Document:

exv10w6w1

 

Exhibit 10.6.1

THE COVENANT GROUP

MANAGEMENT AGREEMENT

     THIS MANAGEMENT AGREEMENT (the “Agreement”) entered into effective as of
the 18th day of August, 2004 by and between COVENANT PLACE OF WAXAHACHIE, INC.
(“Owner”), a corporation organized under the laws of the State of Delaware, and
CGI MANAGEMENT, INC. (“Capital”), a corporation organized under the laws of the
State of Delaware.

Preamble

     OWNER by this Agreement is engaging Capital to provide management
services relating to the operation of a senior living community known as
Covenant Place of Waxahachie (the “Facility”) located in Waxahachie, Texas, on
the land identified in Exhibit A.

     This Agreement is founded on the following assumptions:

     1. Owner retains primary responsibility to the extent provided herein for
the following:

	 	a.	 	Establish the policies of the Facility and to
plan for its short-range and long-range goals.
	 
	 	b.	 	Review and evaluate the performance of Capital in
carrying out the
established policies and in attaining the goals established
by Owner.
	 
	 	c.	 	Annually review and approve the budget.
	 
	 	d.	 	Annually review the policies and goals which have been
established.

     2. Capital assumes primary responsibility to the extent provided herein
for the following:

	 	a.	 	Implement the policies established by Owner.
	 
	 	b.	 	Supervise the day-to-day management of the
Facility, including all resident activities.
	 
	 	c.	 	Provide to Owner full, timely and accurate
information as to past operations.
	 
	 	d.	 	Provide to Owner projections and recommendations
relating to the future operations of the Facility.

MANAGEMENT AGREEMENT — Page 1

 

 

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants, conditions and agreements hereinafter set forth, the parties
hereby agree as follows:

	I.	 	Responsibilities of Capital

	 	A.	 	Implement Policies. Capital shall implement policies and
goals approved by Owner including, but not limited to, the level
and quality of services to be provided to the residents.
	 
	 	B.	 	Management Duties. Capital shall supervise the operation of
the Facility, provide management services, install operating
procedures and oversee day-to-day operations, all subject to and in
accordance with the budgets approved by and policies established by
Owner.
	 
	 	C.	 	Marketing Duties. Capital shall manage and supervise the
marketing program. Capital shall periodically review the residency
agreement and if required, recommend changes thereof.
	 
	 	D.	 	Employees. All Facility-based employees shall be employees
of Capital. Owner shall reimburse Capital for all costs of hiring,
equipping and providing the services of Facility-based employees,
including, but not limited to, compensation, health insurance,
employer liability insurance, payroll taxes, bonding, workers
compensation insurance, benefits and vacations.
	 
	 	E.	 	Operating Procedures. Capital shall develop, install and
maintain operating procedures, systems and controls.
	 
	 	F.	 	Facility Expansion. Capital shall make recommendations
regarding remodeling or expansion of the Facility.
	 
	 	G.	 	Budgets. Capital shall prepare for review and approval by
Owner, such approval not to be unreasonably withheld, annual
operating budgets for revenue, expense and cash flow of the
Facility and a capital expenditures budget. Budgets shall be
prepared in advance of each fiscal year and delivered to Owner at
least sixty (60) days prior to the beginning of each fiscal year.
Cash flow projections shall accompany each operating budget. Any
changes to the budgets must be approved by Owner, such approval not
to be unreasonably withheld. In the event Owner and Capital do not
agree on an operating budget or capital expenditure budget for any
given fiscal year, Capital shall be authorized to operate
temporarily under the previous operating budget (plus a three
percent (3%) increase for expenses) and capital expenditure budget
until the parties, acting reasonably, are able to agree on the
budgets for such fiscal year.
	 
	 	H.	 	Financial Controls. Capital shall establish and maintain a
system of financial controls for the Facility.
	 
	 	I.	 	Monthly Financial Statements. Capital shall provide to
Owner, on a monthly basis, financial statements and related
financial reports in the form attached as Schedule I.

MANAGEMENT AGREEMENT — Page 2

 

 

	 	 	 	Such statements and reports shall be provided by the 14th day
after the end of the month.
	 
	 	J.	 	Marketing Reports. Capital shall, on a weekly and monthly
basis, provide sales and occupancy reports to Owner, as well as the
results of the annual resident satisfaction survey.
	 
	 	K.	 	Legal Counsel. Capital, at Facility expense, shall
coordinate with Owner the utilization of legal counsel relating to
Facility operations.
	 
	 	L.	 	Rental Collections and Disbursements. Capital shall collect
the revenues from the residents and, on behalf of Owner, deposit
all such funds in a residential depository account at a FDIC
insured bank approved by Owner. The style of the account shall be
in the name of the Facility with designated representatives from
Owner and Capital being the only parties authorized to draw from
said account.
	 
