Exhibit 10.3

MANAGEMENT SERVICES AGREEMENT

by and between

SRI MANAGEMENT, LLC

(Management Company)

and

CHP II SUMMER VISTA FL TENANT, LLC

(Tenant)

Summer Vista Assisted Living Community

3450 Wimbledon Drive

Pensacola, FL 32504

March 31, 2017

 

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TABLE OF CONTENTS

 

         Page   ARTICLE 1      1  

1.1

  Definitions      1  

ARTICLE 2. OPERATING TERMS AND APPOINTMENT AND EMPLOYMENT OF MANAGEMENT COMPANY
AS AGENT AND GENERAL MANAGEMENT COMPANY OF THE COMMUNITY

     8  

2.1

  Term      8  

2.2

  Employment of Management Company      8  

2.3

  Retention of Legal Ownership by Tenant      9  

2.4

  Management Services to be Provided by Management Company      9  

2.5

  Budget      14  

2.6

  Reports to Tenant      16  

2.7

  Bank Accounts and Cash Balance      16  

2.8

  Licenses      17  

2.9

  Quality Controls      17  

2.10

 

Use of Management Company’s Personnel

     17  

2.11

 

Taxes

     18  

2.12

 

Information Regarding the Community

     18  

2.13

 

Audit Rights

     19   ARTICLE 3. MANAGEMENT FEE      19  

3.1

  Management Fees      19   ARTICLE 4. OTHER TRANSACTIONS WITH MANAGEMENT
COMPANY OR ITS AFFILIATES      20  

4.1

  Transactions with Management Company and Its Affiliates      20   ARTICLE 5.
INSURANCE      20  

 

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ARTICLE 6. REPRESENTATIONS AND WARRANTIES      21  

6.1

  Representations and Warranties of Tenant      21  

6.2

  Representation and Warranties of Management Company      22   ARTICLE 7.
TERMINATION      23  

7.1

  Tenant Termination      23  

7.2

  Management Company Termination      24  

7.3

  Performance Termination      25  

7.4

  Force Majeure      25  

7.5

  Termination Without Cause      25  

7.6

  Termination Upon Portfolio Sale      25  

7.7

  Termination Upon Casualty or Condemnation      26  

7.8

  Termination Upon Foreclosure      26  

7.9

  Change in Key Personnel      26  

7.10

 

Management Company’s Obligations After Termination or Expiration of Agreement

     26   ARTICLE 8. MISCELLANEOUS COVENANTS      27  

8.1

  Indemnification by Tenant      27  

8.2

  Indemnification by Management Company      28  

8.3

  Additional Covenants of Management Company      28  

8.4

  Additional Covenants of Tenant      31  

8.5

  Binding Agreement      32  

8.6

  Relationship of Parties      32  

8.7

  Notices.      32  

8.8

  Entire Agreement      34  

8.9

  Governing Law      34  

8.10

 

Captions and Headings

     34  

 

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8.11

 

Non-Recourse Nature of Tenant’s Obligation

     34  

8.12

 

Additional Reports

     35  

8.13

 

Legal Fees and Costs

     35  

8.14

 

Counterparts

     35  

8.15

 

Estoppel

     35  

8.16

 

WAIVER OF JURY TRIAL

     36  

 

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MANAGEMENT SERVICES AGREEMENT

THIS MANAGEMENT SERVICES AGREEMENT, is made as of the 31st day of March, 2017
(the “Effective Date”) by and between CHP II SUMMER VISTA FL TENANT, LLC, a
Delaware limited liability company (“Tenant”), and SRI MANAGEMENT, LLC, a
Florida limited liability company (“Management Company”).

WITNESSETH:

WHEREAS, CHP II Summer Vista FL Owner, LLC (“Landlord”) is the owner of that
certain senior living community known as “Summer Vista Assisted Living
Community” located at 3450 Wimbledon Drive, Pensacola, FL 32504 (the
“Community”) and all of the furniture, furnishings, equipment and other personal
property located at the Community; and

WHEREAS, Tenant and Landlord have entered into a lease agreement with respect to
the Community; and

WHEREAS, Tenant wishes to engage Management Company, and Management Company
wishes to provide certain services to Tenant during the Term, relating to the
management of the Community, 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, (a) an amount equal to NOI for a calculation period, less
(b) the FF&E Reserve Payment for such calculation period, plus (c) (i) the
accrued real estate tax expense, (ii) property insurance expense for such
calculation period, and (iii) Excess Insurance Costs for such calculation
period. An example calculation is set forth on Schedule 1.1 attached hereto and
by this reference made a part hereof.

“Administrator” means such employee of Management Company who is responsible for
the daily management of the Community and will be under the direct supervision
of Management Company (but at the expense of the Community as an Operating
Expense).

“Affiliate” means the following 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 Agreements” means future Management Services Agreements (or similar
agreements for the management of senior living facilities) by and between
Management Company, its Affiliates or Subsidiaries and Tenant or its Affiliates.

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

“Bad Debt” shall mean any accounts receivable which remain uncollected 90 days
after becoming due.

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

“Budget” shall have the meaning set forth in Section 2.5(c).

“Business Day” means any day other than a Saturday, Sunday or legal holiday in
the State of Florida.

“Capital Expenditures” means certain expenses for renovations, replacements,
maintenance, alterations, improvements or renewals to the Community 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.

“Community” shall have the meaning set forth in the recitals.

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

“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 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;

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

“CPI” shall mean the Consumer Price Index for All Urban Consumers with a base of
1982-1984 published by the United States Bureau of Labor Statistics.

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

 

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

“Excess Insurance Costs” shall mean the difference in cost of obtaining standard
professional and general liability insurance between Tenant’s policy
requirements and $24,626, increasing by 2.5% each Fiscal Year, said amount
representing the cost of Management Company’s professional and general liability
insurance policies as of the Effective Date. Notwithstanding the foregoing, any
increase to the professional and/or general liability insurance premiums
resulting from Management Company’s negligence or willful misconduct shall not
be included in the calculation of Excess Insurance Costs.

“Extension Term” shall have the meaning set forth in Section 2.1.

“Fiscal Quarter” means, as applicable, the period from January through March,
April through June, July through September, or October through December in each
calendar year during the Term.

“Fiscal Year” means each calendar year during the Term. The period from the
Effective Date through December 31, 2017 shall be the first Fiscal Year.

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

“FF&E Reserve” shall have the meaning set forth in Section 2.6.

“FF&E Reserve Payment” means an amount equal to $500 multiplied by the total
number of rental units on an annual basis (but prorated for any partial Fiscal
Year during the Term), and increasing on 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,
or as otherwise required by Mortgagee.

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

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

“Incentive Threshold” means, for each Fiscal Quarter during the 2017 Fiscal
Year, Four Hundred Fifty-Six Thousand Two Hundred Fifty and No/100 Dollars
($456,250.00) (prorated for any partial Fiscal Quarter, if necessary), (b) for
each Fiscal Quarter during the 2018 Fiscal Year, Four Hundred Sixty-Seven
Thousand Six Hundred Fifty-Six and No/100 Dollars ($467,656.00) (and prorated
for any partial Fiscal Quarter) during the Term, (c) for each Fiscal Quarter
during the 2019 Fiscal Year, Four Hundred Seventy-Nine Thousand Three Hundred
Forty-Eight and No/100 Dollars ($479,348.00) (and prorated for any partial
Fiscal Quarter) during the Term, (d) for each Fiscal Quarter during the 2020
Fiscal Year, Four Hundred Ninety-One Thousand Three Hundred Thirty-One and
No/100 Dollars ($491,331.00) (and prorated for any partial Fiscal Quarter)
during the Term, (e) for each Fiscal Quarter during the 2021 Fiscal Year, Five
Hundred Three Thousand Six Hundred Fifteen and No/100 Dollars ($503,615.00) (and
prorated for any partial Fiscal Quarter) during the Term, and (f) for each
Fiscal Quarter during each Fiscal Year thereafter, an amount equal to the amount
due each Fiscal Quarter for the prior Fiscal Year, increased by two and one half
percent (2.5%).

