Document:

Exhibit 10.59

 

Exhibit
10.59

[Fishersville, Virginia]

[Floyd, Virginia]

[Independence, Virginia]

[Newport News, Virginia]

[Roanoke, Virginia]

[Staunton, Virginia]

[Williamsburg, Virginia]

[Windsor, Virginia]

[Woodstock, Virginia]

FIRST AMENDMENT TO AMENDED AND RESTATED MASTER LEASE

          This First Amendment to Amended and Restated Master Lease (“Amendment”) is dated as of July 9,
2004, by and among HCP VIRGINIA, INC., a Delaware corporation (“Landlord”), and GENERATION LEASING
COMPANY II, LLC, a Virginia limited liability company, SP FISHERSVILLE, LLC, a Virginia limited
liability company, SP GRAYSON, LLC, a Virginia limited liability company, SP KINGS DAUGHTERS, LLC,
a Virginia limited liability company, SP NEWPORT NEWS, LLC, a Virginia limited liability company,
SP WILLIAMSBURG, LLC, a Virginia limited liability company, SP WINDSOR, LLC, a Virginia limited
liability company, TANDEM HEALTH CARE OF FLOYD, LLC, a Delaware limited liability company, and
TANDEM HEALTH CARE OF WOODSTOCK, LLC, a Delaware limited liability company (hereinafter
collectively and jointly and severally referred to as “Tenant”).

RECITALS

          A. Landlord and Tenant entered into an Amended and Restated Master Lease dated as of April 30,
2004 (the “Lease”), for certain skilled nursing facilities located in the Commonwealth of Virginia
and more particularly described therein.

          B. Tandem Health Care, Inc., a Pennsylvania corporation (“Guarantor”), has guaranteed Tenant’s
obligations under the Lease pursuant to a written guaranty in favor of Landlord (as the same may
have been amended, modified, supplemented or reaffirmed from time to time, the “Guaranty”).

          C. Landlord and Tenant desire to memorialize their understanding regarding certain provisions
of the Lease.

AGREEMENT

          Capitalized terms not otherwise defined herein shall have the meaning ascribed to them in the
Lease. Landlord and Tenant hereby agree as follows:

          1. Effective Date. The Effective Date of the Lease with respect to (a) the Floyd
Facility, the Fishersville Facility, the Newport News Facility, the Roanoke Facility, the Staunton
Facility, the Williamsburg Facility, and the Woodstock Facility is April 30, 2004 and (b) the
Independence Facility and the Windsor Facility is June 1, 2004.

          2. Term. The initial term of the Lease shall end on March 31, 2009.

 

 

          3. Lease Year. The first Lease Year for each Facility shall end on March 31, 2005.

          4. Full Force and Effect; Counterparts. Except as amended above, the Lease between
Landlord and Tenant shall remain in full force and effect. This Amendment may be executed in any
number of counterparts, all of which together shall constitute one and the same instrument.

[Signature Page Follows]

2

 

          IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed as of the day
and year first above written.

	 	 	 	 	 	 	 	 	 
	 	 	LANDLORD:	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	HCP VIRGINIA, INC.,
	 	 	a Delaware corporation
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	/s/ Edward J. Henning
	 	 	 	 	 
	 	 	Name:	 	Edward J. Henning
	 	 	Title:	 	Senior Vice President

	 	 	 	 	 	 	 	 	 
	 	 	TENANT:	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	GENERATION LEASING COMPANY II, LLC,
	 	 	a Virginia limited liability company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By: /s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman and CEO
	 
	 	 	 	 	 	 	 	 
	 	 	SP FISHERSVILLE, LLC, a Virginia limited
	 	 	liability company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 

	 	 	 	Member	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By: /s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman and CEO

 

 

	 	 	 	 	 	 	 	 	 
	 	 	SP GRAYSON, LLC, a Virginia limited liability
	 	 	company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By: /s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman and CEO

	 	 	 	 	 	 	 	 	 	 	 
	 	 	SP KINGS DAUGHTERS, LLC, a Virginia limited	 	 
	 	 	liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering	 	 
	 	 	 	 	 	 	Title: Chairman and CEO	 	 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	SP NEWPORT NEWS, LLC, a Virginia limited	 	 
	 	 	liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering	 	 
	 	 	 	 	 	 	Title: Chairman and CEO	 	 

 

 

	 	 	 	 	 	 	 	 	 
	 	 	SP WILLIAMSBURG, LLC, a Virginia limited
	 	 	liability company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC, Member
	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman and CEO

	 	 	 	 	 	 	 	 	 
	 	 	SP WINDSOR, LLC, a Virginia limited liability
	 	 	company,	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care of Virginia, LLC,
	 	 	 	 	Member	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	By:	 	Tandem Health Care, Inc., its Member
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman and CEO
	 
	 	 	 	 	 	 	 	 

	 	 	 	 	 	 	 	 	 
	 	 	TANDEM HEALTH CARE OF FLOYD, LLC, a
	 	 	Delaware limited liability company
	 
	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care, Inc., Member
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	By: /s/ Lawrence R. Deering
	 

	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering
	 	 	 	 	 	 	Title: Chairman and CEO

	 	 	 	 	 	 	 	 	 	 	 
	 	 	TANDEM HEALTH CARE OF WOODSTOCK,	 	 
	 	 	LLC, a Delaware limited liability company	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	 	 	By:	 	Tandem Health Care, Inc., Member
	 
	 	 	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	By:
	 	/s/ Lawrence R. Deering	 	 
	 

	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Name: Lawrence R. Deering	 	 
	 	 	 	 	 	 	Title: Chairman and CEO	 	 

 

 

CONSENT, REAFFIRMATION AGREEMENT OF GUARANTOR

          The undersigned Guarantor hereby (i) reaffirms all of its obligations under the Guaranty, (ii)
consents to the foregoing Amendment and (iii) agrees that its obligations under the Guaranty shall
extend to Tenant’s duties, covenants and obligations pursuant to the Lease, as hereby amended.

	 	 	 	 	 	 	 
	 	 	TANDEM HEALTH CARE, INC.,
	 	 	a Pennsylvania corporation
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Lawrence R. Deering	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:
	 	Lawrence R. Deering	 	 
	 
	 	 	 	 	 	 
	 

	 	Its:
	 	Chairman and CEO	 	 
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Eugene R. Curcio	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	Name:
	 	Eugene R. Curcio	 	 
	 
	 	 	 	 	 	 
	 

	 	Its:
	 	Treasurer and CFOExhibit 10.60

 

Exhibit
10.60

FORM OF

MANAGEMENT AGREEMENT

          THIS MANAGEMENT AGREEMENT dated as of June 9, 2003, between TANDEM REGIONAL MANAGEMENT OF
OHIO, INC., an Ohio corporation (“Manager”) and                      and HEALTH CARE INDUSTRIES
COMPANY, an Ohio corporation, and its affiliates (collectively the “Owner”).

          WHEREAS, Owner owns a certain nursing facility known as                     , and located in
                     (the “Facility”);

          WHEREAS, Owner wishes to retain Manager under the terms of this Agreement to manage the
Facility on behalf of Owner; and

          WHEREAS, Manager wishes to provide management services at the Facility for the benefit of
Owner, subject to Owner retaining ultimate control over the assets and operations of the Facility
in accordance with the Agreement.

