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EXHIBIT 10.3
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Agreement") is made as of the 1st day of
October, 2000 by and among DIVERSICARE LEASING CORP. a Tennessee corporation
(the "Operator"), and DIVERSICARE MANAGEMENT SERVICES CO., a Tennessee
corporation (the "Manager").
W I T N E S S E T H:
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WHEREAS, Operator is the operator and/or licensee of nursing homes
located in various states as described in Exhibit A attached hereto
(individually a "Facility" or collectively the "Facilities"), and the personal
property, fixtures, equipment, records and supplies used in connection therewith
(the "Premises"); and
WHEREAS, Operator wishes to engage Manager to manage the Facilities;
and
WHEREAS, Manager desires to manage the Facilities in accordance with
the provisions of this Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound hereby, agree as follows:
1. DEFINITIONS. For the purposes of this Agreement:
(a) "Facility" means each of the nursing homes described on
Exhibit A.
(b) "Gross Operating Revenues" means the revenue of the Facility
from all sources during the term of this Agreement, including
ancillary revenues, prior to bad debt adjustment.
(c) "Operating Expenses" means any and all expenses and costs
related to and incurred in connection with the operation of a
Facility, including, without limitation, the payment of
salaries, taxes, capital expenditures, wages and fringe
benefits for such Facility's personnel, including its
administrator, but excluding federal, state or provincial
income taxes; if the facility is leased, rental payments under
the lease (the "Lease"), fees to be paid to the Manager under
paragraph 4, and deprecation or amortization of real or
personal property used in the operation of the Facility.
2. TERM. This Agreement shall commence on 12:01 a.m., October 1, 2000 and
shall continue in effect for a period of one year, and shall be subject
to successive renewal at the option of the Manager for successive one
year periods commencing upon expiration of each term. The initial term
and renewal terms, if exercised by Manager, shall be defined
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herein as the "Term." The option to extend this Agreement on the same
terms and conditions herein provided will be deemed automatically
exercised unless the Manager gives written notice to the Operator at
least sixty (60) days prior to the expiration of the then current term
that the Manager does not intend to renew this Agreement. It is
understood that if any option period is not exercised, all rights to
exercise any subsequent option periods will automatically lapse.
3. DUTIES OF MANAGER. Subject to the provisions hereof and to the extent
permitted by law consistent with the maintenance of Operator's licenses
to operate the Facility granted by the applicable states, Operator
hereby delegates to Manager the day to day responsibility of the
management of the Facility and its operations in all respects, and
Manager hereby assumes, and agrees to use its best efforts to exercise
such control and responsibility with a view towards professional
management of the Facility in accordance with customary industry
standards. Such responsibility and control will include, without
limiting the generality of the foregoing, the following powers,
authorities and responsibilities:
(a) to have direct responsibility and authority for recruiting,
negotiating with, hiring, training, supervising, promoting, assigning,
setting the compensation level of (provided such amount is in
compliance with applicable law), conducting labor negotiations to
settling labor grievances with respect to, and discharging all
operating and service personnel deemed by Manager to be necessary for
the proper operation and maintenance of the Facility. All such
employees, except the Facility's Administrator, (who shall be an
employee of Manager) shall be employees of and shall be carried on the
payroll of the Facility and shall not be employees of Manager;
provided, however, that such employees shall be subject to the control
of Manager on behalf of Operator;
(b) to supervise the rendering of all notices and statements
required to be sent to the occupants of the Facility;
(c) to establish and maintain a system of patient care, including
care planning, dietary care, use of staff, scheduling and quality
assurance programs;
(d) to enter into contracts and take such other action in the
ordinary course of business in the name of Operator as Manager deems
appropriate to assure supply of pest control services, electricity,
gas, fuel, water, telephone, television, linen services, garbage
removal, snow removal, elevator maintenance, landscaping and other such
services as may reasonably be required for the proper operation and
maintenance of the Facility;
(e) to supervise the purchase of such inventories, food,
beverages, provisions, supplies and equipment as may be required to
properly maintain and operate the Facility and to contract for the
purchase of same in the name of Operator;
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(f) to take such steps and file such applications and reports as
may be required to comply with the provisions of applicable
legislation, rules and compliance orders issued by government agencies
having jurisdiction over the Facility, including obtaining all
necessary licenses and permits;
(g) to retain the services of counsel, accountants and other
professional consultants as may be necessary for the purposes of
carrying out Manager's duties hereunder;
(h) to perform or supervise the performance of financial services
for the Facility, including the preparation and maintenance of the
following:
(i) annual operating and capital budgets for the Facility
outlining costs, charges, outlays and expenditures which the
Manager anticipates will be made and incurred by the Facility
in the ensuing year, together with anticipated revenues,
including without limitation, changes to rates and personnel
compensation levels;
(ii) an annual marketing plan, which will include
estimated expenses for advertising and public relations
programs, to encourage the highest possible levels of
occupancy at the Facility;
(iii) a monthly information package specifying monthly
revenues and expenses and a comparison of the same to revenues
and expenses as set forth in the annual operating budget,
aging of accounts receivable, a listing of capital
expenditures, and a written report of material events and
changes and variance analysis;
(iv) all records for patient billing, billing for all
receivables and collection of same;
(v) all medical records, trust account records and other
records pertaining to patients of each Facility;
(vi) all records for payables and the payment of the same
out of Gross Operating Revenues;
(vii) all payroll records, payment of employees of each
Facility out of Gross Operating Revenues of such Facility,
withholding and remittance of payroll deductions;
(viii) all records of all reimbursable charges and
mechanisms for achieving such reimbursement;
(ix) all returns for withheld income tax or other payroll
deductions;
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(x) all other books and records normally maintained by a
reasonably prudent business manager;
(i) In Manager's discretion, to initiate in the name of and at the
expense of the applicable Facility, any and all legal actions or
proceedings necessary to collect charges or other income due such
Facility, to enforce any agreements between such Facility and third
parties, to collect damages for breach or default by any such third
party, to adjust, compromise and settle all accounts, claims, disputes
and differences which Operator may have in connection with the
operation of a Facility and to write off or make allowance for such
accounts, claims, disputes and differences as it may reasonably deem
necessary; so long as there is, in the reasonable opinion of the
Manager, no material adverse effect to the Operator from any such
action;
(j) to advise the Operator, to the extent reasonably possible, at
least four (4) weeks in advance of any material funding requirements;
and
(k) to prepare, or at Manager's option, select a third party to
prepare, all cost reports pertaining to the Facility. If Manager elects
to prepare the foregoing, Manager will be reimbursed by Operator at
prevailing market rates. If a third party is selected to prepare the
foregoing, Operator will pay the expenses of such party.
