on its business as now being conducted, to operate its properties as now being
operated, to carry on its contemplated business, to enter into this Agreement
and to observe and perform its obligations under this Agreement.

 

  (b) Authority of Due Execution. Tenant has full power and authority to execute
and deliver this Agreement and all related documents and to carry out the
transactions contemplated herein; which actions will not with the passing of
time, the giving of notice, or both, result in a default under or a breach or
violation of (i) the Tenant’s Articles of Organization or Operating Agreement;
or (ii) any Legal Requirement, or any Facility Mortgage, note, bond, indenture,
agreement, lease, license, permit or other instrument or obligation to which
Tenant is now a party or by which Tenant or any of its assets may be bound or
affected. This Agreement constitutes a valid and binding obligation of Tenant,
enforceable against Tenant in accordance with its terms, except to the extent
that enforceability is limited by applicable bankruptcy, reorganization,
insolvency, receivership or other laws of general application or equitable
principles related to or affecting the enforcement of creditor’s rights.

 

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

6.2 Representation and Warranties of Management Company. Management Company
makes the following representations and warranties which are material
representations and warranties upon which Tenant relied as an inducement to
enter this Agreement.

 

  (a) Status of Management Company. Management Company is a limited liability
company duly organized and validly existing under the laws of the State of
Oregon, and has all necessary power to carry on its business as now being
conducted, to carry on its contemplated business, to enter into this Agreement
and to observe and perform its terms.

 

  (b)

Authority and Due Execution. Management Company has full power and authority to
execute and to deliver this Agreement and all related documents and to carry out
the transactions contemplated herein; which actions will not with the passing of
time, the giving of notice, or both, result in a default under or a breach or
violation of (i) Management Company’s Articles of Organization or Operating
Agreement, or (ii) any Legal Requirement, or any note, bond, indenture,
agreement, lease, license, permit or other instrument or obligation to which
Management

 

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  Company is now a party or by which Management Company or any of its assets may
be bound or affected. This Agreement constitutes a valid and binding obligation
of Management Company, enforceable against Management Company in accordance with
its terms, except to the extent that enforceability is limited by applicable
bankruptcy, reorganization, insolvency, receivership or other laws of general
application or equitable principles related to or affecting the enforcement of
creditor’s rights.

 

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

 

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

 

  (e) Ownership of Management Company. Attached hereto as Schedule 6.2(e) is a
true and accurate organizational chart depicting the ownership structure of
Management Company.

ARTICLE 7.

TERMINATION

7.1 Tenant Termination. Tenant shall have the right to terminate this Agreement,
without paying any termination fee or penalty, when and if one of the following
events occur (hereinafter collectively referred to as “Management Company
Default”), after which Tenant shall have the right, but not the obligation, to
declare a termination of this Agreement in accordance with the termination
protocols set forth below:

 

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  (a) appointment of a receiver or trustee to manage the assets of Management
Company;

 

  (b) assignment for the benefit of creditors of the assets of Management
Company;

 

  (c) a ban on admissions to the Facility, suspension of any operating license,
or termination or revocation of any license, if not corrected within five
(5) Business Days, or such longer period as may be required to reinstate or
otherwise make effective any license;

 

  (d) Management Company’s gross negligence or willful misconduct;

 

  (e) any voluntary act of bankruptcy by Management Company, or any involuntary
bankruptcy proceeding commenced against Management Company and not dismissed
within sixty days of the commencement thereof;

 

  (f) Management Company’s breach of any provisions of this Agreement, where
such breach has not been cured within thirty (30) days after the giving of
written notice of the breach (or such longer period as may reasonably be
required to diligently effect such cure), specifying the nature of the breach,
and complying with all provisions regarding mediation set forth herein.

 

  (g) Any “Management Company Default” by Management Company under an Affiliated
Agreement.