 

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“Increase Date” means January 1st of each Fiscal Year during the Term, with the
first Increase Date being January 1, 2018.

“Initial Term” shall have the meaning set forth in Section 2.1.

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

“Landlord” shall have the meaning set forth in the recitals.

“Legal Requirements” means any (i) law, code, rule, ordinance or regulation
applicable to Tenant, Management Company and/or the Community, the ownership or
operation thereof or services provided at the Community by any party; (ii) any
order of any governmental authority having jurisdiction over Tenant, Management
Company and/or the Community, the ownership or operation thereof or services
provided at the Community by any party; (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 at the Community and (iv) any guidance, opinions, directives, or other
publicly issued statements by a governmental authority or national accreditation
or trade association stating best practices, recommended policies or procedures
or similar advice for facilities similar to the Community.

“Licenses” shall have the meaning set forth in Section 2.2.

“Management Company” shall have the meaning set forth in the recitals.

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

“Management Company Expenses” shall mean those expenses that, unless otherwise
approved as a part of the Budget, or otherwise approved by Tenant, 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 or accounting software, other than as specifically
included in the Approved Operating Budget;

(ii)    any overhead expense of Management Company incurred in its general
offices or salaries of any non-Community specific executive personnel of
Management Company, but excluding Management Company personnel allocated to
initiatives for the Community 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;

 

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

(v)    any computer time, equipment, payroll processing service or other expense
used or incurred in processing payroll as such expense relates to non-Community
specific Management Company personnel employed by Management Company, the books
and records of the Community or in preparing any statements or reports (other
than the annual audits, tax returns and/or specialized reports required by
outside agencies). Payroll processing charges relating to Management Company
personnel who are employed at the Community will be the responsibility of the
Tenant;

(vi)    any employee claim which is not covered by insurance, if the claim arose
as a result of the gross negligence or intentional misconduct of Management
Company or its employees, representatives or agents;

(vii)    costs incurred by Management Company for political contributions;

(viii)    costs attributable to losses which are covered by the indemnity
obligations of Management Company pursuant to Section 8.2 of this Agreement;

(ix)    costs incurred by Management Company for advertising expenses of
Management Company (other than costs of marketing the Community for lease or
occupancy and costs of employment ads for positions at the Community);

(x)    costs incurred by Management Company for any in-house risk manager,
architect, engineer, accountant or other professional advisor or consultant
employed by Management Company (as distinct from third parties engaged for the
performance of such services) except for allocations for services rendered
directly to the Community;

(xi)    costs incurred by Management Company for dues of Management Company or
any of its employees in professional organizations or for any of Management
Company’s employees participating in industry conventions or meetings; and

(xii)    out-of-pocket expenses arising from travel and lodging connected with
visits to the Community by representatives of Management Company shall, except
with respect to personnel that share time between properties and travel beyond
fifty (50) miles, if such arrangement can be shown to reduce overall employment
costs at the Community and is approved in writing, in advance, by Tenant

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

“Management Fee” shall mean the Base Management Fee less the Subordinated Base
Management Fee (as applicable) plus the Incentive Management Fee (as
applicable).

“Minimum Performance Threshold” means (a) for each Fiscal Quarter during the
2017 Fiscal Year, Four Hundred Six Thousand Two Hundred Fifty and No/100 Dollars
($406,250.00) (prorated for any partial Fiscal Quarter, if necessary), (b) for
each Fiscal Quarter during the 2018

 

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Fiscal Year, Four Hundred Sixteen Thousand Four Hundred Six and No/100 Dollars
($416,406.00) (and prorated for any partial Fiscal Quarter) during the Term,
(c) for each Fiscal Quarter during the 2019 Fiscal Year, Four Hundred Twenty-Six
Thousand Eight Hundred Sixteen and No/100 Dollars ($426,816.00) (and prorated
for any partial Fiscal Quarter) during the Term, (d) for each Fiscal Quarter
during the 2020 Fiscal Year, Four Hundred Thirty-Seven Thousand Four Hundred
Eighty-Seven and No/100 Dollars ($437,487.00) (and prorated for any partial
Fiscal Quarter) during the Term, (e) for each Fiscal Quarter during the 2021
Fiscal Year, Four Hundred Forty-Eight Thousand Four Hundred Twenty-Four and
No/100 Dollars ($448,424.00) (and prorated for any partial Fiscal Quarter)
during the Term, and (f) for each Fiscal Quarter during each Fiscal Year
thereafter, an amount equal to the amount due each Fiscal Quarter for the prior
Fiscal Year, increased by two and one half of one percent (2.5%) for each Fiscal
Year.

“Mortgagee” means the holder of any Community Mortgage.

“NOI” means Revenues less Operating Expenses.

“Operating Account” shall have 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 Community, including, without limitation, all
administrative, financial reporting, and general expenses, expenses relating to
employment of employees at the Community (each of such expenses shall be “at
cost” with no additional fee or mark-up including salaries, payroll taxes,
benefits, cost of payroll, etc.); (ii) advertising and business promotion
expenses; (iii) Management Fees; (iv) the cost of Inventories and Fixed Asset
Supplies consumed in the operation of the Community; (v) costs and expenses for
preparation of claims and billing submissions and collection of Receivables and
other monies; (vi) insurance costs; (vii) all real property and personal
property taxes and assessments; (viii) those costs and expenses that are
expressly identified as Operating Expenses in this Agreement; (ix) budgeted
costs related to accounting software fees and Management Company’s server
utilization fees; (x) costs incurred to prepare a unit for an incoming resident;
(xi) costs of maintenance and repairs not included in Capital Expenditures;
(xii) food; (xiii) cost of compliance with Legal Requirements; (xiv) expenses
related to the provision of services including, except to the extent billed
directly to the resident, home health services; (xv) Bad Debt allowance, and
(xvi) any other non-capital costs and expenses incurred in connection with the
operation of the Community or as are specifically provided for elsewhere in this
Agreement. Operating Expenses shall not include any Management Company Expenses
or deductions for: property debt service; depreciation or amortization; income;
taxes, franchise taxes or similar taxes; rent payable from Tenant to Landlord
pursuant to the lease for the Community; FF&E Reserve Payments; 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) or expenses incurred
due to failure of Management Company to cause the Community to comply with the
Legal Requirements, subject to the terms hereof, which shall be the
responsibility of Management Company.

“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.

 

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“Receivables” shall mean all billed and unbilled accounts receivable, trade
receivables, work in progress, notes receivable and other receivables arising
out of or related to the provision of services in connection with the Community.

“Regulatory Compliance Plan” has the meaning set forth in Section 2.4(a).

“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 or arising out of the provision of services in connection with the
Community and all 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, 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 Community; 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; 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 Community);
and service charges, to the extent not distributed to Community 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 Community employees; (iv) federal, state or municipal
excise, sales, occupancy, use or similar taxes collected directly from residents
or guests of the Community 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 Community or any other capital transaction; (vii) proceeds
of any financing or refinancing of any debt encumbering the Community 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
Community; (ix) interest received or accrued with respect to amounts deposited
in any operating or reserve accounts of the Community; (x) security deposits or
community fees (move in fees) until such time as the same are applied to current
fees due for services rendered for the Community; (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 Community 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.

“Subordinated Base Management Fee” shall have the meaning set forth in Section
3.1(c).

 

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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” shall have the meaning set forth in the first paragraph of this
Agreement.

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

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

“Term” means the Initial Term and each Extension Term.