          NOW, THEREFORE, in consideration of the mutual promises and covenants herein contained, Owner
and Manager agree to incorporate the foregoing recitals as if fully rewritten herein, and further
agree as follows:

1. Appointment of Manager. Owner hereby appoints Manager and Manager hereby accepts its
appointment as the exclusive Manager of the Facility, subject to the provisions hereof.

2. Owner’s Covenants of Title. Owner represents and affirms that it has the right and
power to enter into this Agreement and covenants during the term hereof that Manager will be
permitted to peaceably and quietly operate the Facility in accordance with the terms of this
Agreement, free from interference and disturbance by Owner or by any person through whom Owner
shall derive its title to or right to occupy and use the Facility or by any other person or persons
claiming by, through or under Owner. Owner further agrees to pay and discharge, or cause to have
paid and discharged, any mortgage payments, ground rents, or other lease or rental payments or any
other charges payable relative to the Facility or any component thereof and, at Owner’s own
expense, to undertake and prosecute all appropriate actions, judicial or otherwise, required to
assure such quiet and peaceable operation by Manager. Owner also covenants and agrees to pay,
prior to delinquency, all taxes and assessments which become a lien on or are assessed against the
Facility or any component thereof and which may be due and payable during the term hereof. Owner
agrees to furnish Manager upon request, reasonable evidence that Owner has the rights of possession
and use of the Facility.

3. Ultimate Control Retained by Owner. Subject to the provisions set forth in Section 5.01
herein, at all times during the Operating Period (as defined hereafter), Owner shall exercise
ultimate control over the assets of the Facility.

 

 

4. Term.

          4.01 Initial Term. The term of this Agreement shall be three (3) years from the
Effective Date. The services of Manager shall commence on July 1, 2003 (the “Effective Date”) and
shall terminate on June 30, 2006 (the “Initial Term”) unless sooner terminated as provided herein
and provided that such termination is commensurate with the termination of the management of
certain other nursing facilities listed on Exhibit A, attached hereto and made a part hereof
(“Managed Facilities”) on behalf of Owner pursuant to separate management agreements (the “Other
Management Agreements”).

          4.02 Renewal Term(s). Provided that the “Operating Profit Margin” (as defined in
Section 9.01 of this Agreement) for the consolidated operation of all of the Managed Facilities is
greater than fifteen percent (15%) or greater for the period of July 1, 2005 through June 30, 2006
and Manager is not otherwise in default of this Agreement or the Other Management Agreements,
Manager may, at its option, simultaneously renew this Agreement and the Other Management Agreements
at the end of the Initial Term for an additional two (2) year period on the same terms as set forth
herein (the “Renewal Term”); provided, however, that no renewal of this Agreement shall be
effective unless all of the Other Management Agreements are also renewed. Thereafter, this
Agreement shall be renewable on such terms and for such additional periods of time as Owner and
Manager hereafter shall mutually agree in writing; provided that if Manager and Owner shall not
agree, then this Agreement, or any temporary extension thereof, may be terminated upon thirty (30)
days’ written notice.

          4.03 Lease of Facility. Owner and Manager agree that it is the intention of the
parties to enter into a long term lease of the Managed Facilities once such a lease becomes
economically viable. Upon the request of Manager, Owner will in good faith negotiate a lease for
the Managed Facilities pursuant to Section 4.04 herein. During such lease negotiations, this
Agreement shall remain in full force and effect; provided, however, this Agreement shall terminate
upon the effective date of a lease between Owner and Manager for the Managed Facilities.

          4.04 Option to Lease and Purchase/First Refusal Rights. As soon as practicable after
the Effective Date, but no later than June 30, 2004, Manager shall prepare and deliver a proposed
Lease Agreement (the “Lease Agreement”) which will provide for the lease by Manager of all of the
Managed Facilities. The initial term of the Lease will be five (5) years from the Start Date, with
two (2) renewal options of five (5) years each. The Lease Agreement will also include an option
for Manager to purchase all of the Managed Facilities. The terms of the Lease Agreement, including
the terms of the purchase option, will be based on the financial condition of the Managed
Facilities and on market conditions generally as of the execution and delivery of the Lease
Agreement. Manager and the Owner will in good faith negotiate the Lease Agreement. Assuming that
this Agreement and the Other Management Agreements have been executed and that they remain in full
force and effect, until December 31, 2005, the Owner will not take any action, directly or
indirectly, to initiate, assist, solicit, receive, negotiate, encourage or accept any offer or
inquiry from any person or entity to lease and/or purchase the Managed Facilities. If the Owner
and Manager are unable to reach agreement on the Lease Agreement by

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December 31, 2005, then the Owner shall be permitted to initiate, assist, solicit, receive,
negotiate, encourage or accept any offer or inquiry from any person or entity to lease and/or
purchase the Managed Facilities and Manager shall have the right to review any lease and/or
purchase agreement negotiated by the Owner and a third party lessee and/or purchaser (a “Third
Party Agreement”) for a period of fifteen (15) days prior to the execution and delivery of the
Third Party Agreement and to enter into an agreement with the Owner on economically similar terms
to the Third Party Agreement. In the event that Manager does not enter into an agreement with the
Owner after the expiration of the fifteen (15) day period, this Agreement and the Other Management
Agreements will terminate on the third anniversary of the Effective Date, and the Effective Date of
a lease with a party other than the parties hereto shall not be before June 30, 2006.

          4.05 Optional Early Termination. Notwithstanding anything to the contrary contained
herein, Manager shall, at its option, have the ability to terminate this Agreement and the Other
Management Agreements upon giving Owner six (6) months’ written notice of its intention to so
terminate for any or no reason; provided, however, that such termination shall not be effective
unless this Agreement and the Other Management Agreements are terminated simultaneously.

          4.06 Pre-Transition Phase. Manager shall initiate a pre-transition phase of all of
the Managed Facilities immediately following the execution of this Agreement and delivery of the
“IHS Notice” (as defined herein), whereby Manager will enter the Managed Facilities to: interview
and hire the administrators (who choose to accept employment upon Manager’s assumption of the
management of the Managed Facilities), assess all transition needs, assess the current accounting,
payroll and related systems, assess capital improvement needs, establish a relationship with the
IHS personnel and the employees of the Managed Facilities in contemplation of the transition of the
Managed Facilities to Manager as a manager; with the understanding that such pre-transition phase
will be at no cost to the Owner and that Manager shall not be obligated to assume full management
control of the Managed Facilities until the Effective Date.

5. Operation Of The Facility; Manager’s Services; Owner’s Responsibilities.

          5.01 General. Commencing with the Effective Date and continuing until the termination
of this Agreement, which period is hereinafter referred to as the “Operating Period”, Manager shall
use its commercially reasonable efforts to manage and operate the Facility in an efficient and
caring manner with the goal of providing services dedicated to the highest quality of care for the
Facility’s residents. Manager shall have full authority and responsibility to conduct, supervise
and manage the day-to-day operations of the Facility, and other than as set forth herein, Owner
agrees not to involve itself in these day-to-day operations.

          In the absence of oral or written policies of Owner, Manager shall be expected to exercise
reasonable judgment in its management activities, subject to the Owner’s direction and the written
policies and budgets approved by Owner. Manager shall specifically have responsibility, and
commensurate authority to provide the services described in this Section 5, operate the Facility in
the manner provided herein, and provide such additional services to Owner, at

- 3 -

 

Owner’s expense, as are deemed necessary or appropriate by the Owner and Manager for the
operation of the Facility. Owner covenants and agrees to fulfill any and all obligations imposed
upon it by the plan of operation described in this Agreement and to provide sufficient means, both
initially and throughout the term of this Agreement, to perform its covenants and obligations.