7.2 Management Company Termination. Management Company shall have the right to
terminate this Agreement without receiving any termination fee or payment,
except as provided in Section 8.1, if and when one of the following events occur
(hereinafter, a “Tenant Default”), after which Management Company shall have the
right – but not the obligation – to declare a termination of this Agreement in
accordance with the termination protocols set forth below:

 

  (a) appointment of a receiver or trustee to manage the assets of Tenant;

 

  (b) assignment for the benefit of creditors of the assets of Tenant, except
Management Company shall agree to enter into any agreements which may be
required on behalf of the Mortgagee in order for the Landlord to obtain
financing, so long as the Management Fees and other amounts due to Management
Company, and the rights and obligations of the Management Company set forth
herein, are not materially affected;

 

  (c) any voluntary act of bankruptcy by Tenant, or any involuntary proceeding
commenced against Tenant and not dismissed within sixty days of the commencement
thereof;

 

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  (d) failure by Tenant to pay Management Company in accordance with Article 3
hereof within ten (10) Business Days after receipt of notice from Management
Company;

 

  (e) failure by Tenant to maintain the minimum balance required in the Facility
Bank Account as required by Section 2.7(d), which failure continues for more
than ten (10) Business Days after delivery of written notice of such failure
from Management Company to Tenant; and/or

 

  (f) Tenant’s breach of any material term of this Agreement, where such breach
has not been cured within thirty (30) days after the giving of written notice of
the breach (or such longer period as may reasonably be required to diligently
effect such cure), specifying the nature of the breach, and complying with all
provisions regarding mediation set forth herein.

7.3 Performance Termination. In the event that the sum of Adjusted NOI and the
Subordinated Management Fee, in any Fiscal Year, does not equal or exceed the
Subordination NOI Threshold for such Fiscal Year (an “NOI Shortfall”), then the
Tenant shall have the option to terminate this Agreement by providing a ninety
(90) day written notice (a “Performance Termination Notice”) to the Management
Company. To terminate this Agreement, Tenant must deliver a Performance
Termination Notice no later than sixty (60) days following Tenant’s receipt of
the annual financial reports for such Fiscal Year; provided however, that with
respect to two (2) NOI Shortfalls during the Term hereof, Management Company
shall have the right, but not the obligation, to cure such two (2) NOI
Shortfalls within thirty (30) days of receipt of the Performance Termination
Notices related to such two (2) NOI Shortfalls by making a cash payment to
Tenant in an amount equal to the applicable NOI Shortfall or agreeing to
subordinate the Base Management Fee in the amount of the applicable NOI
Shortfall. In the event that Tenant terminates the Agreement pursuant to this
Section 7.3, Tenant shall not be obligated to pay any termination fee or penalty
to Management Company.

7.4 Force Majeure. Notwithstanding anything else herein contained, neither party
shall have the right to terminate this Agreement as a result of any of the
reasons set forth in Section 7.1(f) or in Section 7.2(f) above, if the event is
caused by strikes, other labor disturbances, fires, windstorm, earthquake,
arbitrary and capricious action by third party payors, war or other state of
national emergency, terrorism, or acts of God, in which the negligence of the
party seeking to avoid termination is not a materially contributing factor to
the occurrence of such event.

7.5 Termination without Cause. Following the third anniversary of the Effective
Date, Tenant shall have the right to terminate this Agreement for any reason or
for no reason upon ninety (90) days prior written notice to Management Company
and payment to the Management Company, upon the effective date of such
termination, of an amount equal to the average of the Management Fee for the
prior three (3) months multiplied by the number of months remaining in the Term.

 

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7.6 Termination Upon Sale. Tenant has the option to terminate this Agreement in
the event Landlord sells the Facility to an unaffiliated third party who does
not elect to assume this Agreement, which termination shall require at least
sixty (60) days prior written notice to Management Company. In such event,
Tenant shall not be obligated to pay any termination fee or penalty as a result
of such termination. For purposes of this Section 7.6, a change in Control of
the Landlord shall constitute the sale of the Facility and, in such event,
Tenant shall be entitled to terminate the Agreement pursuant to this
Section 7.6.

7.7 Casualty/Condemnation. Either party has the option to terminate this
Agreement without payment of termination fee or penalty upon thirty (30) days
prior written notice to the other upon the occurrence of either of the following
events:

 

  (a) The Facility or any material portion thereof is damaged or destroyed to
the extent that in the written opinion of an independent architect or engineer
reasonably acceptable to both parties: (1) it is not practicable or desirable to
rebuild, repair or restore the Facility to its condition immediately preceding
such damage within a period of six months; or (2) the conduct of normal
operations of the Facility is interrupted for a period of six months or more; or

 

  (b) Title to the temporary use of all or substantially all of the Facility is
taken under the exercise of the power of eminent domain by the government
authority or person, firm or corporation acting under governmental authority
which in the opinion of an independent architect or engineer reasonably
acceptable to both parties, prevents or is likely to prevent the conduct of
normal operations at the Facility for a period of at least six months.