	 	 	 	On an as needed basis, Capital shall transfer the funds from the
above stated account into an Operating Expense Account in the name
of the Facility. The account shall be in a FDIC insured bank
approved by Owner. The style of the account shall be in the name
of the Facility with designated representatives from Owner and
Capital being the only parties authorized to draw from said
account. These funds shall not be co-mingled with funds from any
other projects and/or facilities managed and/or operated by
Capital. Capital shall pay out of such Operating Expense Account
all operating expenses for which payment has been approved in
accordance with the budget or approved by Owner (including
Capital’s Management Fee and any other stuns due to Capital from
Owner), and all other sums properly payable pursuant to any of the
provisions of this Agreement. In no event will Capital be required
to provide working capital funds to Owner or Facility or to
advance or fund the Operating Expense Account.
	 
	 	M.	 	Accounting Systems and Software. Capital shall provide to
Owner, during the term of this Agreement, appropriate on-site
accounting systems and software, which shall include complete
accounting, bookkeeping and record keeping services for the
Facility, specifically including, but not limited to, resident
billings, accounts payable, accounts receivable, general ledger and
inventory records and maintain demographic information on the
residents. Acquisition of software for Facility based operations,
software maintenance and update charges will be budgeted expenses
of the Facility in an amount not to exceed a $300.00 one time
set-up fee. Payroll processing may be delegated to a third party,
the cost of which will be the responsibility of the Facility.
	 
	 	N.	 	Third Party Payors. If the Facility participates in any
third-party reimbursement programs, Capital shall, on a timely
basis, prepare any and all third party billings for residents
qualifying under such programs. Capital also shall be responsible
for preparing and filing, subject to Owner’s reasonable approval,
all reports necessary to participate in such programs.
	 
	 	O.	 	Government Regulations and Licensure. Capital shall use its
best efforts to operate and maintain the Facility in compliance with
all applicable statutes, ordinances, laws,

MANAGEMENT AGREEMENT — Page 3

 

 

	 	 	 	rules, regulations, and orders of any governmental or regulatory
body having jurisdiction over the Facility. Capital shall assist
Owner in maintaining all necessary licenses, permits, consents,
approvals, and certifications from all governmental and regulatory
authorities responsible for licensure of the Facility (including,
without limitation, by assisting Owner in responding to
governmental and regulatory authority inquiries and assisting Owner
in preparing and filing all applications and reports).

	II.	 	Owner’s Responsibilities

	 	A.	 	Policies. Owner shall establish the policies for the Facility.
	 
	 	B.	 	Goals. Owner shall establish the short range and long range goals of
the Facility.
	 
	 	C.	 	Budgets and Funding Operating Expenses. Owner shall review
and approve, such approval not to be unreasonably withheld, budgets
for the operation of the Facility. Owner shall also provide working
capital funds for the Facility and shall advance and provide funds
to the Operating Expense Account in amounts sufficient to cover
operating expenses.
	 
	 	D.	 	Capital’s Performance. Owner shall review and evaluate the
performance of Capital in carrying out the policies for the
Facility.
	 
	 	E.	 	Legal Counsel. Owner shall obtain legal counsel to perform
all necessary legal services relating to the Facility.
	 
	 	F.	 	Audits. Owner, at its discretion, may engage certified public
accountants to perform annual audits of the Facility as well as
prepare any other reports required for federal or state regulatory
agencies which require licensure and/or certification. Every
quarter, upon receipt of reasonable notice to Capital, all financial
records pertaining to the Facility will be open for inspection and
review by Owner’s representatives. All labor and expense associated
with such review shall be borne by Owner.
	 
	 	G.	 	Directives. In order to assure proper coordination, Owner
shall issue any directions concerning the operations of the
Facility only through the President or Vice President of Capital.
	 
	 	H.	 	Operating Reports. During the term of this Agreement, Owner
shall, within fourteen (14) days of issuance, furnish to Capital
copies of any and all Facility-related reports, including the
annual audit (if any), and reports provided to the lender by the
Facility.
	 
	 	I.	 	Change of Residency Agreement. Owner shall not change the
Residency Agreement without consulting with and seeking approval of
Capital unless required to do so to comply with any applicable law
or regulation.
	 
	 	J.	 	Decisions. Owner shall examine documents submitted by Capital
and render decisions pertaining thereto promptly to avoid
unreasonable delay.

MANAGEMENT AGREEMENT — Page 4

 

 

	 	K.	 	Uniform Accounts. Facility shall use the uniform chart of
accounts recommended by Capital.
	 
	 	L.	 	Furnishing Information. Owner agrees at its expense to
install and maintain a computer terminal at the Facility compatible
with the mainframe computer currently in use by Capital and to
transmit data to Capital via telephone lines.
	 
	 	M.	 	Government Regulations and Licensure. Owner shall use its best
efforts to assist Capital in operating and maintaining the Facility
in compliance with all applicable statutes, ordinances, laws, rules,
regulations, and orders of any governmental or regulator body having
jurisdiction over the Facility. Owner, with Capital’s assistance,
shall maintain all necessary licenses, permits, consents, approvals,
and certifications from all governmental and regulatory authorities
responsible for licensure of the Facility (including, without
limitation, by responding to governmental and regulatory authority
inquiries and by preparing and filing all applications and reports).
	 