“Threshold Shortfall” shall have the meaning set forth in Section 3.1(c).

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 AS AGENT AND GENERAL MANAGEMENT COMPANY

OF THE COMMUNITY

2.1    Term. The term of this Agreement shall commence on the Effective Date and
shall continue for a period of five (5) years thereafter subject to earlier
termination as set forth in ARTICLE 7 hereof (the “Initial Term”). After the
Initial Term, this Agreement shall renew and continue in full force and effect
for consecutive one-year periods (each, an “Extension Term”) unless either party
elects to not renew this Agreement by delivering written notice of such election
no later than one hundred twenty (120) days prior to the expiration of the
Initial Term or then-current Extension Term.

2.2    Employment of Management Company. Tenant hereby appoints Management
Company as the sole and exclusive manager of the Community and subject to
Tenant’s ultimate responsibilities as holder of the Licenses (as defined below)
and in accordance with the Legal Requirements, Management Company agrees to act
as the manager of the Community. In connection therewith, Management Company
shall supervise, direct and control the day to day business activities,
management and operation of the Community and all phases of its operation and
management in the name of and on behalf of Tenant upon the terms and conditions
hereinafter stated. Management Company shall be responsible for managing the
Community in a professional, competent and business-like manner, in material
compliance with all Legal Requirements and the terms and provisions of this
Agreement. Management Company shall,

 

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subject to compliance of Tenant with its obligations hereunder, do all things as
may be reasonably required to obtain, maintain and preserve all necessary
licenses, permits, authorizations, certifications and approvals to operate the
Community so as to comply with all applicable Legal Requirements (collectively,
the “Licenses”).

2.3    Retention of Legal Ownership by Tenant. Tenant, through its leasehold
interest, shall at all times continue to exercise legal ownership and control
over the assets and operations of the Community, 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 incorporation or bylaws. Management Company,
at Tenant’s request, will propose written policies and directives from time to
time for consideration and possible adoption by the Tenant. Management Company
will adopt, implement, and follow such written policies and directives that
Tenant shall require, subject to any limitations stated herein. Whenever this
Agreement calls for the approval of Tenant, such approval shall be considered
granted only if 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 reasonable business judgment, consistent
with the terms of this Agreement and the Budget, and act accordingly as agent
for the Tenant.

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 Community. Management Company shall
act in good faith and use its best reasonable efforts to perform its obligations
hereunder. 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
Community) Management Company shall:

(a)    Use care and due diligence to select, employ, supervise, train and
discharge an adequate staff of housekeepers, maintenance, food service,
activity, office and other employees, including an Administrator (who may be
replaced, from time to time), and promote, direct, assign and discharge all such
employees at Management Company’s sole discretion. All costs and expenses
relating to Community employees, including compensation and benefits shall
constitute an Operating Expense to be paid or reimbursed at Management Company’s
actual cost, without additional mark-up. Management Company shall provide for
and maintain a comprehensive employee training and testing program with
objective standards for all categories of employees which meets or exceeds all
governmental and industry requirements and standards for minimum levels of
training and degrees of experience, all as specified in the employee, operating
procedure or other similar manual for the Community, and will provide a level of
staffing for all categories of employees consistent with first class standards
at facilities offering similar services and at least equal to the minimum level
of staffing required by 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 Community. Such training shall
be implemented pursuant to a comprehensive regulatory program which Management
Company shall develop and implement meeting the Legal Requirements for use by
the Community (the “Regulatory Compliance Plan”);

 

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(b)    Establish general salary scales, personnel policies and appropriate
employee benefits for all Management Company employees located at the Community.
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 Management Company;

(c)    Issue appropriate bills for services and materials furnished by the
Community and use its commercially reasonable efforts to collect Receivables and
monies owed to the Community; 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 Community, 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 and monies owed to the Community. Any and all refunds, volume
discounts, rebates, reduced rates for timely payment, or other benefits derived
from business done at, on or through the Community shall belong to Tenant and
not to Management Company;

(d)    Plan, supervise and conduct a program of regular maintenance and repair
of the Community. Management Company shall not make any additions to the
Community increasing or decreasing the square foot area, unit count, or licensed
bed capacity, without the prior written approval of Tenant, which approval may
be granted or withheld in Tenant’s sole and absolute discretion. Management
Company shall maintain a maintenance log of all repairs, replacements or
improvements made to the Community 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 for the account of Tenant. 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 (unless for an amount of less than $10,000 in expected annual
compensation for certain contracts that customarily have a term of more than one
year (such as elevator maintenance contracts)) and be less than $25,000 (or
$50,000, provided such contract may be terminated by Tenant without fee or
penalty upon no more than thirty (30) days’ notice) in expected annual
compensation, and shall provide for payments contemplated by the then current
Budget. To the extent permitted by Legal Requirements and the terms offered by
vendors, Management Company will offer to the Community the opportunity to
participate in any group or volume purchasing contracts in which Management
Company may from time to time participate wherein such participation by the
Community, 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 reasonable and reflect
arms-length market rate terms and shall be first disclosed to Tenant before the
Community

 

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participates in such contract and (ii) Tenant shall have the right to disapprove
the Community’s participation in such contract in Tenant’s sole and absolute
discretion. The Community 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
Community 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 Community,
and timely prepare and file all applicable sales tax and/or personal property
tax returns for the Community;

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

(i)    Furnish to the Community any and all policy manuals needed for the
operation of the Community, including, but not limited to, the Regulatory
Compliance Plan, 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
Community complies with all applicable Legal Requirements;

(j)    If requested by Tenant, procure (i) the insurance set forth in Article 5
and Exhibit A or (ii) such insurance as may otherwise be required from time to
time by a Mortgagee, Tenant or applicable Legal Requirements;

(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 Community, 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 Community by any means including, without limitation, execution of any
instrument which recognizes any labor union with respect to Community employees,
any collective bargaining agreement, neutrality or any labor contract resulting
therefrom non-voluntarily agree to collectively bargain with employees in any
proposed bargaining unit at the Community;

(m)    Obtain and maintain, on Tenant’s behalf and in Tenant’s name, pursuant to
Section 2.8, Licenses required by Legal Requirements for the operation of the
Community;

 

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(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 with all
Legal Requirements;

(o)    Coordinate, on arm’s length, market rate terms as approved by Tenant, but
not provide unless otherwise licensed to do so, the provision of home health
care and other ancillary services to residents of the Community as Management
Company may deem reasonable, necessary or desirable in connection with the
management of the Community;

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

(q)    Management Company shall take such action as shall be necessary to ensure
that the Community and the management thereof by Management Company comply in
all material respects with all Legal Requirements applicable to the Community or
the management thereof by Management Company. The parties agree that, to the
extent required by Legal Requirements, the services provided under this
Agreement will comply in all material respects with all federal, state and
local-mandated regulations, rules, or orders applicable to the services provided
herein, including but not limited to any (i) regulations promulgated under Title
II, Subtitle F of the Health Insurance Portability and Accountability Act
(Public Law 104-91), and the Health Information Technology for Economic and
Clinical Health Act , as amended (collectively “HIPAA”); (ii) applicable state
privacy and security laws and regulations; and (iii) requirements, including,
but not limited to, both statutory and regulatory governed by the Florida Agency
for Healthcare Administration. Each party shall promptly provide to the other
party within ten (10) days after receipt, (A) all written notices, reports or
correspondence from governmental agencies that assert deficiencies or charges
against the Community or that otherwise relate to the limitation, suspension,
revocation, termination or any other action adverse to any License, all plans of
correction submitted in response thereto and all correspondence relating thereto
and (B) all written notices or demands from third parties alleging any violation
of the Legal Requirements, including but not limited to those related to the
services provided at the Community to residents;

(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 or, with Tenant’s prior consent (which consent may be granted or
withhold in Tenant’s sole and absolute discretion) appeal or otherwise contest
any action taken by any governmental agency against the Community.    In
connection with any such appeal, Tenant shall adequately secure and protect
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

 

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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, with the consent of Tenant and at Tenant’s cost and
expense, process all third party payment claims for the services provided at the
Community, including, without limitation, consent to the exhaustion of all
applicable administrative proceedings or procedures, adjustments and denials by
governmental agencies or their fiscal intermediaries as third party payors;

(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,
unless caused by breach of Management Company’s obligations hereunder, 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;

(t)    Management Company immediately shall deliver to Tenant copies of all
notices received by it or received at the Community from any Mortgagee;

(u)    Management Company shall 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 $10,000 or involves more than one contractor with whom Tenant must
directly contract, 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 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 (in Tenant’s sole and absolute discretion), 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
Community 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 Community. 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;

 

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(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 Community’s
assets and business are safeguarded in all material respects;

(x)    Assist Tenant and Owner in connection with any true-ups necessitated by
reason of Owner’s acquisition of the Community from the previous owner.