          5.02 Annual Budget.

	 	(a)	 	Prior to the beginning of the fiscal year, Manager shall submit to Owner, for Owner’s
approval, a proposed annual budget, which shall include both an operating budget and
capital expenditures budget for all of the Managed Facilities (the “Annual Budget”) for the
ensuing fiscal year. Capital expenditures included in the Annual Budget shall cover
Capital Replacements as described in Section 5.10. Owner’s approval of the Annual Budget
shall not be unreasonably withheld and shall be deemed given unless a specific written
objection thereto is delivered by Owner to Manager within fifteen (15) days after
submission thereof. Manager shall revise the Annual Budget from time to time to reflect
any unpredicted significant changes, variables or events or to include significant
additional unanticipated items of income or expense. Any such revision shall be submitted
to Owner for approval, which approval shall not be unreasonably withheld and shall be
deemed given unless a specific written objection thereto is delivered by Owner to Manager
within ten (10) days after submission thereof. Upon request of Owner, Manager shall
provide Owner with any data and information (reasonably requested by Owner) utilized in
preparing the Annual Budget or any revisions thereto. Material unbudgeted or unforecasted
expense and capital expenditures unforeseen at the time of preparation of the Annual
Budget, as reasonably deemed necessary by Manager, shall be presented to Owner for
approval. Manager shall not be deemed to have made any guarantee, warranty or
representation whatsoever in connection with the Annual Budget, and Owner acknowledges that
each Annual Budget furnished pursuant to this Agreement is intended only to be a reasonable
estimate of operating income and expenses.
	 
	 	(b)	 	In the event Owner shall disapprove or raise any objections to the proposed Annual
Budget, and Owner and Manager are unable to resolve the disputed or objectionable matters
submitted by Owner prior to the commencement of the applicable fiscal year, the aggregate
amount of revenues, expenses and capital expenditures reflected in the Annual Budget for
the preceding fiscal year, plus an amount equal to such Annual Budget multiplied by the
increase in the Consumer Price Index for the preceding fiscal year, shall be deemed to be
the amount of revenues and expenses and capital expenditures approved by both parties for
the new Annual Budget until such time as a new Annual Budget has been approved.
	 
	 	(c)	 	The Annual Budget shall provide that Owner shall receive targeted monthly disbursements
of the net income as calculated in accordance with GAAP from the operation of the Facility
in the amount of Fifty Thousand Dollars ($50,000.00) per month (in the aggregate for all of
the Managed Facilities) or in such amount as Manager and Owner may otherwise agree, but only
if such disbursements do not cause the Facility to be unable to satisfy their obligations
and liabilities as the same shall become due and payable in the ordinary course of business.
At the end of each year of the Initial Term or

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	 	 	 	any Renewal Term, Owner and Manager shall conduct a reconciliation to disburse all remaining
net income as calculated in accordance with GAAP from the operation of the Managed
Facilities to Owner, with the understanding that the Owner will leave sufficient working
capital available, as may be determined by Owner and Manager.

          5.03 Bank Accounts.

	 	(a)	 	Owner shall establish in its name at a bank or banks approved by Manager and Owner such
account(s) (the “Operating Account(s)”) as Owner and Manager deem necessary for the
operation of the Facility, and Manager’s designees shall be the only parties authorized as
signatories to draw on such Operating Account(s); provided, however, that Manager shall not
issue any check for more than Fifty Thousand Dollars ($50,000.00), except for debt service
and real property lease obligations, without Owner’s prior written consent.
	 
	 	(b)	 	Owner shall establish and maintain in its name at a bank approved by Manager and Owner
a savings or short-term investment account (the “Deposit Account”) for the deposit of any
excess operating funds that Manager and Owner, from time to time, determines are not
required to be maintained in the Operating Account for working capital.
	 
	 	(c)	 	Owner shall, at all times, be responsible to make adequate working capital available
for the Facility. At no time shall Manager have this responsibility.

          5.04 Staff. Manager shall hire, train, promote, discharge, and supervise the work of
the executive staff and all employees of the Facility. Manager shall supervise hiring, training,
promotion, discharge, and work of all operating and service employees performing services in or for
the Facility (the “Facility’s Employees”), all in the name and on the behalf of Owner. Except for
the Administrator, the Facility’s Employees shall be on the Owner’s payroll, and Manager shall not
be liable to such employees for their wages or compensation, nor shall Manager be liable to Owner
or others for any act or omission on the part of such employees unless Manager has directly failed
to use reasonable diligence in their hiring, discharge, or supervision so as to maintain a staff of
qualified, competent and trustworthy employees. Owner will obtain worker’s compensation insurance
covering all liability of Owner under Worker’s Compensation laws of the State of Ohio and will
maintain adequate professional and general liability insurance listing Manager as an additional
insured. Manager shall be entitled to procure and maintain such insurance in the name of and at
the expense of Owner.

          5.05 Business Office. Manager shall oversee the Facility’s business office and assure
that appropriate accounting and cost control systems and personnel are in place to support the
Facility’s business office needs. Manager shall oversee the preparation and filing of all
necessary reports with respect to withholding taxes, social security taxes, unemployment insurance,
disability insurance, the Fair Labor Standards Act and the other statements and reports pertaining
to labor employed on Owner’s payroll in or about the Facility. Manager shall establish and
supervise all bookkeeping, accounting and clerical services, including the maintenance of payroll
records and the filing of Medicaid/Medicare claims and other insurance programs with respect to
services rendered by the Facility to its residents, incident to the efficient operation and
maintenance of the Facility. All personnel at the Facility engaged in such

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bookkeeping, accounting, and clerical services shall be Owner’s employees. Manager further agrees
to oversee and will have reviewed, subject to Section 5.13 herein, the preparation of reports
(including Medicare and Medicaid cost reports) required by all applicable state and federal laws.

          5.06 Fees/Charges. Subject to the approval of the Owner, Manager shall establish,
maintain, revise and administer the overall charge structure of the Facility, including, without
limitation, fees, rentals, or charges of any kind, charges for ancillary services, medication, and
other items sold or services provided at the Facility by Owner.

          5.07 Complaints. Manager shall receive, consider, and handle any complaints of
residents, guests or users of any of the services or Facility of the Facility.

          5.08 Vendor Services. Subject to the limitations in the Annual Budget and other
applicable provisions of this Agreement, Manager shall enter into contracts in the name of and at
the expense of Owner for the furnishing to the Facility of any services that are needed by the
Facility including: electricity, gas, water, steam, telephone, cleaning services, vermin
extermination services, elevator and boiler maintenance, air conditioning maintenance, master
television antennas and/or cable television services, pharmacy, rehabilitation, medical supplies
and other necessary or appropriate utilities or services. Manager shall purchase all materials and
supplies properly chargeable to Owner in the name of, for the account of, and at the expense of
Owner.

          5.09 Repairs/Maintenance. Manager shall with Owner’s approval, arrange for, at
Owner’s expense and in the name of Owner, all alterations, repairs or replacements of equipment at
the Facility.