	 	N.	 	Compliance with Financing Documents. Other than with respect
to the covenants referenced in Article IV.C.1.b. below, Owner shall
be responsible for compliance with all applicable financing
documents. Owner agrees to provide copies to Capital of any
communications relating to the financing documents including,
without limitation, copies of any notices of default.

	III.	 	Insurance

	 	A.	 	Capital shall procure and maintain in full force and effect at
Facility and Owner’s expense, the following insurance protecting
Owner and Capital and their officers and employees:

	 	1.	 	Workers compensation and employers liability
insurance
	 
	 	2.	 	Professional liability insurance and excess
and/or umbrella liability insurance
	 
	 	3.	 	Comprehensive general public liability
insurance and overlying umbrella liability coverage against
loss or liability for damages for personal injury or death
occurring on, in or about the Facility.
	 
	 	4.	 	Employee
dishonesty insurance.
	 
	 	5.	 	Employment
practices liability.
	 
	 	6.	 	Errors and
omissions insurance.
	 
	 	7.	 	Fiduciary
liability insurance.

	 	B.	 	Owner shall procure and maintain in full force and effect at
Facility and Owner’s expense, the following insurance protecting
Owner and Capital and their officers and employees:

MANAGEMENT AGREEMENT — Page 5

 

 

	 	1.	 	Property Insurance for loss or damage by fire and
other perils insurable under the broad form of extended
coverage insurance available in the area where the Facility is
located, and improvements, and contents thereof, constituting
all or any portion of the Facility.
	 
	 	2.	 	Insurance for automobiles owned or hired by Owner
or Capital and used in connection with the Facility.

	 	C.	 	Such policies shall be written by a responsible insurance
company or companies satisfactory to Capital and Owner in kind and
amounts currently in effect or otherwise reasonably satisfactory to
Capital and Owner. Certificates of insurance showing compliance with
the foregoing requirements shall be furnished by the party
responsible for procuring such insurance to the other party.
Certificates shall state that the policy or policies will not be
canceled or altered without at least thirty (30) days prior written
notice to Capital. Capital shall also be an additional named insured
on all such policies. Owner’s insurance will be primary as to any
insurance carried by Capital.
	 
	 	D.	 	Notwithstanding any other provisions in this Agreement to the
contrary, (1) Capital and Owner agree to share on an equal basis any
amounts incurred by Capital or Owner as the “deductible” portion of
the claims covered by the insurance policies described in Article
III.A.4., 5., 6. and 7. above to the extent not paid by such
insurer, including, without limitation, the costs and expenses of
litigation or similar proceedings related to such claim, and (2)
Owner shall pay, at Owner’s expense, any amounts incurred by Capital
or Owner as the “deductible” portion of the claims covered by the
insurance policies described in Article IH.A.1., 2. and 3., and
Article M.B. 1. and 2.

	IV.	 	Term and Termination of This Agreement.

	 	A.	 	Term. This Agreement shall commence on the date set forth on
the first page hereof and shall terminate on the earlier of (i) the
fifteenth (15th) anniversary hereof (the “Initial Term”), and (ii)
the earlier date that this Agreement is terminated in accordance
with this Article. The date on which this Agreement terminates in
accordance with the preceding sentence is referred to herein as the
“Term.”
	 
	 	B.	 	Effect of Termination under Certain Circumstances. If Owner
terminates this Agreement without cause or if Capital terminates
this Agreement for cause pursuant to Article IV.C.2. below,
severance compensation in an amount equal to the then-current
monthly management fee times the number of months remaining in the
Initial Term shall be paid to Capital upon the termination date. If
Owner terminates this Agreement for cause pursuant to Article
IV.C.1. below, or if Capital terminates this Agreement without
cause, then Capital shall be paid upon the termination date all fees
and reimbursements through the effective date of termination;
provided, however, that (i) if Owner terminates the Agreement for
cause pursuant to Article IV.C.l.e. below and the transferee of the
Facility is not Capital or an Affiliate (as such term is defined
below) thereof, then Capital also shall be paid upon the termination
date severance compensation in an amount equal to the then-current
monthly management fee times the number of months remaining from the
termination date to the fifth (5th)

MANAGEMENT AGREEMENT — Page 6

 

 

	 	 	 	anniversary date of this Agreement, (ii) if Owner terminates the
Agreement for cause pursuant to Article IV.C.l.f. below and the
transferee of the Facility is not Capital or an Affiliate thereof,
then Capital also shall be paid upon the termination date severance
compensation in an amount equal to the then-current monthly
management fee times the lesser of (A) the number of months
remaining in the Initial Term and (B) six (6) months; and (iii) if
Owner terminates the Agreement for cause pursuant to Article
IV.C.l.g. or Article IV.C.1.h. below, then Capital shall be paid,
upon the termination date, severance compensation in an amount equal
to the then-current monthly management fee times the number of
months remaining during the Initial Term hereof after discounting
such amount to the net present value at the termination date using a
discount factor of 30-day LIBOR (as of the termination date) plus
200 basis points. For the purposes of this Agreement, the term
“Affiliate” shall mean as to any party, any other person or entity
controlling, controlled by or under common control with such party.
	 