 

  (c) If the termination occurs as a result of any of the events described in
clause (a) of this Section 7.8, and if Tenant or any Affiliate thereof rebuilds,
restores or otherwise rearranges the Facility and recommences operations
thereof, Tenant shall give Management Company the first option to manage the
Facility under the same terms, conditions and fees as provided herein.

7.8 Foreclosure. Tenant, at the direction of a lender holding a security
instrument encumbering the Facility (“Lender”), or Lender, shall have the option
to terminate this Agreement, without fee or penalty subject to the rights of the
Management Company herein, upon ten (10) days’ prior written notice to the
Management Company in connection with a foreclosure or delivery of a deed in
lieu that is related to any security instrument held by Lender and encumbering
the Facility, without any further obligation to the Management Company (except
for any accrued management fees for previous periods which have not been paid
which shall be the obligation of Tenant but not Lender).

 

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7.9 Management Company’s Obligations After Termination or Expiration of
Agreement. Upon the expiration or termination of this Agreement, Management
Company shall, if requested:

 

  (a) deliver to Tenant, or such other person or persons designated by Tenant,
copies of all books and records of the Facility and all funds in the possession
of Management Company belonging to Tenant or received by Management Company
pursuant to the terms of this Agreement;

 

  (b) assign, transfer, or convey to Tenant, or such other person or persons
designated by Tenant, all service contracts and personal property relating to or
used in the operation and maintenance of the Facility, except any personal
property which was paid for and is owned by Management Company; and

 

  (c) remove, at Management Company’s expense, all signs that it may have placed
at the Facility indicating that it is the Management Company of same and restore
the damage resulting therefrom.

Upon any termination or the expiration pursuant to this Section, the obligations
of the parties hereto (except those specified as surviving) shall cease as of
the date specified in the notice of termination or the expiration date, except
that Management Company shall comply with the applicable provisions of this
Section and shall be entitled to receive any and all compensation which may be
due Management Company hereunder through the effective date of such termination
or expiration.

ARTICLE 8.

MISCELLANEOUS COVENANTS

8.1 Indemnification by Tenant. Subject to the limitations set forth in this
Article 8, Tenant agrees to indemnify and hold harmless Management Company from
and after the Commencement Date against and with respect to any and all claims,
demands, losses, costs, expenses, obligations, liabilities, damages, recoveries,
and deficiencies, including interest, penalties, and reasonable attorneys’ fees
and expenses, costs of litigation and costs of investigation (but not including
any adjustments or credits expressly provided for in this Agreement) (together
referred to as “Management Company Losses”):

 

  (a) resulting from any breach of a representation or warranty contained in
Section 6.1 of this Agreement;

 

  (b) resulting from gross negligence or willful misconduct of Tenant in
exercising its duties and responsibilities hereunder;

 

  (c) Tenant’s uncured breach of this Agreement;

 

  (d) arising out of or resulting from the ownership, operation, use or control
of the Facility at any time during the Term, including without limitation, any
and all liabilities which relate to events occurring during the Term, except for
those caused by or arising out of the willful act or omission of Management
Company and except to the extent subject to Management Company’s indemnity of
Tenant provided in Section 8.2 below;

 

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  (e) arising out of or resulting from any claim asserted by or on behalf of any
Facility Employee for any act or omission occurring at any time during the Term,
except for those caused by or arising out of the willful act or omission of
Management Company and except to the extent subject to Management Company’s
indemnity of Tenant provided in Section 8.2 below; or

 

  (f) directly arising out of Tenant’s failure to initiate Capital Expenditures
previously requested by Management Company that results in personal injury of a
resident of the Facility, provided that Management Company’s gross negligence or
willful misconduct was not a contributing factor with respect to such injury.