          5.10 Capital Expenditures And Replacements. Owner recognizes the necessity of
replacing furnishings and equipment at the Facility and other ordinary capital replacement items
(collectively, “Capital Replacements”) from time to time. Owner agrees to expend such amounts for
Capital Replacements as shall, in Owner’s opinion and in accordance with the Annual Budget, be
required in the normal and ordinary course of operation of the Facility to operate the Facility in
accordance with the applicable laws and regulations, and to renovate, modernize and improve the
Facility as may become necessary from time to time. Design and installation of Capital
Replacements or improvements initiated by the Owner shall be made in consultation with Manager and
Manager shall supervise the construction and/or installation thereof.

          5.11 Compliance With Laws. Manager shall endeavor at Owner’s expense, for the
Facility to comply in all material respects with any statutes, ordinances, laws, rules,
regulations, orders, and determinations affecting or issued in connection with the Facility and,
with the prior written consent of Owner, make arrangements for any alterations or repairs ordered
or required thereby, if not included in the Annual Budget. However, if any such alterations or
repairs are not made because Owner does not give its written consent after Manager’s request
thereof, then Owner shall hold Manager harmless from any liability that may arise by reason of the
failure to make such alternations or repairs. Notwithstanding the foregoing, in case of any
emergency or if the failure promptly to comply with any order or cure any violation will
potentially expose

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Manager to criminal or personal liability or jeopardize the health or safety of the residents, then
in such event Manager shall make arrangements for such order or violation to be complied with or
cured at Owner’s expense without awaiting Owner’s written consent. Owner and Manager each agree to
notify the other within twenty-four (24) hours after either of them become aware of any adverse
action that has been taken or has been threatened to be taken against or relating to the Facility
that could reasonably be expected to place the license or certification of the Facility in jeopardy
of being terminated. For purposes of this paragraph, adverse actions include any tag of J, K. L (a
“Tag”) placed on the Facility during any survey or any indication set forth in any written
correspondence from the Ohio Department of Health that the license of the Facility is proposed for
immediate revocation or immediate termination. In the event that the Facilities receives a Tag,
Owner shall have the right to consult with Manager as to the Facility’s plan of correction related
to that Tag, provided, however, that nothing contained herein shall be construed to interfere with
the Manager’s ability to submit the plan of correction to the appropriate governmental authority in
a timely manner. Owner shall also have the right to consult with Manager as to any final appeals
relating to such Tag or proposed revocation or termination. Unless otherwise directed by Owner,
Manager shall, at Owner’s expense, protest or litigate to final decision in any appropriate court
or forum any claim, order, rule, or regulation adversely affecting the Facility. Any counsel
engaged under this subparagraph shall be at Owner’s expense and be designated by Manager, subject
to Section 5.13 of this Agreement.

          5.12 Collection Actions. Subject to the provisions of Section 5.13 herein, Manager
shall institute, in its name or in the name of Owner, at the expense of Owner, any necessary legal
actions or proceedings to collect obligations owing to the Facility or to cancel or terminate any
contract with the Facility for breach thereof or default thereunder. Subject to the provisions of
Section 5.13 herein, any counsel engaged under this subparagraph shall be at Owner’s expense and be
designated by Manager.

          5.13 Legal, Financial and Other Professional Consultants. It is acknowledged
that Manager shall be permitted to select legal, financial and other professional consultants
(“Consultant”) to render services to the Facility operations in connection with Manager’s operation
thereof, without Owner’s consent, so long as any unbudgeted amount paid to such Consultant is less
than Five Thousand Dollars ($5,000.00) per Consultant, per Facility. Provided, however, that if
any Consultant chosen by Manager shall fail to achieve the objectives for which such Consultant is
retained, as determined in the reasonable discretion of the Owner, or if such Consultant’s actions
or omissions cause damages, losses or disruption to the operation of the Facility in the ordinary
course of business, then such Consultant shall immediately be prohibited from rendering services to
the Facility upon the request of the Owner, and in compliance with any contractual provisions for
termination of the Consultant. It is further acknowledged that any Consultants chosen by Manager
shall render services to the Facility only in connection with Manager’s operation thereof, but that
such Consultants shall not render services to, or on behalf of, the Owner, its affiliates,
directors, owners, shareholders, or trustees without the Owner’s express written consent.
Notwithstanding anything to the contrary set forth herein, Owner shall be permitted to identify and
hire any Consultant at any time to render services to the Managed Facilities, the Owner, its
affiliates, directors, owners, shareholders or trustees without Manager’s consent; provided, that,
the activities of such Consultant(s) does not materially disrupt or interfere with Manager or its
operation of the Facility.

- 7 -

 

          5.14 Owner’s Indebtedness. Manager shall use its best efforts to cause the Facility
to comply with all the terms, conditions and obligations contained in any note, loan agreement,
leasehold mortgage or other agreement executed by Owner which relates to the Facility. If
necessary, the Owner shall provide Manager with copies of any such note, loan agreement, mortgage
or other agreement and other supporting documentation as Manager may request.

          5.15 Signage. Owner and Manager acknowledge and agree that Manager shall be entitled
to cause a sign to be erected and maintained at the Facility at Owner’s expense. The sign will
display the name of the Facility.

6. Disbursements.

          6.01 Priority of Disbursements. All gross receipts shall be deposited in the various
Operating Accounts in such amounts as Manager deems appropriate given the general purpose of each
such account. Manager shall disburse funds on deposit in the Operating Accounts, for and on behalf
of Owner, in the following order of priority and to the extent available:

	 	(a)	 	All debt service obligations, and real property taxes of and relating to the Facility
(“Fixed Obligations”);
	 
	 	(b)	 	The Management Fee, Administrator’s salary and benefits, and all other reimbursable
expenses due Manager as may be set forth herein;
	 
	 	(c)	 	All Operating Costs of the Facility, defined as all costs of maintaining, operating and
supervising the operation of the Facility within the limits provided in the Annual Budget,
and reimbursable expenses;
	 
	 	(d)	 	Expenditures under Section 5.10, including those for Capital Replacements;
	 
	 	(e)	 	Disbursements to Owner as set forth in Section 5.02(c) of this Agreement.

          6.02 Adjustment To Bank Accounts. After the transfer to the Operating Accounts and
disbursements pursuant to Section 6.01, from time to time, any excess funds remaining in the
Operating Accounts over the amount which Manager and Owner reasonably anticipate will be required
to meet the immediate working capital needs of the Facility shall then be deposited to the Deposit
Account established pursuant to Section 5.03(b). Correspondingly, any deficiency in funds
necessary to pay all disbursements described in Section 6.01 or other reasonable and necessary
costs associated with the Facility’s assets and operations shall immediately, subject to the
provisions of Section 9.04 of this Agreement, be provided by Owner to Manager and deposited into
the Operating Accounts. The Deposit Account is a permissible source for funds to remedy any such
deficiency. Notwithstanding that Manager is authorized to and shall make the above-referenced
disbursements in the order set forth and to the extent funds are available, Owner solely will be
liable for all Fixed Obligations, Operating Costs, and all other costs or expenses of any kind
associated with the Facility, and Manager shall have no liability or obligation with respect
thereto.

- 8 -

 

7. Statements to Owner. Manager shall render statements to Owner as follows:

          7.01 Books and Records. Manager shall be responsible for establishing and maintaining
accounting procedures and controls, and systems for the development, preparation, and safekeeping
of financial records of the Facility (the originals to remain at the Facility), all subject to the
Owner’s review, with the understanding that all Financial Statements below shall also be prepared
on a consolidated basis for all of the Managed Facilities. Included in the foregoing will be the
following:

	 	(a)	 	Preparation of annual Financial Statements (which shall only be audited by an
independent certified public accounting firm, which is acceptable to Owner , subject to
Section 5.13 of this Agreement and paid for with funds of the Facility, when requested by
Owner in writing), within one hundred twenty (120) days after the end of the respective
fiscal year of the Facility, which statements shall include a Balance Sheet, a Statement of
Income, a Statement of Cash Flow, Notes to the Financial Statements and such supporting
schedules as required by the Owner.
	 