(y)    Commencing on the Effective Date, Management Company agrees that it shall
apply all rent and income collected by Management Company from a resident under
a residency agreement first to such residents current monthly residency
agreement obligations, then to the residency agreement obligations for the month
in which the Effective Date occurred, and then to arrearages in the reverse
order in which they were due, remitting promptly to the prior owner of the
Community any balance properly allocable to the period prior to the Effective
Date.

2.5    Budget.

(a)    The Approved Operating Budget and Approved Capital Budget for Fiscal Year
2017 is attached hereto as Exhibit B.

(b)    For each Fiscal Year thereafter, Management Company shall submit to
Tenant in Microsoft Excel format with account codes included (or in such other
format as Tenant may reasonably request), and at least sixty (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
Community containing the following items:

(i)    A capital expenditure budget (the “Proposed Capital Budget”) setting
forth, on an accrual basis, an estimate of the Capital Expenditures to be
incurred for the Community, on a monthly basis for the next Fiscal Year. Tenant
may approve or reject each proposed Capital Expenditure in its sole and absolute
discretion, except those required by Legal Requirements. All Capital
Expenditures shall be paid from the FF&E Reserve, unless otherwise approved by
Tenant in writing. Notwithstanding anything herein to the contrary, if and as
required pursuant to any Community Mortgage, the Proposed Capital Budget shall
generally provide for at least $500 per unit of Capital Expenditures for the
Community 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 and in sufficient line item detail, an estimate of the
following items for the Community, on a monthly basis for the next Fiscal Year:

(A)    unit occupancy and resident census;

(B)    Revenues, including sufficient detail of room and board charges, and
resident care and ancillary services fees; and

 

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(C)    Operating Expenses, including the costs for repairs and maintenance not
included in Capital Expenditures.

The Proposed Operating Budget shall also include a year-over-year budget
comparison against prior years and include a forecast of year-end revenue and
expenses, budgeted beginning census, budgeted year-end census and
move-in/move-out comparison and an employee budget or staffing plan with
compensation and expected services supporting personnel costs in the Proposed
Operating Budget.

(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. Tenant shall have the
right to disapprove any Proposed Capital Budget which contemplates expenditures
in excess of the FF&E Reserve, unless such expenditures are required by
applicable Legal Requirements. 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 disapproved 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 Management Company. If Tenant does not approve or disapprove of such
resubmitted Proposed Operating Budget or resubmitted Proposed Capital Budget
within such fifteen (15) day period, then Tenant shall be deemed to have
approved such resubmitted Proposed Operating Budget or resubmitted Proposed
Capital Budget, as applicable. 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 manage the
Community under the prior Fiscal Year’s Budget adjusted for the change in the
CPI from the year, and adjusting for occupancy changes on a per resident day
basis, except for uncontrollable Operating Expenses (taxes, insurance,
utilities, etc.), which shall be increased to reflect the actual increase in the
cost of such Operating Expenses.

(d)    An Approved Operating Budget shall constitute authorization for
Management Company to expend funds to manage the Community pursuant to such
Approved Operating Budget, and Management Company may do so without further
approval. Management Company shall adhere to the Approved Operating Budget
provided, however, that Management Company may exceed the Approved Operating
Budget for any given month provided the excess expenditure does not exceed the
greater of 10% or $10,000 for each operating expense functional line item of the
Approved Operating Budget, provided that aggregate Operating Expenses shall not
exceed the total amount therefore set forth in the Operating Budget without
Tenant approval.

 

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(e)    If at any time circumstances indicate that the Approved Operating Budget
does not properly take into account the projected needs of the Community,
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. Tenant must
approve in writing, in its sole and absolute discretion, Management Company
entering into any contract with any Affiliate of Management Company and terms of
any such contract in connection therewith before any work commences. 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, which authorization may be
granted or withheld in Tenant’s sole and absolute discretion.

2.6    Reports to Tenant. During the Term, Management Company shall: (i) provide
such services to Tenant as described on and within the timeframes outlined on
Exhibit C, attached hereto, and (ii) deliver to Tenant all accounting, financial
statement, and compliance-related deliverables described on and within the
timeframes outlined on Exhibit C, and, if applicable, using the corresponding
template as set forth on Exhibit C.

2.7    Bank Accounts and Cash Balance.

(a)    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 (unless a specific bank is
required by Tenant’s lender, in which case Tenant’s lender shall control), 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, including 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, including the Management Fee and all amounts due
Management Company or its affiliates pursuant to any other agreement in respect
of the Community, or any emergency expenses pursuant to Section 2.4 hereof.

 

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(b)    Landlord shall establish a reserve account (the “FF&E Reserve”) at a bank
approved by Management Company, such approval not to be unreasonably withheld or
delayed (unless a specific bank is required by Tenant’s lender, in which case
Tenant’s lender shall control). 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, but the Landlord shall be the account holder and all funds
contained therein shall be the property of Landlord.

(c)    Tenant will maintain a minimum cash balance of $50,000 in the Operating
Account. Tenant will also fund all reasonable cash requests of Management
Company to maintain the foregoing cash balance in the Operating Account. Without
limiting the foregoing, on the Effective Date, Tenant will fund the Operating
Account with $50,000.

(d)    Tenant may sweep, on a monthly basis, all cash in excess of the
above-described minimum cash balance, by the 20th calendar day of the following
month.

2.8    Licenses.

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

(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 Community
to institute any proceeding to suspend, rescind or revoke any License.

2.9    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 Community. In connection
therewith, Management Company shall utilize such techniques (e.g. resident
satisfaction surveys and periodic inspections) as Management Company may
reasonably deem necessary to maintain the quality of the Community.

2.10    Use of Management Company’s Personnel. Representatives of Management
Company shall visit the Community 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 Management Company, except with respect
to personnel that share time between properties and travel beyond fifty
(50) miles, if such arrangement can be shown to reduce overall employment costs
at the Community and which is approved in writing, in advance, by Tenant.

 

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2.11    Taxes. Any applicable income taxes of Tenant, any federal, state or
local taxes, assessments or other governmental charges imposed on the Community
are the obligations of Tenant, not of Management Company, and all of the
foregoing, with the exception of any applicable income taxes (which shall be
paid directly by Tenant), shall be paid out of the Operating Account of the
Community as Operating Expenses. 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 Community in the same manner as
described in Section 2.4(a) hereof. Management Company shall cause all Social
Security and federal and state income tax withholding and other employee taxes
related to all Community employees which may be due and payable to be paid
promptly from the Operating Account of the Community as Operating Expenses
before the payment of any other Operating Expenses therefrom.

2.12    Information Regarding the Community. 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 Community held by Management Company;

(b)    personal property relating to the Community;

(c)    service contracts relating to the Community;

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

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

(g)    the Regulatory Compliance Plan.