	 	C.	 	Termination for Cause.

	 	1.	 	This Agreement may be terminated by Owner
immediately (except as otherwise provided below) upon written
notice to Capital upon occurrence of any of the following
events, each of which shall constitute termination for cause:

	 	a.	 	Capital is dissolved or liquidated,
or a petition in bankruptcy is filed by Capital, or
Capital makes an assignment for the benefit of
creditors or takes advantage of an insolvency act.
	 
	 	b.	 	Either of the 90% occupancy or 1.4:1
debt service coverage ratio covenants imposed by the
loan agreement and related documents relating to the
Owner’s debt secured by the Facility (collectively, the
“Loan Documents”) is breached and such breach is not
cured within the time period provided for cure in the
applicable Loan Document.
	 
	 	c.	 	As a result of any action or
inaction by Capital, the Owner breaches any covenant
set forth in any Loan Document (other than as provided
in clause b. above) and such breach remains uncured
after the expiration of any applicable grace periods.
	 
	 	d.	 	Capital breaches this Agreement and,
if amenable of cure, such breach is not cured within
sixty (60) days after the Owner has given Capital
written notice thereof; provided, however, that if such
breach is amenable of cure but not within sixty (60)
days, and if Capital begins diligent efforts to cure
such breach promptly after receipt of written notice
thereof, then Capital shall have an additional one
hundred and eighty (180) days within which to cure such
breach provided that Capital continues to use diligent
efforts to cure such breach as soon as reasonably
possible.
	 
	 	e.	 	The Facility is sold or otherwise
transferred to an unaffiliated third party before the
end of the fifth (5th) anniversary of this Agreement,

MANAGEMENT AGREEMENT — Page 7

 

 

	 	 	 	in which event Owner shall have the right to terminate
this Agreement upon giving Capital prior written
notice thereof at least thirty (30) days from the last
day of the month in which such sale or transfer takes
place.
	 
	 	f.	 	The Facility is sold or otherwise
transferred to an unaffiliated third party after the
fifth (5th) anniversary of this Agreement, in which
event Owner shall have the right to terminate this
Agreement upon giving Capital prior written notice
thereof at least thirty (30) days from the last day of
the month in which such sale or transfer takes place.
	 
	 	g.	 	The Facility or any material portion
thereof is damaged or destroyed to the extent that, in
the written opinion of an independent architect or
engineer reasonably acceptable to both parties, it is
not practicable or desirable to rebuild, repair or
restore the Facility to its condition immediately
proceeding such damage within a period of six (6)
months.
	 
	 	h.	 	Title to or the temporary use of all
or substantially all of the Facility is taken under the
exercise of the power of eminent domain by a government
authority, or by a person, firm or corporation acting
under governmental authority, which action, in the
opinion of an independent architect or engineer
reasonably acceptable to both parties, prevents or is
likely to prevent the conduct of normal operations at
the Facility for a period of at least six (6) months.

	 	2.	 	This Agreement may be terminated by Capital immediately upon
written notice to Owner upon occurrence of any of the following
events, each of which shall constitute termination for cause:

	 	a.	 	Capital fails to receive reimbursement of
reimbursable expenses or any compensation due Capital
pursuant to the terms of this Agreement or any other
compensation due Capital, and such failure continues for a
period of thirty (30) days after Capital’s written notice
thereof to Owner; provided however, that this Agreement shall
not be so terminated if Owner pays Capital all such expenses
and compensation then due and payable on or before the
expiration of said thirty (30) day period.
	 
	 	b.	 	In the event that the Owner breaches this
Agreement (other than as provided in clause 2.a. above) and,
if amenable of cure, such breach is not cured within, sixty
(60) days after Capital has given the Owner written notice
thereof; provided, however, that if such breach is amenable
of cure but not within sixty (60) days, and if Owner begins
diligent efforts to cure such breach promptly after receipt
of written notice thereof, then Owner shall have an
additional one hundred and eighty (180) days within which to
cure such breach provided that Owner continues to use
diligent efforts to cure such breach as soon as reasonably
possible.

MANAGEMENT AGREEMENT — Page 8

 

 

	 	3.	 	No termination of this Agreement shall affect any obligation
owing by either party hereto to the other which accrued prior to the
effective date of such termination.

	 	D.	 	Agreements Surviving Termination. The termination of this
Agreement shall not terminate the right of Owner or Capital to
protection of Owner’s or Capital’s property rights under Article
VLB. and to indemnification under Article VI.K.