	 	(b)	 	Monthly, quarterly and annual unaudited Financial Statements of the Facility prepared
in accordance with Generally Accepted Accounting Principles (“GAAP”), within forty-five
(45) days after the end of each calendar month, quarter or year, as the case may be, which
statements shall include a Balance Sheet, Statement of Income, and Statement of Cash Flow
for the quarter then ended and year to date, with comparison to the budgeted results for
the quarter and actual to budget variances.
	 
	 	(c)	 	Upon Owner’s request, an aged accounts receivable report of the Facility showing
aggregate accounts receivable by insurance payor or private pay patients, and monthly
census by payor for 30 day, 60 day, 90 day, 120 day and over 120 day categories, within ten
(10) days of such request.
	 
	 	(d)	 	All Medicare and Medicaid cost reports, any amendments thereto, audit reports, or
inquiries and responses with respect to such cost reports, within ten (10) days of filing
or receipt of such reports. Manager shall supervise the preparation of the annual Medicare
and Medicaid cost reports, and subject to Section 5.13 of this Agreement, may engage
third-party cost report preparation service at Owner’s expense.
	 
	 	(e)	 	Copies of all licensure and certification survey reports and statements of deficiencies
within ten (10) days of receiving such reports, and copies of the plans of correction upon
their completion.
	 
	 	(f)	 	Any and all notices (regardless of form) from any and all licensing and/or certifying
agencies that the nursing home licensure and/or the Medicare and/or Medicaid certification
of the Facility is being downgraded to a substandard category, revoked, or suspended, or
that action is pending or being considered to downgrade to a substandard category, revoke,
or suspend that Facility’s licensure or certification within twenty-four (24) hours of
receipt of such reports.
	 
	 	(g)	 	Upon Owner’s request, evidence of payment by Manager of any applicable provider bed
taxes or similar taxes, within ten (10) days of such request.

- 9 -

 

	 	(h)	 	Manager further agrees to supervise the correction of any deficiency, with the
cooperation of the Owner (identified pursuant to (e) and (f) above) within the period
required by the licensure and certification agency, if such deficiency could adversely
affect either the right to continue participation in Medicare and Medicaid for existing
patients or the right to admit new Medicare and Medicaid patients; provided Manager may
correct any such item in a longer period if permitted pursuant to available stay or appeal
procedures. Owner shall have the responsibility to pay for the cost of the correction of
any deficiency, including, but not limited to, the cost of any physical plant or life
safety violations.
	 
	 	(i)	 	In all accounting services to be provided by Manager, Manager is expressly permitted to
deploy software applications of its choosing to maintain the books and records of the
Facility, unless the Owner specifies the use of a particular system (such as one that may
already be present at the Facility). In either event, and subject to Owner’s prior written
consent, Owner shall bear the economic responsibility for the provision of such software
applications, licenses, computer equipment, and all other matters related to the provision
of accounting services under this Agreement, as if the Owner were providing the services
itself.

8. Administrator. Manager shall on Owner’s behalf, and after notice to Owner before
hiring, select the administrator for the Facility (“Administrator”) who shall be an employee of
Manager, provided however, that the cost and expenses associated with Administrator’s aggregate
compensation, including all employee benefits to which Administrator is entitled as an employee of
Manager, shall be a Facility expense reimbursed by Owner to Manager in accordance with Section 9.05
of this Agreement.

9. Manager Compensation.

          9.01 Revenue and Margin Criteria. “Net Revenues” shall be calculated in accordance
with GAAP, and, for the purposes herein, as revenues from routine room and board, plus ancillary
and miscellaneous revenue, adjusted for contractual allowances. “EBITDARM” is understood to mean
earnings before interest, taxes, depreciation, amortization, rent and management fee. “Operating
Profit Margin” for purposes herein, shall mean EBITDARM.

          9.02 Base Management Fee. As compensation for the services to be rendered by Manager
during the term of this Agreement, Owner shall pay to Manager a base annual management fee equal to
four percent (4%) of Net Revenues (the “Base Fee”). The Base Fee shall be payable in monthly
installments in advance on the tenth (10th) day of each month.

          9.03 Incentive Management Fee. In addition to the Base Fee, Manager also shall be
entitled to an incentive fee. If the aggregate Operating Profit Margin for the overall combined
operation of all of the Managed Facilities, as determined on an annual accrual basis for each year
of the Initial Term or any Renewal Term, is between fifteen and seventeen percent (15 -17%), then
Manager shall be entitled to an incentive fee of an additional one-half percent (1/2 %) of Net
Revenues; provided, however, that if the aggregate Operating Profit Margin for the overall

- 10 -

 

combined operation of all of the Managed Facilities, as determined on an annual accrual basis for
each year of the Initial Term or any Renewal Term, is in excess of seventeen percent (17%), then
Manager shall be entitled to an incentive fee of an additional one percent (1%) of Net Revenues,
with the understanding that such incentive fee shall not exceed one percent (1%) of Net Revenues at
any time. In all cases, the foregoing incentive fee (whether one-half percent or one percent, the
“Incentive Fee”) will be mutually estimated by Manager and Owner at the end of the first quarter of
the Initial Term and paid monthly in arrears; provided, however, that at the end of each year of
the Initial Term or any Renewal Term, Manager and Owner shall conduct a reconciliation of the
Incentive Fee to appropriately “true-up” the amount of the Incentive Fee to reflect actual annual
performance and appropriately adjust future payments and/or refund previous overpayments of the
Incentive Fee. The Base Fee and the Incentive Fee are collectively referred to as the “Management
Fee.”

          9.04 Deferment of Base Fee. If Owner does not have sufficient funds in any particular
month to pay Manager the installment of the Base Fee for such month in whole or in part, then
Manager will defer payment of that portion of the Base Fee installment for that month which is
unpaid for each succeeding month until the deferred portion of the Base Fee installment is paid in
full. On the anniversary of three (3) months from the Effective Date, Owner will pay to Manager an
amount equal to four percent (4%) of the Net Revenues less the aggregate monthly
installments paid to Manager during the preceding three (3) months (the “Base Fee True-Up Amount”).
If, on such anniversary date, Owner does not have sufficient funds to pay the Base Fee True-Up
Amount, then the Base Fee True-Up Amount shall accrue and bear interest at the then Prime Rate of
interest as published in The Wall Street Journal (or any successor publication) plus one and
one-half percent (1.5%) per annum until such time as Owner possesses sufficient funds to pay such
Base Fee True-Up Amount, provided, however, that Manager shall have the right, but not the
obligation, to apply any Base Fee True-Up Amounts (together with the interest earned thereon) to
the payments which may be owed by it under the Lease Agreement (proposed between Owner and Manager
and as defined herein). Notwithstanding anything contained herein to the contrary, no
distributions to the Owner may be made unless and until all amounts owed to Manager in respect of
its Base Fee have been paid to Manager in full.