Management Company shall be responsible for the due and proper maintenance of
all items on the foregoing lists, the cost of which shall be an Operating
Expense.

Management Company, upon request by the Tenant, will make available to the
Tenant for review at the corporate offices of Management Company, all Community
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 which may violate any Legal Requirement so as
to cause such policy or procedure to comply with all Legal Requirements. In
addition, if Tenant requests any other change to any policy or procedure,
Management Company and Tenant will work together to revise such policy or
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 Management Company will be documented and clearly expressed in the
“Policies and Procedures Exceptions Manual” which will be maintained in the
Community.

 

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2.13    Audit Rights. Tenant shall have the right, at its sole cost and expense,
to perform an audit on any of the reports provided by Management Company, and
Management Company agrees to reasonably cooperate with any such audit. Subject
to Legal Requirements, Tenant shall have access to Management Company’s books
and records relating to the Community and shall have the right to audit such
books and records, including, with respect to any reports furnished by
Management Company to Tenant pursuant to the terms of this Agreement, during the
period of this Agreement and for a period of five (5) years after termination of
this Agreement. Subject to Legal Requirements, Tenant also reserves the right,
upon reasonable notice and during business hours, to perform any and all
additional audits relating to Management Company’s activities either at the
Community or at Management Company’s office located at 13630 Linden Drive,
Spring Hill, Florida 34609. If Tenant’s employees or agents discover either
weaknesses in internal control or material errors in record keeping, Management
Company shall correct such discrepancies either upon discovery or within a
commercially reasonable period of time using diligent, efforts to remedy same
and Management Company shall make any reasonable process changes to correct
internal control weaknesses and to ensure any material errors in record keeping
do not reoccur. Management Company shall inform Tenant in writing of the action
taken to correct such audit discrepancies. If Management Company fails to
correct such material weaknesses or significant deficiencies in internal
controls or material errors in record keeping, Tenant shall have the right to
(i) require Management Company to outsource the necessary accounting functions
to Tenant-approved third-party service providers or (ii) terminate this
Agreement. Any and all such audits conducted either by Tenant’s employees or
agents shall be at the sole expense of Tenant. However, if an audit reveals any
material weaknesses or significant deficiencies in internal controls as defined
by the Public Company Accounting Oversight Board, any material errors in record
keeping, any misappropriation of funds by Management Company, its agents or
employees or if the audit reveals that the net cash flow from the Community for
the period audited exceeded the net cash flow reported by Management Company in
the reports submitted to Tenant pursuant to the terms of this Agreement for such
period by 3%, the cost of the audit shall be borne by Management Company.
Tenant’s right to require Management Company to pay the cost of audit under
these circumstances shall be in addition to any other rights or remedies that
Tenant may have under this Agreement or in law or equity.

ARTICLE 3.

MANAGEMENT FEE

3.1    Management Fees. Compensation to Management Company shall be comprised of
the following:

(a)    Base Management Fee. During the Term, Management Company shall receive
five percent (5%) of the Revenues received each month, net of Bad Debt expense
recorded as an Operating Expense for such month (“Base Management Fee”). The
Base Management Fee for each month shall be paid to Management Company from the
Operating Account of the Community no later than fifteen (15) days following the
end of that month.

 

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(b)    Incentive Management Fee. For each Fiscal Quarter during the Term,
Management Company shall receive an “Incentive Management Fee” equal to fifty
percent (50%) of the incremental Adjusted NOI for such Fiscal Quarter above the
Incentive Threshold for such Fiscal Quarter. Notwithstanding the foregoing, the
amount paid hereunder as a Base Management Fee plus Incentive Management Fee
during any Fiscal Quarter shall not exceed a cap equal to seven percent (7%) of
Revenues, net of Bad Debt expense, for the applicable Fiscal Quarter, collected
for the applicable Fiscal Quarter. The calculation of the Incentive Management
Fee shall be measured and paid (if at all) at the end of each Fiscal Quarter.
Each Fiscal Quarter’s calculation shall stand alone and not accrue or accumulate
from quarter to quarter. The Incentive Management Fee shall be considered an
Operating Expense, but shall be excluded when computing the Incentive Management
Fee and Subordinated Base Management Fee, as described below.

(c)    Subordination of Base Management Fee. For each Fiscal Quarter during the
Term, in the event the Adjusted NOI does not equal or exceed the Minimum
Performance Threshold (before funding debt service, but after Base Management
Fee) (a “Threshold Shortfall”) for such Fiscal Quarter, then an amount equal to
the lesser of (i) the Threshold Shortfall and (ii) forty percent (40%) of the
Base Management Fee (the “Subordinated Base Management Fee”) shall be payable
from Management Company to Tenant (either directly or through deduction from the
Base Management Fee for the last month in the Fiscal Quarter) within fifteen
(15) days of the end of the applicable Fiscal Quarter. Each Fiscal Quarter’s
calculation shall stand alone and not accrue or accumulate from quarter to
quarter.

(d)    The Management Fee shall be Management Company’s only compensation under
this Agreement. Without limiting the foregoing, except as otherwise expressly
agreed in writing between the parties or in an Approved Operating Budget, the
Management Fee will be the sole source of funds available from the operation of
the Community to cover Management Company Expenses.

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 the Management Fees described in Article 3
hereof, or reimbursement of bona fide expenses to unrelated third parties.

ARTICLE 5.

INSURANCE

Management Company shall procure and maintain (or, at Tenant’s election, Tenant
shall procure and maintain), as an Operating Expense and with the prior written
approval of Tenant,

 

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insurance as required and set forth in Exhibit A to this Agreement. As of the
Effective Date, Tenant or Landlord shall procure and maintain as an Operating
Expense the Property Insurance required pursuant to Exhibit A of this Agreement
and Management Company shall procure and maintain as an Operating Expense the
Liability Insurance required pursuant to Exhibit A of this Agreement. The
carrier and the amount of coverage of each policy of insurance shall be
satisfactory to Tenant in its sole and commercially reasonable discretion.
Management Company (and its officers, directors, employees and agents) shall be
designated as a named insured under each insurance policy procured by Management
Company. Such policies, with the exception of Workers’ Compensation, Employer’s
Liability, Employee Dishonesty/Crime, Professional Liability and Employment
Practices Liability, shall name Tenant as an additional insured and Tenant shall
be a named insured and loss payee under any required Property Insurance
coverages. All deductibles, legal settlements and any other costs related to
claims under the insurance policies required herein shall be an Operating
Expense. 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 included as named or additional insured as appropriate in Tenant’s or
Landlord’s sole discretion. In no event shall Management Company be allowed to
self-insure without Tenant’s and Landlord’s prior written consent.

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:

(a)    Status of Tenant. Tenant is a limited liability company duly organized
and validly existing in good standing under the laws of the State of Delaware
qualified in 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 terms.

(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 incorporation or bylaws; or (ii) any
Legal Requirement, or any Community 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.

 

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(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 in good standing under the laws of
the State of Florida, 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 Certificate of Formation or
Operating Agreement, or (ii) any Legal Requirement, or any Community Mortgage,
note, bond indenture, agreement, lease, license, permit or other instrument or
obligation to which Management 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 in
accordance with its terms, except to the extent that its enforceability is
limited by applicable bankruptcy, reorganization, insolvency, receivership or
other laws of general application or equitable principals 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)    Eligible Independent Contractor. 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 Management Company by
shareholders of CNL Healthcare Properties II, Inc., a Maryland corporation (“CNL
REIT”), and restrictions on ownership of CNL REIT by owners of Management
Company set forth in Section 856(d)(3)), Management Company will and shall cause
the Community to be managed in such a manner so that it qualifies as a
“qualified health care Community” 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 Community to fail to qualify as “rents from real property” within
the meaning of Section 856(d) of the 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 Community 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
Management Company hereunder.