	V.	 	Compensation

	 	A.	 	Operations Management Fees. Owner shall pay to Capital a fee
in the amount set forth below, payable by the fifteenth day of each
month.

	 	1.	 	The amount to be paid monthly shall be the
greater of Five Thousand Five Hundred Dollars ($5,500.00) per
month or five and one-half percent (5.5%) of Gross Revenues
generated during the immediately proceeding month (“Monthly
Management Fee”). The Monthly Management Fee for the Facility
shall be payable monthly in arrears by the fifteenth day of
the following month following calculations thereof upon
submission of a monthly statement for such Facility from
Capital. It is agreed between Owner and Capital that if the
Gross Revenues of the Facility are insufficient to pay all
disbursements, including the Monthly Management Fee or any
portion thereof, then Owner shall remain responsible for such
disbursements. It is further agreed between Owner and Capital
that in no event will any disbursement be made to Owner from
any Facility Account until all accrued and unpaid fees to
Capital and repayments, if any, to Capital for Capital’s
advancement of funds to cover any insufficiencies in such
Facility’s Rental or Payroll Account have been paid in full.
	 
	 	2.	 	“Gross Revenues” shall mean and refer, for any
period for which such Gross Revenues are being determined, the
sum of the total gross revenues of the Facility from
operations received during such period, including all receipts
from (i) rent of units at the Facility, (ii) rent or business
interruption insurance, if any, (iii) revenue of the Facility
for or on account of any and all goods provided and services
rendered or activities during such period, (iv) reimbursements
of expenses paid by the Facility which are to be borne by
others, (v) deposits in the event of forfeiture thereof to the
Facility and (vi) other revenues and receipts realized by the
Facility from operations and customarily included in Net Cash
Flow; Gross Revenues shall not include (i) security deposits
received from residents and, if applicable, interest accrued
thereon for the benefit of the residents until such deposits
or interest are applied for rental payments; (ii) proceeds
from the sale or dispositions of all or any part of such
Facility; (iii) insurance proceeds received by Owner as a
result of any insured loss (except proceeds for rent loss
insurance) and proceeds from any condemnation action; (iv)
capital contributions made by any partner of Owner; (v) loans
by Owner or its partners; (vi) proceeds from capital,
financing and any other transactions not in the ordinary
course of operation of such Facility and (vii) advance rentals
paid (until such time as they are earned).

MANAGEMENT AGREEMENT — Page 9

 

 

	 	B.	 	Certain Expenses. In accordance with the annual budgets, the
Facility will reimburse Capital within fifteen (15) days from the
date of invoice, for all direct Facility-related expenses incurred
by Capital in performing these services under this Agreement, to
include, but not be limited to, the costs of insurance in accordance
with this Agreement, salaries and other burdens of Facility-based
employees, the cost of reasonable transportation, lodging and meal
expenses for non-Facility-based employees of Capital when traveling
in connection with the performance of the services being performed
pursuant to this Agreement, mailing or express shipments.
Relocation, education, professional memberships and licensing
expenses of the Facility-based administrative employees shall also
be an expense of the Facility.

	VI.	 	Miscellaneous

	 	A.	 	Insurance-Subrogation. No indemnity shall be paid to the
other party under this Agreement where the claim, damage,
liability, loss or expense incurred was required to be insured
against by such other party. Any insurance policies obtained by
the parties pursuant to this Agreement shall contain provisions or
have the effect of waiving any right of subrogation by the insurer
of one party against the other party or its insurer.
	 
	 	B.	 	Property of Capital. Trade names, ideas and documents, forms
and occupancy development material not directly related to the
Facility and supplied by Capital are also to be considered
proprietary and will remain the property of Capital. Owner may only
use such materials which are the property of Capital during the
term of this Agreement, and may not use such materials or
information after termination of this Agreement for the development
or expansion of the Facility or for new projects for itself or
others without the prior written consent of Capital.
	 
	 	C.	 	Status of Parties. It is expressly understood and agreed that
Capital shall act as an independent contractor in the performance
of this Agreement. No provision hereof shall be deemed or construed
to create a partnership or a joint venture between Owner with
respect to the Facility or otherwise.
	 
	 	D.	 	Additional Action. In order to carry out the intent and
spirit of this Agreement, Owner and Capital will do all acts and
things necessary including the execution of other agreements.
	 
	 	E.	 	Entire Agreement. This Agreement sets forth the entire
Agreement between Capital and Owner. Any change or modification of
this Agreement must be in writing and signed by all parties hereto.
	 
	 	F.	 	Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto, their successors
and assigns.
	 
	 	G.	 	Assignment, etc. Except for an assignment by a party to an
Affiliate thereof, neither party shall, without the other party’s
prior written approval (which approval

MANAGEMENT AGREEMENT — Page 10

 

 

	 	 	 	shall not be unreasonably withheld), assign any of its rights or
obligations under this Agreement.
	 