          9.05 Reimbursement Of Expenses. It is intended by Owner and Manager that the
Management Fee provided in Section 9.02 be “net” to Manager. Owner and Manager acknowledge and
agree that Owner will be billed directly for the Administrator’s salary and benefits and actual
cost of consumable supplies and postage utilized in connection with the operation of or on behalf
of the Facility. Owner further covenants and agrees to reimburse Manager for any and all local
travel expenses reasonably incurred by Manager’s employees in connection with the performance of
Manager’s obligations hereunder and such other travel, lodging, entertainment or other business
expenses as are approved by Owner in advance and in writing. Notwithstanding anything contained in
this Agreement to the contrary, Owner is contracting with Manager to provide day-to-day management,
operational support and guidance to the Facility which is included in the Management Fee payable
hereunder; provided, however that Owner is not agreeing to or authorizing Manager to charge,
allocate or receive payment for any of its home office costs, central office costs, or other
expenses incurred by Manager in connection with the management of the Managed Facilities and the
performance of Manager’s duties hereunder. Pursuant to that end, any expenses of Manager other
than as specifically set

- 11 -

 

forth herein and/or as agreed to in the Annual Budget shall not be expenses of the Facility or
of Owner.

          9.06 Duty to Perform. In the event that Manager is not paid its Base Fee pursuant to
Sections 9.02 and 6.01(b), and subject to Section 9.04 of this Agreement, such non-payment shall be
deemed an Event of Default under Section 11.01 herein, and Manager shall have no obligation to
perform any services under this Agreement on a prospective basis. In the event that Manager
installs equipment at the Facility, at its expense, no party, including any lender of the Owner,
shall be entitled to any security interest in the Manager’s equipment so installed at the Facility.

10. Insurance.

          10.01 Required Coverage. Manager shall maintain at Owner’s expense, insurance of such
kinds and in such amounts as Owner shall be required to carry pursuant to the provisions of any
mortgage or other loan affecting the Facility or the real property upon which it is erected, as
well as any other insurance that Owner shall require or that is required by law. Such insurance
shall be obtained with companies and through brokers acceptable to Owner and Manager.

          10.02 Schedule of Insurance. As soon as practicable after the submission of the first
Annual Budget, Manager shall furnish Owner with a schedule setting forth the kinds and amounts of
insurance Manager recommends procuring at Owner’s expense in connection with the operation of the
Facility, which schedule shall include, in addition to the kinds and amounts of insurance required
to be maintained pursuant to any applicable law, note, loan agreement or mortgage, such other kinds
and amounts of insurance as Manager shall deem necessary or advisable for the protection of Manager
and Owner. Promptly following receipt of such schedule, Owner shall notify Manager of any changes
which Owner shall elect to make in such schedule and Manager shall promptly apply for and obtain,
if obtainable, all such insurance.

          10.03 Modifications of Coverage. Concurrently with the submission of each subsequent
Annual Budget, Manager shall furnish Owner with a schedule setting forth the kinds and amounts of
insurance then in force and the names of the insurers and also setting forth such additional kinds
and amounts of insurance which Manager recommends procuring at Owner’s expense. Promptly following
the submission of each such schedule, Owner shall notify Manager of any change in the kinds and
amounts of insurance then in force or intended to be procured by Manager which Owner shall elect to
make and Manager shall forthwith apply for and obtain, if obtainable, endorsements to reflect any
such changes in the insurance then in force and such additional kinds and amounts of insurance.

          10.04 Named Insureds. All policies of insurance shall name Owner, Manager, and such
other parties as may be required by the provisions of any mortgage as the insured thereunder, as
their respective interests may appear. All policies of hazard insurance shall include loss payment
clauses in the form required by any mortgage. All insurance shall be obtained at Owner’s expense.
Manager shall ensure that the originals of all policies of insurance and duplicates thereof are
delivered to Owner and to the holder of any mortgages as Owner shall direct.

- 12 -

 

          10.05 Notice of Claims. Owner shall give prompt notice to Manager of any claims made
against Owner, or Owner and Manager, and shall cooperate fully with Manager and with any insurance
carrier to the end that all such claims will be properly investigated, defended and adjusted.
Notwithstanding Section 5.13 of this Agreement, Manager shall not hire any attorneys to defend any
such claims against Owner or the Facility without Owner’s prior written consent. Manager shall not
negotiate, offer to settle or agree to settle any claims made against Owner or the Facility without
Owner’s prior written consent.

11. Events of Default.

                    11.01 Owner. With respect to Owner it shall be an event of default (“Event of
Default”) hereunder:

	 	(a)	 	     If, taking into account Section 9.04, Owner shall fail to make or cause to be made any
payment to Manager required to be made hereunder;
	 
	 	(b)	 	     If Owner shall fail to keep, observe or perform any agreement, term or provision of
this Agreement to be kept, observed or performed by it and such default shall continue for
a period of thirty (30) days after written notice thereof by Manager to Owner, including,
but not limited to, Owner’s failure to meet an obligation to employees or vendors;
	 
	 	(c)	 	     If Owner shall fail to make payments, or keep any covenants, owing to any third party
which would cause Owner to lose possession of the Facility building, equipment or property;
	 
	 	(d)	 	     If as much as thirty-three percent (33%) of the Facility’s total occupancy capacity, or
if any material service of the Facility, shall be rendered incapable of normal operation
because of fire or other casualty and shall not be repaired, restored, rebuilt or replaced
within twelve (12) months after such fire or other casualty;
	 
	 	(e)	 	     If, through no fault of Manager, the licenses required for the operation of the
Facility are at any time suspended, terminated or revoked, and such suspension,
termination, or revocation shall continue unstayed and in effect for a period of ninety
(90) days thereafter;
	 
	 	(f)	 	     If Owner files any debtor relief action under the Bankruptcy Code (as it now exists or
as amended) if any involuntary proceeding under the Bankruptcy Code is filed against Owner;
or if Owner is unable to or admits in writing its inability to pay its debts as they become
due, makes an assignment for the benefit of creditors, has a receiver appointed voluntarily
or otherwise for its property, is adjudicated as bankrupt, suspends its business, permits a
judgment to be obtained against it which is not promptly paid or promptly appealed and
secured pending appeal, becomes insolvent, however otherwise evidenced, or defaults in the
payment of any indebtedness owed by Owner or permits the time of payment of such
indebtedness to be accelerated due to default.
	 
	 	(g)	 	     If, through no fault of Manager, Facility is no longer entitled to participate in
either the Medicare or Medicaid programs.

- 13 -

 

               11.02 Manager. With respect to Manager, it shall be an Event of Default hereunder:

	 	(a)	 	If Manager shall fail to keep, observe or perform any material agreement, term
or provision of this Agreement and/or the Other Management Agreements to be kept,
observed or performed by it and such default shall continue for a period of thirty (30)
days after written notice thereof by Owner to Manager, including, but not limited to,
Manager’s failure to meet a material obligation to employees or vendors;
	 
	 	(b)	 	If Manager shall fail to make payments, or keep any material covenants, owing
to any third party which would cause Owner to lose possession of the Facility building,
equipment or property, provided that the Owner has made sufficient funds available;
	 
	 	(c)	 	If, through no fault of Owner, the licenses required for the operation of the
Facility are at any time suspended, terminated or revoked, and such suspension,
termination, or revocation shall continue unstayed and in effect for a period of ninety
(90) days thereafter;
	 
	 	(d)	 	If Manager files any debtor relief action under the Bankruptcy Code (as it now
exists or as amended) if any involuntary proceeding under the Bankruptcy Code is filed
against Manager; or if Manager is unable to or admits in writing its inability to pay
its debts as they become due, makes an assignment for the benefit of creditors, has a
receiver appointed voluntarily or otherwise for its property, is adjudicated as
bankrupt, suspends its business, permits a judgment to be obtained against it which is
not promptly paid or promptly appealed and secured pending appeal, becomes insolvent,
however otherwise evidenced, or defaults in the payment of any indebtedness owed by
Manager or permits the time of payment of such indebtedness to be accelerated due to
default.
	 