8.2 Indemnification by Management Company. Subject to the limitations set forth
in this Article 8, Management Company hereby agrees to indemnify and hold
harmless Tenant at all times from and after the Commencement Date against and
with respect to any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries, and deficiencies, including
interest, penalties, and reasonable attorneys’ fees and expenses, costs of
litigation and costs of investigation (but not including any adjustments or
credits expressly provided for in this Agreement) (“Tenant Losses”):

 

  (a) resulting from any breach of a representation or warranty contained in
Section 6.2 of this Agreement;

 

  (b) resulting from gross negligence or willful misconduct of Management
Company in exercising its duties and responsibilities hereunder; or

 

  (c) Management Company’s uncured breach of this Agreement.

8.3 Additional Covenants of Management Company. Management Company hereby makes
the additional covenants set forth in this Section, which are material covenants
and upon which Tenant relies as an inducement to enter into this Agreement:

 

  (a) Assignment. Management Company may not assign its rights and obligations
hereunder without Tenant’s prior approval, such approval to be given or withheld
by Tenant in its sole and absolute discretion. For purposes of this
Section 8.3(a), a change in Control, whether direct or indirect, of Management
Company, shall be deemed to be an effective assignment of this Agreement
requiring Tenant’s prior approval.

 

  (b) Tenant Assignment. Management Company acknowledges and agrees that Tenant
may assign its rights and obligations under this Agreement without prior
approval of Management Company.

 

  (c)

Transfer of Residents. Management Company agrees that it will not, as long as it
manages for Tenant under this Agreement, without the prior written consent of
the Tenant, encourage or solicit the transfer of any resident of the Facility to
another facility in which Management Company

 

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  has an interest which is not owned by Tenant, unless the physical or medical
condition of the resident indicates that such a transfer would be appropriate
and Tenant is informed in advance thereof. The Management Company may, however,
freely discuss and not inhibit such a transfer when the original basis for the
subject resident to be admitted to the Tenant’s Facility was to acquire
temporary accommodations until a room became available in another facility where
the resident prefers to live.

 

  (d) Non-Compete. Management Company hereby covenants and agrees that, for a
period commencing on the Effective Date and ending one hundred twenty days
(120) days following the expiration or earlier termination of this Agreement,
Management Company shall not, and shall not cause or permit any of its
Subsidiaries or any of its Affiliates (each, a “Covered Person”), to either (1)
engage directly or indirectly, in any capacity, in any activities that Compete
with the business of developing, owning, operating, leasing or managing a senior
living facility within five (5) driving miles of the Facility or
(2) specifically solicit any person who is then an employee of the Facility for
employment at other facilities owned or controlled by a Covered Person. For
purposes of this provision, “Compete” means (i) to, directly or indirectly,
conduct, facilitate, participate or engage in, or bid for or otherwise pursue a
business, whether as a principal, sole proprietor, partner, stockholder, or
agent of, or consultant to or manager for, any Person or in any other capacity,
or (ii) to, directly or indirectly, have any ownership interest in any Person or
business which conducts, facilitates, participates or engages in, or bids for or
otherwise pursues a business, whether as a principal, sole proprietor, partner,
stockholder, or agent of, or consultant to or manager for, any such Person or in
any other capacity, other than the ownership of less than two percent (2%) of
the publicly traded equity securities of a corporation, limited liability
company or limited partnership. Notwithstanding the foregoing, this
Section 8.3(d) shall not apply to or in any way prohibit or restrict any
existing ownership interests or operations of a Covered Person as of the
Effective Date. The parties recognize and acknowledge that a breach of this
Section 8.3(d) by Management Company or any of its Subsidiaries or Affiliates
will cause irreparable and material loss and damage to Tenant and hereby consent
to the granting by any court of competent jurisdiction of an injunction or other
equitable relief, without the necessity of posting a bond, cash or otherwise,
and without the necessity of actual monetary loss being proved or Tenant’s
establishing the inadequacy of any remedy at law, and order that the breach or
threatened breach of such provisions may be effectively restrained. The
provisions of this Section 8.3(d) shall expressly survive the expiration or
earlier termination of this Agreement. This provision, however, shall not apply
following any termination of this Agreement arising out of Section 7.2,
Section 7.6.