	 	H.	 	Governing Law. This Agreement, its interpretation, validity
and performance shall be governed by the laws of the State of
Texas.
	 
	 	I.	 	Non-Solicitation. Without the prior written consent of
Capital, for a period of three years following termination of this
Agreement, Owner will not employ or engage any person who was a
Capital employee assigned to the administrative staff of the
Facility at any time during the last twelve (12) months of the
term of this Agreement.
	 
	 	J.	 	Conditions Beyond Control of Parties. Neither party shall
be held liable for failure to comply with any of the terms of this
Agreement when such failure has been caused solely by fire, labor
dispute, strike, war, insurrection, government restrictions, force
majeure, or act of God beyond the control and without fault on the
part of the party involved, provided such party uses due diligence
to remedy such default. Circumstances are likely to arise from
time to time which may require that budgets be exceeded, and
Capital shall not be liable for budget overruns.
	 
	 	K.	 	Indemnification. Capital will indemnify, defend and hold
the Owner free and harmless from any loss, liability, or cost
(including reasonable attorneys’ fees) not covered by insurance
proceeds that the Owner may sustain, incur, or assume as a result
of any claims that may be alleged, made, instituted or maintained
against Capital or the Owner, jointly or severally, determined to
have resulted from the negligence or willful misconduct of
Capital, or its agents or employees, in connection with the
performance of Capital’s duties under this Agreement.

	 	 	Owner will indemnify, defend and hold Capital free and harmless from any
loss, liability, or cost (including reasonable attorneys’ fees) not
covered by insurance proceeds that the Capital may sustain, incur, or
assume as a result of any claims that may be alleged, made, instituted,
or maintained against Capital or Owner, jointly or severally, determined
to have resulted from the negligence or willful misconduct of the Owner,
or its agents (other than Capital) or employees, in connection with the
performance of its duties under this Agreement, as well as its
ownership, condition or use of the Facility.
	 
	 	 	Owner will also indemnify, defend and hold Capital free and harmless from
any loss liability, or cost (including reasonable attorneys’ fees) not
covered by insurance proceeds that the Capital may sustain, incur, or
assume as a result of any claims that may be alleged, made, instituted,
or maintained against Capital or Owner, jointly or severally, arising out
of or in any way related to the noncompliance by the Facility with all
applicable state, federal and local laws, ordinances, rules and
regulations relating to the physical condition of the property of the
Facility, provided Capital shall promptly notify Owner of Capital’s
knowledge of any such noncompliance.
	 
	 	 	It is expressly understood that Capital is not responsible for any events
or noncompliance that occurred or began at the Facility prior to the
effective date of this Agreement and Owner shall also indemnify, defend
and hold Capital free and harmless from any loss liability, or cost
(including reasonable attorney’s fees) that Capital may sustain, incur,
or assume as a result of any claims that may be alleged, made,
instituted, or maintained against Capital or

MANAGEMENT AGREEMENT — Page 11

 

 

	 	 	Owner, jointly or severally, arising out of the period prior to the
effective date of this Agreement.

	 	L.	 	Alternative Dispute Resolution.

	 	l.	 	In the event of any dispute, controversy, or
claim arising out of or in connection with this Agreement or
with the transactions contemplated hereby, or with the
breach or alleged breach hereof, in each case whether
sounding in contract, tort, or otherwise (each a “Dispute”),
the parties hereto shall settle such Dispute in accordance
with the provisions of this Article VI.L.
	 
	 	2.	 	Upon the occurrence and during the continuation
of a Dispute, the parties hereto agree first to attempt to
settle such Dispute amicably through consultation and
negotiation between their respective executive officers.
	 
	 	3.	 	Upon the occurrence and during the continuation
of any Dispute that remains unresolved notwithstanding
compliance with Article VLL.2. above, the parties agree to
attempt to settle such Dispute through nonbinding mediation
conducted by a mediator with at least five (5) years of
mediation experience who has been qualified under the Texas
Alternative Dispute Resolution Act and has knowledge
regarding real estate operations (a “Mediator”). In the
event that the parties cannot agree on a single Mediator,
then each of the parties shall select a Mediator, and the
two (2) Mediators thus selected shall select a single
Mediator to hear the Dispute. Each of the parties shall pay
one-half (1/2) of the aggregate fees and expenses of the
mediation.
	 
	 	4.	 	Any Dispute that remains unresolved
notwithstanding compliance with Articles VI.L.2. and VI.L.3.
above, or any Dispute with respect to which one or more
parties shall fail to comply in all material respects with
the requirements of such Articles VI.L.2. and VI.L.3.
promptly following the written request of the other party,
shall be settled by arbitration administered by the American
Arbitration Association (“AAA”) under its “R-Series”
Commercial Arbitration Rules, as supplemented and modified
by its “E-Series” Commercial Arbitration Rules (or under
such other AAA rules as may then apply with respect to
expedited arbitration), and judgment on the award (the
“Award”) rendered by the arbitrator(s) (the “Arbitrator”)
may be entered in any court having jurisdiction thereof. The
parties agree to and mutually request an oral hearing of the
Dispute. The Arbitrator must have at least five (5) years of
arbitration experience and have knowledge regarding real
estate operations.
	 