	 	(e)	 	If, through no fault of Owner, Facility is no longer entitled to participate in
either the Medicare or Medicaid programs.

12. Remedies Upon Default.

          12.01 Remedies of Manager. If any Event of Default by Owner shall occur and be
continuing for thirty (30) days after written notice thereof has been given to Owner, Manager may,
in addition to any other remedy available to it in law or equity on account of such Event of
Default, forthwith terminate this Agreement, and remove all of its property and employees, if any,
from the Facility. In such event, Manager shall be entitled to immediately receive payment of all
accrued and unpaid amounts due to Manager pursuant to the terms hereof and neither party shall have
any further obligations whatsoever under this Agreement, except pursuant to the indemnity
provisions of Section 13. Further, Manager shall have the right to confess judgment against Owner
in the event that Owner fails to pay its Management Fee pursuant to Sections 6.01(b) or 9.02 herein
(subject to 9.04), and Owner shall have the option to terminate this Agreement and the Other
Management Agreements if Manager exercises this right, upon written notice to Manager, without
further liability to Manager, other than for any amounts past due to Manager, and for continued
compensation pursuant to the terms of this Agreement for services

- 14 -

 

rendered at the Facility after the termination and prior to Manager’s transition out of the Managed
Facilities.

          12.02 Confession of Judgment. Owner hereby authorizes any attorney at law to appear
in any court of record in any county in the State of Ohio, after the obligation evidenced in
Paragraphs 6.01(b) and 9.02 herein (subject to 9.04), or any part thereof, becomes past due and is
unpaid for a period of thirty (30) days pursuant to the provisions of Section 12.01 herein, and
waives the issuance and service of process and confess judgment against the Owner in favor of
Manager for the amount then past due, together with the costs of suit, and thereupon to release all
errors and waive all right of appeal and stay of execution, unless bonded at 110% of the judgment,
but no judgment or judgments shall be a bar to any subsequent judgment against the Owner against
whom and for amounts of judgment not taken.

          12.03 Remedies of Owner. If any Event of Default by Manager shall occur and be
continuing for thirty (30) days after written notice thereof has been given to Manager, Owner may,
in addition to any other remedy available to it in law or equity on account of such Event of
Default, forthwith terminate this agreement, whereupon Manager shall remove all of its property and
employees, if any, from the Facility. In such event, Manager shall be entitled to receive payment
of all accrued and unpaid amounts due to Manager pursuant to the terms hereof, as of the date of
termination and neither party shall have any further obligation whatsoever under this Agreement,
except pursuant to indemnity provisions of Section 13.

          12.04 Rights Cumulative; No Waiver. No right or remedy herein conferred upon or
reserved to either of the parties hereto is intended to be exclusive of any other right or remedy,
and each and every right and remedy shall be cumulative and in addition to any other right or
remedy given hereunder, or now or hereafter legally existing upon the occurrence of an Event of
Default hereunder. The failure of either party hereto to insist at any time upon the strict
observance or performance of any of the provisions of this Agreement or to exercise any right or
remedy as provided in this Agreement shall not impair any such right or remedy or be construed as a
waiver or relinquishment thereof with respect to subsequent defaults. Every right and remedy given
by this Agreement to the parties hereof may be exercised from time to time and as often as may be
deemed expedient by the parties hereto, as the case may be.

13. Indemnity.

          13.01 Indemnification Obligations.

	 	 (a)	 	Owner shall indemnify and hold harmless Manager and its affiliates, their
owners, officers, directors and employees, from and against any and all liability,
including all expenses, costs and reasonable attorney’s fees (“Damage(s)”), arising out
of or caused by negligent or intentional acts or omissions of any officer, director,
agent or employee of Owner, provided such Damage(s) were not the result of Manager’s
intentional actions or intentional omissions, or those intentional actions or
intentional omissions of its employees.
	 
	 	 (b)	 	Manager shall indemnify and hold harmless Owner and its affiliates, their
owners, officers, directors and employees, from and against any and all Damage(s),
arising

- 15 -

 

	 	 	 	out of or caused by intentional acts or omissions of any officer, director, agent or
employee of Manager, provided such Damage(s) were not the result of Owner’s intentional
actions or intentional omissions, or those intentional actions or intentional omissions
of its employees.
	 
	 	(c)	 	Other than as set forth in Section 13.01 (b) above and as otherwise may be
reflected in this Agreement or the Other Management Agreements, Manager shall not, by
entering into and performing this Agreement, become liable for, and Owner shall
indemnify and hold it harmless against, any and all of the existing or future
obligations, liabilities or debts of the Facility or of Owner. Manager’s only
obligation shall be to exercise reasonable care in the management and handling of; 1)
the staff working at the Facility, 2) of funds generated from the operation of the
Facility, and 3) the residents of the Facility.
	 
	 	(d)	 	Manager shall be liable only for damages solely attributable to the intentional
acts or intentional omissions of its officers, directors, agents and employees and
shall hold Owner harmless from any liability, including reasonable attorney’s fees,
arising therefrom.

          13.02 Indemnification Assistance; Limitation on Manager’s Indemnification.

	 	(a)	 	Any party entitled to indemnification hereunder (the “Indemnified Party”)
agrees to give the party which would be liable for damages to the Indemnified Party
(the “Indemnifying Party”) reasonable access to the books and records and employees of
the Indemnified Party in connection with the matters for which indemnification is
sought hereunder, to the extent the Indemnifying Party reasonably deems necessary in
connection with its rights and obligations hereunder.
	 
	 	(b)	 	The Indemnified Party shall assist and cooperate with the Indemnifying Party in
the conduct of litigation, the making of settlements and the enforcement of any right
of contribution to which the Indemnified Party may be entitled from any person or
entity in connection with the subject matter of any litigation subject to
indemnification hereunder. In addition, the Indemnified Party shall, upon the
reasonable request by the Indemnifying Party or counsel selected by the Indemnifying
Party (with reimbursement of any reasonable fees, wages, costs or expenses incurred by
the Indemnified Party or an employee thereof in connection therewith), attend hearings
and trials, assist in the securing and giving of evidence, assist in obtaining the
presence or cooperation of witnesses, and make available its own personnel.
	 
	 	(c)	 	Notwithstanding any other provision of this Agreement, the maximum aggregate
liability of Manager for its indemnification obligations under this Agreement shall not
exceed the Base and Incentive Management Fees paid by Owner to Manager under this
Agreement and the Other Management Agreements during the Initial Term of this Agreement
and the Other Management Agreements or any Renewal Term thereof, if applicable.

- 16 -

 

14. Disclaimer Of Intent To Become Partners. Manager and Owner shall not by virtue of this
Agreement be deemed partners or joint venturers in the operation of the Facility or any related
Facility. It is expressly understood that Manager is hereby retained by Owner to manage the
Facility on behalf of Owner and that Manager is constituted the agent of Owner only for the purpose
of carrying out its obligations under this Agreement.