 

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  (e) Non-Solicitation. Management Company agrees not to directly or indirectly
solicit, divert or accept business from any person known by Management Company
to be a resident or prospective resident of Tenant or any Affiliate of Tenant to
the detriment of Tenant or any Affiliate of Tenant, or otherwise interfere with
the relationship between Tenant or any Affiliate of Tenant and any resident or
prospective resident of Tenant or any Affiliate of Tenant to the detriment of
Tenant or any Affiliate of Tenant. The parties recognize and acknowledge that a
breach of this Section 8.3(e) by Management Company or any of its Subsidiaries
or Affiliates will cause irreparable and material loss and damage to Tenant and
hereby consent to the granting by any court of competent jurisdiction of an
injunction or other equitable relief, without the necessity of posting a bond,
cash or otherwise, and without the necessity of actual monetary loss being
proved or Tenant’s establishing the inadequacy of any remedy at law, and order
that the breach or threatened breach of such provisions may be effectively
restrained. The provisions of and obligations under this Section 8.3(e) shall
apply throughout the Term and shall expressly survive the expiration or earlier
termination of this Agreement for a period of two (2) years following such
expiration or earlier termination. This provision, however, shall not apply
following any termination of this Agreement arising out of Section 7.2,
Section 7.6.

8.4 Additional Covenants of Tenant. Tenant hereby makes the additional covenants
set forth in this Section, which are material covenants and upon which
Management Company relies as an inducement to enter into this Agreement:

 

  (a) Tenant will cooperate with Management Company in every reasonable respect
and will furnish Management Company with all information required by it for the
performance of its services hereunder and will permit Management Company to
examine and copy any data in the possession or control of Tenant affecting
Management Company and/or operation of the Facility and will in every way
cooperate with Management Company to enable Management Company to perform its
services hereunder.

 

  (b) Tenant will examine documents submitted by Management Company and render
decisions pertaining thereto, when required, promptly to avoid unreasonable
delay in the progress of Management Company’s work. Tenant agrees that it will
not unreasonably fail to execute and deliver all applications and other
documents that may be deemed by Management Company to be necessary or proper to
be executed by Tenant in connection with the Facility, subject to the
limitations in this Agreement with respect to the Budget and other rights of
Tenant.

 

  (c)

Tenant acknowledges that Management Company retains all ownership and other
rights in all proprietary systems, manuals, materials, trade names, branding and
other information, in whatever form, developed by Management Company in the
performance of its services hereunder (other

 

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  than any trademarks, trade names or other intellectual property acquired by
Tenant or Landlord in connection with the acquisition of the Facility), and
nothing contained in this Agreement shall be construed as a license or transfer
of such information either during the Term or thereafter. Upon termination of
this Agreement all such proprietary systems manuals, materials and other
information in whatever form shall be removed from the Facility by Management
Company.

8.5 Binding Agreement. The terms, covenants, conditions, provisions and
agreements herein contained shall be binding upon and inure to the benefit of
the parties hereto, their successors and assigns.

8.6 Relationship of Parties. Nothing contained in this Agreement shall
constitute or be construed to be or to create a partnership, joint venture or
lease between Tenant and Management Company with respect to the Facility.
Management Company shall have no right or authority, express or implied, to
commit or otherwise obligate Tenant in any manner whatsoever except to the
extent specifically provided in this Agreement.

8.7 Notices.

 

  (a) If Management Company shall desire the approval of Tenant to any matter,
Management Company will give written notice by mail or email to Tenant that it
requests such approval, specifying in the notice the matter as to which approval
is requested and reasonable detail respecting the matter. If Tenant shall not
respond negatively in writing by mail or email and to the notice within 10 days
after the sending thereof (unless some other period for response is specified in
this Agreement), Management Company may send a second such notice in such
fashion to Tenant. If Tenant shall not respond negatively in writing by mail or
email to the second notice within five days after the sending thereof (unless
some other period for response is specified in this Agreement), Tenant shall be
deemed to have approved the matter referred to in the notice. Any provisions
hereto to the contrary notwithstanding in emergency situations (as determined by
Management Company), Management Company shall not be required to seek or obtain
Tenant’s approval for any actions or omissions which Management Company, in its
sole judgment, deems necessary or appropriate to respond to such situations,
provided Management Company promptly thereafter reports such action or omission
to Tenant in writing, by mail and by email.

 

  (b) All notices, demands and requests contemplated hereunder by either party
to the other shall be in writing and shall be delivered by hand, transmitted by
overnight courier or mailed, postage prepaid, registered or certified mail,
return receipt requested:

 

  (i) To Tenant, by addressing the same to:

 

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CHP Corvallis-West Hills OR Tenant Corp.

c/o CNL Healthcare Properties, Inc.