 

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(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.

(f)    Qualifications of Management Company. Management Company possesses the
requisite skills, expertise, and knowledge to perform its obligations hereunder.

(g)    Protection of REIT Status. Management Company acknowledges that CNL REIT,
an indirect owner of Tenant, has elected to be treated as a real estate
investment trust (a “REIT”) within the meaning of Sections 856 through 860 of
the Code, and Management Company agrees that without the prior written consent
of Tenant (which may be given or withheld in Tenant’s sole discretion), it will
not (i) accept, or cause or allow to be earned, any rents or license fees or
other amounts to be paid by a tenant or occupant at the Community that would be
based, in whole or in part, on the income or profits derived by the business
activities of such tenant or occupant, (ii) furnish or render any services to a
tenant or occupant at the Community other than services customarily furnished or
rendered in connection with the rental of real property of a similar class in
the geographic market in which the Community is located, (iii) lease or license
space to any person in which Tenant or CNL REIT owns a ten percent (10%) or
greater interest, directly or indirectly (by applying the constructive ownership
rules set forth in Section 856(d)(5) of the Code), or (iv) accept, or cause or
allow to be earned, any payments or other amounts which would fail to qualify as
“rents from real property” as described in Section 856(d) of the Code.
Accordingly, Management Company shall not provide any services giving rise to
such non-qualifying income and shall not provide or allow to be provided by
others any new services related to the Community without the prior written
consent of Tenant, which consent may be withheld in Tenant’s sole discretion. In
the event Tenant consents to the provisions of any non-customary services by
Management Company to any tenant or licensee of the Community, such services
shall be provided by Management Company at competitive rates and for its own
account and neither Tenant nor CNL REIT, directly or indirectly, shall
participate in the collection of or share in the revenues or profits derived
from such services. Without limiting the generality of the foregoing, with
respect to any of the services to be rendered by Management Company for the
Community, Management Company agrees that it will not enter into any subcontract
with or otherwise engage the services of any person from whom Tenant or CNL
REIT, directly or indirectly, derives any revenue (including, for example, from
a tenant of the Community), without the prior written consent of Tenant.
Management Company further represents and warrants that neither Management
Company nor any Affiliate or Subsidiary of Management Company is currently or
will become a tenant of CNL REIT or its Affiliates or Subsidiaries.

ARTICLE 7.

TERMINATION

7.1    Tenant Termination. Tenant shall have the right to terminate this
Agreement, without paying any fee or penalty, when and if one or more of the
following events occur

 

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(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:

(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)    ban on admissions, suspension of any License, or termination or
revocation of any License, if not corrected within fifteen (15) Business Days;

(d)    Management Company’s 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 (60) days of the commencement thereof;

(f)    a change in Control of Management Company, whether by (i) sale of assets,
(ii) sale, pledge, assignment, exchange or transfer of stock or other equity
interests, or (iii) merger, consolidation or otherwise, not previously approved
by Tenant;

(g)    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 specifying the nature of the breach or such longer period as may
reasonably be required to diligently effect such cure, provided such longer
period does not violate the Legal Requirements and Management Company diligently
prosecutes a cure; or

(h)    Any “Management Company Default” or similar default by Management Company
or its Affiliate or Subsidiary under any of the Affiliated Agreements.

7.2    Management Company Termination. Management Company shall have the right
to terminate this Agreement without receiving any fee or payment (except for any
accrued Management Fees for previous periods which have not been paid and which
were not otherwise previously subordinated or forfeited pursuant to the terms of
this Agreement or any amendments thereto), if and when one or more of the
following events occur (hereinafter “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 set forth herein are not materially affected;

 

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(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;

(d)    failure by Tenant to pay Management Company in accordance with Article 3
hereof within ten (10) calendar days after such amount becomes due; or

(e)    Tenant’s breach of any provision of this Agreement, where such breach has
not been cured within thirty (30) days after the giving of written notice
specifying the nature of the breach or such longer period as may reasonably be
required to diligently effect such cure.

7.3    Performance Termination. Commencing with the expiration of Fiscal Year
2017, in the event that Adjusted NOI does not equal or exceed 90% of the Minimum
Performance Threshold on a rolling twelve (12) month basis, then the Tenant
shall have the option to terminate this Agreement by providing a sixty (60) day
written notice to Management Company (a “Performance Termination”). In such
event, Tenant shall not be obligated to pay any fee or penalty as a result of
such termination.

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(g) or in Section 7.3 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. At any time during the Term, Tenant shall have
the right to terminate this Agreement for any reason or for no reason upon sixty
(60) days prior written notice to Management Company and payment to Management
Company, upon the effective date of such termination, of an amount equal to the
lesser of: (i) an amount equal to the Management Fee for the trailing twelve
months or (ii) an amount equal to the average monthly Management Fee for the
preceding twelve (12) months multiplied by the remaining months in the initial
Term of this Agreement. If this Agreement is terminated during any Extension
Term, no termination fee shall be payable to Manager.

7.6    Termination Upon Portfolio Sale. Tenant has the option to terminate this
Agreement in the event Landlord and/or its Affiliates engages in a Portfolio
Sale, 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 fee or penalty as a result of such termination. For purposes hereof, the
term “Portfolio Sale” shall mean any asset or equity sale by Landlord and/or
certain of its Affiliates of Landlord of not less than seventy five percent
(75%) of all senior housing assets owned by Landlord and its Affiliates (which
sale may or may not include the Community) to a third party as part of one
transaction or a series of related transactions.

 

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

(a)    the Community or any material portion thereof is damaged or destroyed to
the extent that, in the written opinion of an independent architect or engineer
chosen by Tenant and reasonably acceptable to Management Company: (1) it is not
practicable or desirable to rebuild, repair or restore the Community to its
condition immediately preceding such damage within a period of six (6) months;
or (2) the conduct of normal operations of the Community is interrupted for a
period of six (6) months or more; or

(b)    title to or possession of all or substantially all of the Community is
taken, on either a permanent or temporary basis, under the exercise of the power
of eminent domain by a 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 Community for a period
of at least six (6) months.

7.8    Termination Upon Foreclosure. Tenant, at the direction of Mortgagee, or
Mortgagee shall have the option to terminate this Agreement, without fee or
penalty subject to the rights of Management Company herein, upon ten (10) days’
prior written notice to Management Company in connection with a foreclosure or
delivery of a deed in lieu thereof that is related to any Community Mortgage,
without any further obligation to 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 Mortgagee). Upon the request of Tenant, Management
Company shall enter into a written agreement acknowledging that its rights under
this Agreement are subordinate to any Community Mortgage.

7.9    Change in Key Personnel. In the event Don Bishop ceases (i) to be
employed by the Management Company, (ii) to oversee and manage the day-to-day
operations of the Management Company, or (iii) to maintain majority ownership
and operational control of the Management Company, Tenant shall have the right
to terminate this Agreement upon sixty (60) days written notice to the
Management Company and without any termination fee or penalty.

7.10    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 Community (including the Regulatory
Compliance Plan) 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 Community, except any personal
property which was paid for and is owned by Management Company;

(c)    remove, at Management Company’s expense, all signs that it may have
placed at the Community indicating that it is manager of same and replace and
restore the damage resulting therefrom; provided, however, that Management
Company hereby grants

 

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Tenant a license or sublicense, as applicable, to use all intellectual property
used by Management Company in connection with the operation of the Community
during the term of this Agreement and for a period of three (3) months after
termination of this Agreement so as to allow Tenant sufficient time to rebrand
the Community;

(d)    cooperate with Tenant in transitioning management to a new manager in
accordance with the Legal Requirements including, but not limited to, entering
into a commercially reasonable transition services agreement; and

(e)    deliver to Tenant any reports that are due following the termination date
for a period preceding the termination date (through the date of termination).