	 	5.	 	The parties expressly agree that, prior to the
appointment of the Arbitrator, nothing in this Agreement
shall prevent a party from applying to a court that
otherwise would be of competent jurisdiction solely to
obtain a preliminary injunction or other similar provisional
or interim relief to maintain the status quo. Upon
appointment of the Arbitrator, the Arbitrator shall have
sole jurisdiction to hear any such applications, except that
any such provisional or interim measures that the Arbitrator
may order may be immediately and

MANAGEMENT AGREEMENT — Page 12

 

 

	 	 	 	specifically enforced by a court that otherwise would be of
competent jurisdiction.
	 
	 	6.	 	Each of the parties shall pay one-half (1/2) of
the aggregate fees and expenses of the arbitration, and all
other fees and expenses (such as, for example, attorney and
accounting fees, actuarial and other experts) shall be paid
by the party incurring them; provided, however, that a party
prevailing on substantially all of its claims shall be
entitled to reasonable attorneys’ fees, costs, and other
disbursements in addition to any other relief to which such
party may be entitled.
	 
	 	7.	 	The place of any arbitration instituted under
this Article VII. shall be Dallas, Texas. Each Party
consents to jurisdiction in such forum.

	 	M.	 	Limitation of Liability. In no event shall Capital, its
officers, directors or employees, be liable for any indirect,
incidental, special, or consequential damages, or loss of profits
or revenue, by Owner whether in an action in contract or tort or
strict liability or other legal theory. In no event will any
liability of Capital for any damages, losses, and causes of
action, whether in contract or tort (including negligent or
otherwise), exceed the actual dollar amount paid by Owner to
Capital for the services under this Agreement.
	 
	 	N.	 	Change in Voting Control. Neither Owner nor Capital shall
permit or cause a change in voting control without the other
party’s prior written consent, which approval shall not be
unreasonably withheld.
	 
	 	O.	 	Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed
(i) duly given if (A) it is faxed to the intended recipient as set
forth below, and (B) thereafter it is sent by registered or
certified mail, return receipt requested, postage prepaid, and
addressed to the intended recipient as set forth below, and (ii)
duly received upon actual receipt:

	 	 	 
	If to Owner:

	 	Copy to:
	Covenant Place of Waxahachie, Inc.

	 	Brian D. Bowden, Esq.
	5601 Bridge Street, Suite 504

	 	Brian D. Bowden, P.C.
	Fort Worth, Texas 76112

	 	2900 Westridge Avenue
	Attn: Mr. Robert Bullock

	 	Fort Worth, Texas 76116
	Facsimile: 817/446-0923

	 	Facsimile: 817/732-7722
	 
	 	 
	If to Capital:

	 	Copy to:
	CGI Management, Inc.

	 	Jeffrey L. Fisher, Esq.
	14160 Dallas Parkway, Suite 300

	 	Geary, Porter & Donovan, P.C.
	Dallas, Texas 75254

	 	16475 Dallas Parkway, Suite 500
	Attn: James A. Stroud and

	 	Addison, Texas 75001
	David R. Brickman

	 	Facsimile: 972/931-9208
	Facsimile: 972/770-5666
	 	 

MANAGEMENT AGREEMENT — Page 13

 

 

	 	 	 	Either party may send any notice, request, demand, claim, or
other communication hereunder to the intended recipient at the
address set forth above using any other means (including personal
delivery, expedited courier, messenger service, telecopy,
ordinary mail or electronic mail), but no such notice, request
demand, claim, or other communication shall be deemed to have
been duly given unless and until it actually is received by the
intended recipient. Either party may change the address to which
notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other party notice in
the manner herein set forth.
	 
	 	P.	 	HIPAA Compliance. Owner has determined that the Facility is
a “covered entity” as defined in the Health Insurance Portability
and Accountability Act of 1996, Public Law 104-191 and regulations
promulgated thereunder by the U.S. Department of Health and Human
Services (“HIPAA”) and other applicable laws. Owner represents to
Capital that the Facility is in substantial compliance with HIPAA.
Capital will operate and manage the Facility as a “covered entity”
under HIPAA, and all duties and responsibilities of the Facility’s
HIPAA compliance program will be performed by Capital, to the
extent allowable by law, in accordance the following:

	 	1.	 	From the date of this Agreement until October 1,
2004 (the “Transition Period”), Owner will (i) cause
substantially all of the employees of the Facility to be
trained in regard to HIPAA, (ii) provide HIPAA-compliant
notices of privacy practices to be delivered to all
residents, or the residents’ representative, of the Facility
and use its best efforts to obtain written acknowledgement of
receipt of such notices, and (iii) provide an employee who
shall serve as the privacy officer of the Facility and
oversee the substantive management of the HIPAA compliance
program to include without limitation the following:

	 	a.	 	oversee and coordinate Capital’s
handling of privacy complaints, whether or not they are
specifically identified by the complainer as being a
HIPAA violation;
	 
	 	b.	 	oversee the ongoing training of
employees working at the Facility and the documentation
of such training;
	 
	 	c.	 	oversee the completion of an
inventory of all locations and systems where “protected
health information” (as defined in HIPAA) is stored or
maintained in the Facility and the securing of such
information and systems;
	 
	 	d.	 	perform such other duties and
responsibilities relative to HIPAA as agreed upon by the
parties, including but not limited to assisting
Capital’s privacy officer in the transfer of documents,
records, acknowledgment forms, training materials, etc;
and
	 
	 	e.	 	cooperate with Capital in addressing
any other related requests that may arise from either
state or federal agencies or officials, including

MANAGEMENT AGREEMENT — Page 14

 

 

	 	 	 	but not limited to the Office of Civil Rights and the
Texas assisted living licensing officials.

	 	2.	 	After the Transition Period, Capital’s privacy
officer shall make himself/herself available to Owner’s
designated representative upon reasonable request, and report
to such representative on the HIPAA compliance program at the
Facility.
	 
	 	3.	 	Capital’s privacy officer shall promptly notify
Owner’s representative at any time such privacy officer
becomes aware that the Facility has become a target of either
a federal or state investigation.

[The remainder of this page has intentionally been left blank]

MANAGEMENT AGREEMENT — Page 15

 

 

	 	4.	 	During the Transition Period, the person
designated by Owner as the privacy officer as set forth in
paragraph 1 above shall perform all duties and
responsibilities of the job description for this position
previously adopted by Owner, a copy of which is attached
hereto as Schedule II. After the Transition Period, Capital’s
privacy officer shall perform all of the same duties and
responsibilities of the job description for this position,
subject to any adjustments and revisions mutually agreed to
by Capital and Owner.

	 	 	 	 	 	 	 
	COVENANT PLACE OF WAXAHACHIE, INC.
	 	CGI MANAGEMENT, INC.
	 
	 	 	 	 	 	 
	By:

	 	/s/ Robert Bullock
	 	By:
	 	/s/ David Brickman
	

	 	
 
	 	 	 	
 
	

	 	Robert Bullock, Executive Vice President
	 	 	 	David Brickman, Vice President

MANAGEMENT AGREEMENT — Page 16exv10w6w2

 

Exhibit 10.6.2

SCHEDULE IDENTIFYING SUBSTANTIALLY IDENTICAL AGREEMENTS TO EXHIBIT 10.6.1

Management Agreement, dated as of August 18, 2004, by and between Covenant
Place of Burleson, Inc. and CGI Management, Inc.

	 	 	This Management Agreement relates to the Covenant Place of
Burleson property and differs from Exhibit 10.6.1 in the following
respects:
	 
	 	 	In the first sentence of Article V.A.1, the Monthly Management Fee
is the greater of $4,500 and 5%.

Management Agreement, dated as of August 18, 2004, by and between Cedar Hill
Retirement Community, Inc. and CGI Management, Inc.

	 	 	This Management Agreement relates to the Crescent Point Retirement
Community property and differs from Exhibit 10.6.1 in the
following respects:
	 
	 	 	In the first sentence of Article V.A.1, the Monthly Management Fee
is the greater of $4,500 and 5%.

Management Agreement, dated as of August 18, 2004, by and between Covenant
Place of Richland Hills, Inc. and CGI Management, Inc.

	 	 	This Management Agreement relates to the Good Place Assisted
Living property and differs from Exhibit 10.6.1 in the following
respects:
	 
	 	 	In the first sentence of Article V.A.1, the Monthly Management Fee
is the greater of $5,000 and 5%.

Management Agreement, dated as of August 18, 2004, by and between CGI Real
Estate, Inc. and CGI Management, Inc.

	 	 	This Management Agreement relates to the Meadow Lakes Retirement
Community property and differs from Exhibit 10.6.1 in the
following respects:
	 
	 	 	In the first sentence of Article V.A.1, the Monthly Management Fee
is the greater of $8,000 and 5%.

Management Agreement, dated as of August 18, 2004, by and between Covenant
Place of Arlington, Inc. and CGI Management, Inc.

	 	 	This Management Agreement relates to the Meadow View Assisted
Living property and differs from Exhibit 10.6.1 in the following
respects:
	 
	 	 	In the first sentence of Article V.A.1, the Monthly Management Fee
is the greater of $5,000 and 5%.

Management Agreement, dated as of August 18, 2004, by and between Covenant
Place of Abilene, Inc. and CGI Management, Inc.

	 	 	This Management Agreement relates to the Covenant Place of Abilene
property differs from Exhibit 10.6.1 in the following respects:
	 
	 	 	In the first sentence of Article V.A.1, the Monthly Management Fee
is the greater of $5,500 and 5%.

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