CNL Center at City Commons

450 South Orange Avenue, 12th Floor

Orlando, Florida 32801-3736

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

With a copy to:

Lowndes Drosdick Doster Kantor and Reed, P.A.

215 North Eola Drive

Post Office Box 2809

Orlando, Florida 32802-2809

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

 

  (ii) To Management Company, by addressing the same to:

Prestige Senior Living, L.L.C.

7700 NE Parkway Drive, Suite 300

Vancouver, WA 98662

Attn: Gregory J. Vislocky, Manager

With a copy to:

Lane Powell PC

60 SW Second Avenue, Suite 2100

Portland, Oregon 97204-3158

Attn: Andrew J. Morrow, Esq.

or to such other address or to such other person as may be designated by notice
given from time to time during the Term by one party to the other. Any notice
hereunder shall be deemed given three (3) days after mailing, if given by
mailing in the manner provided above, or on the next Business Day following the
date delivered or transmitted if given by hand or overnight courier.

8.8 Entire Agreement. This Agreement contains the entire agreement between the
parties hereto with respect to the subject matter and no prior oral or written,
and no contemporaneous oral representations or agreements between the parties
with respect to the subject matter of this Agreement shall be of force and
effect. Any additions, amendments or modifications to this Agreement shall be of
no force and effect unless in writing and signed by both Tenant and Management
Company.

 

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8.9 Governing Law. This Agreement has been executed and delivered in the State
where the Facility is located and all of the terms and provisions hereof and the
rights and obligations of the parties hereto shall be construed and enforced in
accordance with the laws thereof.

8.10 Captions and Headings. The captions and headings throughout this Agreement
are for convenience and reference only, and the words contained therein shall in
no way be held or deemed to define, limit, describe, explain, modify, amplify or
add to the interpretation, construction or meaning of any provision of or the
scope or intent of this Agreement nor in any way affect this Agreement.

8.11 Non-Recourse Nature of Tenant’s Obligation. Notwithstanding anything else
herein contained, the obligations of Tenant hereunder shall be limited to its
interest in the Facility and the revenues thereof and Receivables and accounts
related thereto, and Management Company shall have no right to proceed against
any other assets of Tenant to satisfy any obligation of Tenant. No officer,
director, or member of Tenant shall have any personal liability hereunder.

8.12 HIPAA Compliance. The parties agree that the services provided under this
Agreement will comply in all material respects with all federal and
state-mandated regulations, rules, or orders applicable to the services provided
herein, including but not limited to regulations promulgated under Title II,
Subtitle F of the Health Insurance Portability and Accountability Act (Public
Law 104-91) (“HIPAA”).

8.13 Additional Reports. In connection with Tenant’s responsibility to maintain
effective internal controls over financial reporting and the Tenant’s
requirements for complying with the Sarbanes Oxley Act of 2002, Management
Company hereby agrees to provide, as an Operating Expense, access and reasonable
assistance as may be requested by Tenant that will allow Tenant to conduct
activities necessary to satisfy its responsibilities, as previously outlined,
including, without limitation, the activities stipulated by the Public Company
Accounting Oversight Board in its 2004-1, or other similarly promulgated
guidance by other regulatory agencies. Management Company hereby agrees to
provide, at Tenant’s request and as an Operating Expense, (i) evidence of
Management Company documented policies regarding “whistleblower” procedures and
regarding the reporting of fraud or misstatements involving Facility financial
reporting, and (ii) access for the Tenant to conduct such procedures as Tenant
reasonably considers necessary to make a determination that Management Company
has maintained an effective system of internal controls over financial
reporting. In addition to the foregoing, Management Company shall provide Tenant
with access to the books and records of the Facility in order to perform
miscellaneous other internal audit procedures as deemed reasonably appropriate
by Tenant. Notwithstanding the other terms, covenants and conditions of this
Section 8.13, the parties acknowledge and agree that Management Company shall
have no responsibility or obligation with regard to Tenant’s obligations
stipulated by the Public Company Accounting Oversight Board or under the
Sarbanes Oxley Act of 2002, except to comply with requests which may be made by
Tenant under this Section 8.13.