(f)    allow Tenant use, without additional cost, of Management Company’s
proprietary software and operational procedure for a transitional period of one
hundred eighty (180) days after termination of this Agreement.

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, 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, and except with respect to all matters for which Management Company
is obligated to indemnify Tenant pursuant hereto, Tenant agrees to indemnify and
hold harmless Management Company, its Affiliates and Subsidiaries 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)    an uncured Tenant Default;

(d)    to the extent caused by Tenant’s ownership of the Community at any time
during or after 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 negligence or willful misconduct 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 Community employee for any act or omission occurring at any time during the
Term, except for those caused by or arising out of the negligence or willful
misconduct of Management Company and except to the extent subject to Management
Company’s indemnity of Tenant provided in Section 8.2 below;

(f)    directly arising out of Landlord’s or Tenant’s failure to initiate
Capital Expenditures previously approved in the Approved Capital Budget that
results in personal injury of a resident of the Community, provided that
Management Company’s negligence or willful misconduct was not a contributing
factor with respect to such injury; or

(g)    Management Company’s misuse of any intellectual property owned by Tenant.

Tenant and Management Company agree that the parties hereto shall first look to
any insurance for coverage with respect to any of the indemnification
obligations contemplated by this Section 8.1.

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, its Affiliates and Subsidiaries 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 the negligence or willful misconduct of Management Company
in exercising its duties and responsibilities hereunder; or

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

Tenant and Management Company agree that the parties hereto shall first look to
any insurance for coverage with respect to any of the indemnification
obligations contemplated by this Section 8.2.

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, which may be withheld in Tenant’s
sole and absolute discretion. Any purported assignment in violation of this
Section 8.3(a) is void abinitio.

 

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For purposes of this Section 8.3(a), a change fifty percent (50%) or more in the
ownership or a change in Control of Management Company, shall be deemed to be an
effective assignment of this Agreement requiring Tenant’s prior approval.
Management Company shall provide written notice to Tenant in the event that
there is any change in the ownership of Management Company, whether direct or
indirect, regardless of whether such change constitutes a change of more than
fifty percent (50%) of the direct or indirect ownership of Management Company,
which notice shall be delivered no later than five (5) Business Days following
the effectuation of any such change. Management Company shall also provide
Tenant with an updated organizational chart showing the direct and indirect
ownership interests in and to Management Company that is true, complete and
correct within five (5) Business Days following the effectuation of any such
change.

(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 to an Affiliate of Tenant or to a third party in
connection with the sale of the Community.

(c)    Transfer of Residents. During the Term and for one (1) year after
termination, Management Company agrees that neither it nor its Affiliates or
Subsidiaries will, without the prior written consent of the Tenant, encourage or
solicit the transfer of any resident of the Community to another Community in
which Management Company, its Affiliate or its Subsidiary 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. Notwithstanding the
foregoing, this paragraph shall not apply to postings or advertisements by the
Management Company which are directed to the general public in the ordinary
course of business.

(d)    Transfer of Employees. During the Term, Management Company agrees that it
will not transfer the executive director, sales and marketing director, activity
director, director of nursing, or food and beverage director from the Community
to another community or facility owned or operated by Management Company, its
Affiliates or Subsidiaries without the prior, written consent of Tenant, which
consent shall not be unreasonably withheld, conditioned or delayed.

(e)    Employee Non-Solicitation. During the Term and for one (1) year after
termination, Management Company agrees that neither it nor its Affiliates or
Subsidiaries will, without the prior written consent of the Tenant, solicit any
Community employees for employment at another Community owned or controlled by
Management Company or any of its Subsidiaries and Affiliates (each, a “Covered
Person”) (provided nothing herein shall prevent a Covered Person from hiring any
employee of the Community who responds to a Covered Person’s advertisement or
other notice that is not specifically targeted at employees of the Community).

(f)    Non-Compete. During the Term and for two (2) years following the
termination of this Agreement due to a Management Company Default or Performance
Termination and one (1) year following termination for any reason (other than a
termination by Management Company pursuant to Section 7.2 for which this section
shall not apply), Management Company shall not, nor shall it allow any Covered
Person to, Compete, directly or

 

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indirectly, with the Community by engaging, in any capacity, in owning,
operating or managing a senior living community providing assisted living or
memory care services within a ten (10) mile radius of the Community (except
those existing assets owned or managed by Management Company and set forth on
Schedule 8.3(f) attached hereto and by this reference made a part
hereof).    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
(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, in
each case except as a passive investor with a non-controlling interest in such
Person. The parties recognize and acknowledge that a breach of this Section
8.3(d) by Management Company or any Covered Person 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(f), however, shall not apply following any termination of this Agreement
arising out of Section 7.2 or Section 7.5.

(g)    General Non-Solicitation. During the Term and for one (1) year following
the termination of this Agreement (other than a termination by Management
Company pursuant to Section 7.2 for which this section shall not apply),
Management Company agrees not to directly or indirectly through a Covered Person
solicit, divert or accept business from any customer, supplier, distributor or
manufacturer of or to the Community to the detriment of Tenant or any Affiliate
of Tenant, or otherwise interfere with the relationship between Tenant or any
Affiliate of Tenant in connection with the Community and any customer, supplier,
distributor or manufacturer of or to Tenant or any Affiliate of Tenant to the
detriment of Tenant or any Affiliate of Tenant in connection with the Community.
The provisions of this Section 8.3(g), however, shall not apply following any
termination of this Agreement arising out of Section 7.2 or Section 7.5.

(h)    Management Company acknowledges that all rights granted to the Management
Company under the terms of this Agreement, including payment of Management Fees,
are and shall be subordinate to the liens of lenders securing the indebtedness
of Tenant (however, any Management Fees which are not paid due to the foregoing
subordination provision shall accrue and Management Company shall have the right
to terminate this Agreement in accordance with the terms of Section 7.2(d)).
Management Company covenants to enter into a commercially reasonable
subordination, non-disturbance and attornment agreement with any such lender at
Tenant’s request. Further, Management Company covenants to comply with any
commercially reasonable lender requirements relating to operating the Community.

(i)    Enforcement of Additional Covenants. The parties recognize and
acknowledge that a breach of any part of Section 8.3(c) through (g) by
Management Company or any Covered Person 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

 

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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.

(j)    Post-Closing Audit. If requested by Tenant or Owner, and to the extent
required by any Applicable Law, regulations and statutes governing Owner, Tenant
or any of their respective investors, partners or members, Management Company
covenants to assist Tenant and Owner (and their respective auditors) in
conducting, no later than seventy-five (75) days following the Closing Date, an
audit of financial statements for the Facility as specified by Rule 3-05 of
Regulation S-X of the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended, provided such audit shall be at the sole cost
and expense of Purchaser. In connection therewith, Management Company agree to
obtain and provide to the auditors any and all data and financial information in
the possession of Management Company which are reasonably necessary or required
by the auditors in connection with their timely preparation and conducting of
the foregoing audit.

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 Community 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 reasonably deemed by Management Company to be necessary or
proper to be executed by Tenant in connection with the Community, 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 than any trademarks,
trade names or other intellectual property acquired by Tenant or Landlord in
connection with the acquisition of the Community), 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 Community by Management Company. For the avoidance of
doubt, this Section does not apply to the Regulatory Compliance Plan. With
respect to any trademarks, trade names or other intellectual property acquired
by Tenant or Landlord in connection with the acquisition of the Community,
Tenant grants Management Company a license to use the same, provided such

 

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intellectual property: (i) shall be used only for the purposes and in the manner
of promoting the Community by way of Management Company’s website, marketing
materials and any other media approved by Tenant in its sole and absolute
discretion, (ii) Management Company shall not depict such intellectual property
in any manner or in any materials that would tend to denigrate, disparage,
tarnish, present in a false light or otherwise reflect negatively on the such
intellectual property, Owner, Tenant or any of their respective Affiliates or
Subsidiaries, or any of the their respective products or services; and
(ii) Management Company shall not assign or otherwise transfer any of its
rights, or delegate, subcontract or otherwise transfer any of its obligations or
performance hereunder with respect to such intellectual property, and any
purported assignment, delegation or transfer in violation hereof is void.