15. Notices. Any and all notices, consents, or directives by either party intended for the
other shall be in writing, and shall be deemed given when delivered by hand, or nationally
recognized overnight courier, or sent by registered or certified mail, return receipt requested,
postage prepaid to the applicable addresses set forth below:

	 	 	 	 	 
	 

	 	Owner:
	 	c/o Health Care Industries Corporation
	 

	 	 	 	1930 North Lakeman Drive, Unit 103 Rear
	 

	 	 	 	Bellbrook, OH 45305
	 

	 	 	 	Attn: Rosalyn Semelsberger
	 

	 	 	 	Facsimile: (937) 848-4146
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Victor J. Bierman, III, Esq.
	 

	 	 	 	Roth Bierman
	 

	 	 	 	5196 Richmond Road
	 

	 	 	 	Bedford Heights, OH 44146
	 

	 	 	 	Facsimile: (216) 595-0073
	 
	 	 	 	 
	 

	 	Manager:
	 	Tandem Regional Management of Ohio, Inc.
	 

	 	 	 	c/o 4415 Pheasant Ridge Road, SW
	 

	 	 	 	Suite 300
	 

	 	 	 	Roanoke, VA 24014
	 

	 	 	 	Attn: Joseph D. Conte, President
	 

	 	 	 	Facsimile: (540) 772-6479
	 
	 	 	 	 
	 

	 	With a copy to:
	 	Rosemary L. Corsetti, Esquire
	 

	 	 	 	Tandem Health Care
	 

	 	 	 	200 Corporate Center Drive, Suite 360
	 

	 	 	 	Moon Township, PA 15108
	 

	 	 	 	Facsimile: (412) 893-1055

or to such other address as either party shall have designated to the other in a written notice
provided pursuant to any of the methods of notice described above.

16. Miscellaneous.

          16.01 Assignment. In the event of the permitted sale, lease or other transfer of the
Facility this Agreement may be assigned by Owner to the acquiring entity, but no such assignment
shall relieve the Owner of its obligations hereunder, unless Manager agrees in writing that Owner
shall be fully released and relieved of all obligations hereunder. No other assignments are
permitted without the prior written consent of the non-assigning party.

- 17 -

 

          16.02 Entire Agreement. This Agreement constitutes the entire agreement of the
parties hereto and cannot be changed or modified except by another writing signed by the party
sought to be charged therewith.

          16.03 Successors And Assigns. This Agreement and all the provisions hereunder shall
be binding upon, and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.

          16.04 Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio , exclusive of its conflict of law provisions.

          16.05 Severability. If any of the provisions of this Agreement shall be construed to
be illegal or invalid, such construction shall not affect the legality or validity of any of the
other provisions hereof, and the illegal or invalid provisions hereof shall be deemed stricken and
deleted herefrom, to the same extent as if never incorporated herein, but all other provisions
hereof shall remain in full force and effect.

          16.06 Captions. The captions of various of the provisions of this Agreement are
inserted for convenience only, and are in no way to be construed as part of this Agreement or as a
limitation on the scope of the particular provisions to which they refer.

          16.07 No Third Party Beneficiaries. It is the intention of the parties to this
Agreement that no third party shall have the benefit of or any rights under any of the provisions
hereof.

          16.08 Binding Arbitration. The parties agree to meet in good faith for thirty (30)
days to resolve any dispute, controversy or claim arising out of this Agreement. In the event that
the parties are unable to reach a mutual agreement, the parties agree to submit the matter to
binding arbitration, with the administrative costs of the arbitration proceedings to be split
equally between the parties. Any arbitration under this section shall be conducted in accordance
with the American Health Lawyers Association Alternative Dispute Resolution Service Rules of
Procedure for Arbitration, and judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof. The place of arbitration shall be Cincinnati, Ohio. The
arbitrators shall decide legal issues pertaining to the dispute, controversy or claim pursuant to
the laws of the State of Ohio. Subject to the control of the arbitrators, or as the parties may
otherwise mutually agree, the parties shall have the right to conduct reasonable discovery and the
arbitrators shall follow the Federal Rules of Evidence and the Federal Rules of Civil Procedure.
The arbitrators shall have no authority to award punitive damages, but shall have authority to
order equitable relief.

          16.09 IHS Notice. Immediately upon the execution of this Agreement and the Other
Management Agreements, Manager and Owner shall provide written notice regarding the proposed
transition of the Facility to Manager as a manager. Such notice shall also provide that IHS and
its representatives shall be permitted to share any and all information and records relating to the
operation of the Facility with Manager during the pre-transition phase and after the Effective
Date.

          16.10 HIPAA Compliance. Each of the parties hereby represents and warrants and
covenants that it is presently taking and will continue to take all actions necessary to assure that

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it shall, on or before each applicable compliance date and continuously thereafter, comply
with Public Law 104-191 of August 21, 1996, known as the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) and its implementing regulations, including without
limitation, the Standards for Electronic Transactions and Code Sets (45 CFR Parts 160 and 162), the
Standards for Privacy of Individually Identifiable Health Information (45 CFR Parts 160 and 164),
the Security Standards for the Protection of Electronic Protected Health Information (45 CFR Parts
160 and 164) and such other regulations that may, from time to time, be promulgated thereunder.

          IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed by its authorized
officer on the date first above written.

	 	 	 	 	 	 	 
	 	 	OWNER:
	 
	 	 	 	 	 	 
	 	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Its:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	HEALTH CARE INDUSTRIES COPORATION, on behalf of itself and its affiliates
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Its:	 	 
	 

	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	MANAGER:
	 
	 	 	 	 	 	 
	 	 	TANDEM REGIONAL MANAGEMENT OF OHIO, INC.
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 	 	 	 	 
	 

	 	 	 	Its:	 	 
	 

	 	 	 	 	 	 

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Schedule I

Omitted Documents

	•	 	Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of
Ohio, Inc., Arcadia Nursing Center, Inc. d/b/a Arcadia Nursing Center, a facility located
in Coolville, Ohio, and Health Care Industries Company.
	 
	•	 	Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of
Ohio, Inc., Hickory Creek of Athens, Inc. d/b/a Hickory Creek Nursing Center, a facility
located in The Plains, Ohio, and Health Care Industries Company.
	 
	•	 	Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of
Ohio, Inc., Eagle Creek Nursing Center, Inc. d/b/a Eagle Creek Nursing Center, a facility
located in West Union, Ohio, and Health Care Industries Company.
	 
	•	 	Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of
Ohio, Inc., Indian Hills Nursing Center, Inc. d/b/a Indian Hills Nursing Center, a facility
located in Euclid, Ohio, and Health Care Industries Company.
	 
	•	 	Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of
Ohio, Inc., Southern Hills Health and Rehabilitation Center, Inc. d/b/a Southern Hills
Health and Rehabilitation Center, a facility located in Middleburg Heights, Ohio, and
Health Care Industries Company.
	 
	•	 	Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of
Ohio, Inc., Sycamore Creek Nursing Center, Inc. d/b/a Sycamore Creek Nursing Center, a
facility located in Coraopolis, Pennsylvania, and Health Care Industries Company.
	 
	•	 	Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of
Ohio, Inc., Minster Nursing Center, Inc. d/b/a Heritage Manor Nursing Home, a facility
located in Minster, Ohio, and Health Care Industries Company.
	 
	•	 	Management Agreement dated as of June 9, 2003 by and among Tandem Regional Management of
Ohio, Inc., Scenic Hills Nursing Center, Inc. d/b/a Scenic Hills Nursing Center, a facility
located in Bidwell, Ohio, and Health Care Industries Company.

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