8.14 Subordination. Without the consent of Management Company, Landlord or
Tenant may, from time to time, directly or indirectly, create or otherwise cause
to exist a mortgage, trust deed, lien, encumbrance or title retention agreement
(collectively, an “Encumbrance”) upon the Facility or any part(s) or portion(s)
thereof or interests therein. This

 

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Agreement and the rights of Management Company hereunder are and at all times
shall be subject and subordinate to any such Encumbrance which may now or
hereafter affect the Facility or any of them and to all renewals, modifications,
consolidations, replacements and extensions thereof. This Section 8.14 shall be
self-operative and no further instrument of subordination shall be required;
provided, however, that in confirmation of such subordination, Manager shall
execute promptly any certificate or document that Landlord or Tenant, mortgagee
or beneficiary may request for such purposes.

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

 

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

 

  (b) Employee Matters.

 

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

 

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

 

  (c) Accounts Receivable. As soon as reasonably possible but not later than ten
(10) business days after the Commencement Date, Tenant shall use commercially
reasonable efforts to cause Existing Operator to provide Management Company with
a schedule of Seller’s accounts receivable, listing by resident the amounts due
as of the Commencement Date (“Seller’s Accounts Receivable”). Management Company
shall do nothing to interfere with any and all rights that Seller or any of its
agents or affiliates, including Existing Operator, may have in or with respect
to Seller’s Accounts Receivable including but not limited to the right to
collect the same and to enforce any and all of Seller’s rights with respect to
Seller’s Accounts Receivable, provided, however, that the pursuit of such
Seller’s Accounts Receivable by Seller or any of its agents or affiliates,
including Existing Operator, does not interfere with the Management Company’s
operation of the Facility.

 

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

 

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

 

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

 

  (iv) Misapplied Payments. In the event the parties mutually determine in good
faith that a payment described hereunder was misapplied, then the party
erroneously receiving the payment shall remit the same to the party properly
entitled to the payment within ten (10) business days after said determination
is made.

 

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

 

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

 

  (d) Removal of Signage. Immediately following the Commencement Date,
Management Company shall cover up or remove all references to the name
“Bonaventure”, Bonaventure’s logo or trademarks, or the registered phrase
“Retirement Perfected” on Facility signage or other materials used or
distributed in connection with operation of the business conducted at the
Facility, including on letterhead or other correspondence, employee business
cards or accounts (collectively, “Bonaventure Signage”). No later than
forty-five (45) days following the Effective Date (and no later than thirty
(30) days with respect to Facility buses), Management Company shall permanently
remove or replace all Bonaventure Signage. Management Company’s obligation to
replace Bonaventure Signage pursuant to this Section 8.15(d) shall be subject to
reasonable delay caused by the need to obtain a permit in connection with
replacing the Bonaventure Signage, provided that Management Company continues to
diligently pursue the acquisition of such permit and takes commercially
reasonable efforts to provide temporary signage during such period, where
permitted pursuant to Legal Requirements.

 

  (e) Seller and Existing Operator Not Third Party Beneficiaries. It is
expressly agreed that Seller and Existing Operator are not a third party
beneficiaries of this Agreement.

(Signature Page to Follow)

 

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IN WITNESS WHEREOF, the parties hereto have executed, sealed and delivered this
Agreement through their duly authorized representatives, as of the day and year
first above written.

 

TENANT:    

CHP CORVALLIS-WEST HILLS OR TENANT

CORP., a Delaware corporation

    By:   /s/ Tracey B. Bracco     Name:   Tracey B. Bracco     Title:   Vice
President

[MANAGEMENT COMPANY’S SIGNATURE FOLLOWS]

 

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MANAGEMENT COMPANY:    

PRESTIGE SENIOR LIVING, L.L.C., an Oregon

limited liability company

    By:   /s/ Gregory J. Vislocky     Name:   Gregory J. Vislocky     Title:  
Manager

 

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EXHIBIT A

REQUIRED INSURANCE

Intentionally Omitted

EXHIBIT B

APPROVED OPERATING BUDGET AND APPROVED CAPITAL BUDGET FOR THE

FIRST FISCAL YEAR

Intentionally Omitted

EXHIBIT C

QUARTERLY CERTIFICATION

Intentionally Omitted

SCHEDULE 1.1

Affiliated Agreements

Intentionally Omitted

SCHEDULE 6.2(E)

MANAGEMENT COMPANY ORGANIZATIONAL CHART

Intentionally Omitted