(d)    Tenant shall comply with all Legal Requirements which are applicable to
Tenant provided that Tenant, at its sole expense and without cost to Management
Company, shall have the right to contest by proper legal proceedings the
validity, so far as applicable to it, of any such Legal Requirement, provided
that such contest shall not result in a suspension of operations of the
Community. Notwithstanding the foregoing, however, Tenant shall not be deemed to
be in breach of the covenant contained in this clause (d) if Tenant’s failure to
so comply is the result of a failure by Management Company to comply with any of
its obligations under this Agreement.

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 Community.
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. Unless Tenant responds
negatively in writing by mail or email and to the notice within ten (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. Unless Tenant responds negatively in writing by mail or email
to the second notice within five (5) 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 reasonably
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.

 

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(b)    Any notice pursuant to this Agreement shall be given in writing by
(a) personal delivery, (b) reputable overnight delivery service with proof of
delivery, (c) United States Mail, postage prepaid, registered or certified mail,
return receipt requested, or (d) legible facsimile transmission with a
confirmation sheet or e-mail, sent to the intended addressee at the address set
forth below, or to such other address or to the attention of such other Person
as the addressee shall have designated by written notice sent in accordance
herewith. Any notice so given shall be deemed to have been given upon receipt or
refusal to accept delivery, or, in the case of facsimile transmission or e-mail,
as of the date of the facsimile transmission or e-mail provided that such
facsimile or email is also sent to the intended addressee by means described in
clauses (a), (b) or (c) above. Unless changed in accordance with the preceding
sentence, the addresses for notices given pursuant to this Agreement shall be as
follows:

 

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

CHP II SUMMER VISTA FL TENANT, LLC

c/o CNL Healthcare Properties II, Inc.

450 South Orange Avenue, 14th Floor

Orlando, Florida 32801

Attention: Chief Financial Officer and

    General Counsel

Telephone No.: (407) 650-1000

Facsimile No.: (407) 540-2576

E-Mail: kevin.maddron@cnl.com

E-Mail: tracey.bracco@cnl.com

With a copy to:

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

215 North Eola Drive

Orlando, Florida 32801

Attention: John D. Ruffier, Esquire

Telephone No.: (407) 418-6414

Facsimile No.: (407) 843-4444

E-Mail: John.Ruffier@lowndes-law.com

 

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

SRI Management, LLC

2528 Barrington Circle, Suite 2

Tallahassee, Florida 32308

Attention: Don W. Bishop

Phone: (850) 583-7990

E-Mail: don.bishop@srimgt.com

 

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With a copy to:

Willcox & Savage, P.C.

Attn: Tasos A Galiotos, Esq

222 Central Park Avenue

Suite 1500

Virginia Beach, Virginia 23462

Phone: 757.628.5516

Email: tgaliotos@wilsav.com

(c)    All notices sent by a party (or its counsel as contemplated below) under
this Agreement shall be deemed to have been received by the party to whom such
notice is sent upon (a) delivery to the address, facsimile number or e-mail
address of the recipient party, provided that such delivery is made prior to
5:00 p.m. (local time for the recipient party) on a Business Day, otherwise the
following Business Day, or (b) the attempted delivery of such notice if (i) such
recipient party refuses delivery of such notice, or (ii) such recipient party is
no longer at such address, facsimile number or e-mail address, and such
recipient party failed to provide the sending party with its current address,
facsimile number or e-mail address pursuant to Section 8.7(c).

(d)    Change of Address. The parties and their respective counsel shall have
the right to change their respective address, facsimile number or e-mail address
for the purposes of this Section 8.7 by providing a notice of such change in
address, facsimile number or e-mail address as required under this Section 8.7.

(e)    Delivery by Party’s Counsel. The parties agree that the attorney for a
party shall have the authority to deliver notices on such party’s behalf to the
other parties hereto

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.

8.9    Governing Law. This Agreement has been executed and delivered in the
State of Florida 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 Community and the revenues thereof and Receivables and
accounts related thereto, and

 

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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. The liability of Tenant to
Management Company is limited to actual damages suffered by Management Company
as a direct and proximate result of any of the matters set forth in Section 8.1
hereof.

8.12    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 necessary to comply Sections 302
and 404 of The Sarbanes–Oxley Act, standards issued by the Public Company
Accounting Oversight Board and adopted by the Securities and Exchange
Commission, 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 Community 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 Community 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 8.12, 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 8.12.

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

8.14    Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.

8.15    Estoppel. Each of Tenant and Management Company shall from time to time,
within fifteen (15) days after receipt of a written request therefor and without
charge, give an Estoppel Certificate certifying to the requesting party (i) that
this Agreement is in full force and effect, (ii) that this Agreement has not
been modified except (if applicable) as specified in the certificate and
contains the entire agreement of the parties with respect to the operation of
the Community, (iii) that there exist no defaults under this Agreement that
remain uncured except (if applicable) as specified in the certificate, (iv) that
all payments due to either party have been made through the date of such of
certificate except (if applicable) as specified in the certificate, and any
other matters as may be reasonably requested by such requesting party.

 

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8.16    WAIVER OF JURY TRIAL. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LEGAL REQUIREMENTS, ANY
RIGHT THAT EITHER PARTY OR THEIR HEIRS, PERSONAL REPRESENTATIVES, SUCCESSORS OR
ASSIGNS MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON,
OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
DOCUMENTS EXECUTED IN CONNECTION HEREWITH, OR IN RESPECT OF ANY COURSE OF
CONDUCT, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF ANY PARTY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR EACH OF THE PARTIES TO ENTER INTO THIS
AGREEMENT.

8.17     Post Effective Date Matters.

(a)    Change of Insurance. As of the Effective Date, Manager’s general
liability insurance exists on a “Claims Made” policy. On or before June 10,
2017, Manager shall obtain an occurrence-based general liability insurance
policy and tail insurance for the existing “claims made” policy sufficient to
cover a period at least equal to the greater of (i) any applicable statute of
limitations and (ii) two (2) years.

(b)    Equipment Lease. On the Effective Date, Tenant assumed that certain
Equipment Lease dated January 11, 2016 bearing number 483105-100 (the “Equipment
Lease”). Within thirty (30) days of the Effective Date, Manager shall work with
Wells Fargo Equipment Finance, Inc. (“Wells Fargo”), the lessor under the
Equipment Lease, to: (i) obtain Wells Fargo’s consent to an assignment and
assumption of the tenant’s interest in the Equipment Lease to Tenant,
(ii) obtain a release of the assignor from the Equipment Lease, and
(iii) terminate the Equipment Lease guaranty which is currently provided by an
affiliate of Manager. In the event Wells Fargo will not permit the termination
of the Equipment Lease guaranty provided by an affiliate of Manager without
more, Landlord will assume the role of guarantor for the Equipment Lease.

(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 II SUMMER VISTA FL TENANT, LLC,

a Delaware limited liability company

  By:  

/s/ Tracey B. Bracco

  Name:   Tracey B. Bracco   Title:   Vice President MANAGEMENT COMPANY:  

SRI MANAGEMENT, LLC,

a Florida limited liability company

  By:  

/s/ Donald W. Bishop, Jr.

  Name:   Donald W. Bishop, Jr.   Title:   Chief Executive Officer