(l) to use its best efforts to cause the Facility to comply with
and abide by the terms and provisions of any collective bargaining or
union agreements binding the Facility.
It is understood that, within the scope of the authority granted by
this Agreement, Manager is acting as agent of Operator, and as such
incurs no liability as principal with respect to any obligations
undertaken by Manager hereunder other than in connection with its duty
to act in such capacity. Manager will not have the obligation of
preparing any tax returns or annual audits of the Facility, but will
fully cooperate and supply all available information upon request as
may be required in connection therewith.
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4. MANAGEMENT FEES.
(a) In consideration of, and as remuneration for, the services
provided in this Agreement with respect to the Facility, Operator
agrees to pay to Manager a management fee equal to six percent (6 %) of
monthly Gross Operating Revenues for the Facility. The fee will be paid
monthly within ten days of the first of each month based upon the
operating results of the prior month.
(b) Upon the occurrence of any material default in monetary
payments by the Operator under the Lease, which default is a result of
the insufficiency of the Facility's funds to make payments required
under the Lease, then until the earlier of the time when funds are
available to cure the default, or until such default has been waived or
otherwise ceases to exist, the Manager will not be entitled to payment
of its Management Fees from the Facility's funds and such fees shall
accrue for the account of the Manager pursuant to subparagraph 4(c).
(c) The Management Fees will be cumulative, meaning that if any
portion of the Management Fees is not paid to the Manager when due as a
result of the subordination pursuant to subparagraph 4(b), or
otherwise, the Manager will be entitled to receive such deficiency as
soon as funds become available, together with interest thereon at the
per annum fluctuating rate of interest publicly announced by AmSouth
Bank in Nashville, Tennessee from time to time as its prime rate
applicable to United States dollar denominated borrowings.
5. COVENANTS. Operator agrees with Manager as follows:
(a) The Facility, at the Operator's expense, will employ and
retain the personnel and counsel, solicitors accountants and
professional consultants referenced in subparagraphs 3(a) and 3(g)
respectively.
(b) Operator will at all times comply with and perform all
conditions and obligations required under any leases or indebtedness
pertaining to the Facility, so as to avoid a default thereunder.
(c) Operator will not sell, lease, assign or otherwise transfer
any or all of its assets related to the Facility or its interests in
the Facility, including a sale, lease, assignment or transfer
accomplished by a sale of stock, exchange of stock, merger,
consolidation or similar transaction, without the prior written
approval of the Manager, which approval will not be unreasonably
withheld; provided, however, that the Operator may transfer to, and
lease back from, a third party any or all of its interests in the
Facility so long as (i) the Operator remains as licensee of the
Facility, (ii) the transferee agrees, in writing reasonably
satisfactory to the Manager to recognize the Manager as manager of the
Facility under the terms of this Agreement, and (iii) the transferee
agrees, in writing reasonably satisfactory to the Manager not to
terminate or alter the Manager's role as manager of the
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Facility under this Agreement due to any failure by the Operator or any
affiliate of the Operator to satisfy any of its obligation under one or
more leases or other agreements regarding any other adult care
facilities in which both the transferee and the Operator and/or its
affiliates hold an interest.
(d) The parties hereto recognize that irreparable damage will
result in the event that the provisions of subparagraph 5(c) are not
specifically enforced. If any dispute arises concerning subparagraph
5(c), the parties hereto agree that an injunction may be issued
restraining the consummation of any action prohibited by subparagraph
5(c) pending a determination of such controversy and that no bond or
other security will be required in connection therewith. In any dispute
arising with respect to subparagraph 5(c), without limiting in any way
any other rights or remedies to which Manager may be entitled, Operator
agrees that the provisions of subparagraph 5(c) will be enforceable by
a decree of specific performance.
(e) Operator represents and warrants to Manager that no consent or
approval of any kind whatsoever is required by the landlord or any
lender to landlord or Operator in order for Operator to execute and
deliver this Agreement as a valid and binding contract or to perform
its obligations hereunder.
(f) Manager may assign this Agreement to an affiliate or
subsidiary. In addition, Manager may enter into an agreement with an
affiliate or subsidiary (the "Sub Manager"), under which Sub Manager
may agree to perform Manager's duties hereunder in exchange for
Manager's benefits hereunder.
6. INDEMNIFICATION.
(a) The Manager will indemnify and hold the Operator and the
employees of the Operator harmless from any claim, loss, liability,
cost, damage or expense (including court costs and attorney fees) they
may suffer or incur by reason of the gross negligence or dishonest acts
of the Manager, its agents, representatives or employees or by reason
of any of them exceeding their authority.
(b) Operator will indemnify and hold Manager, its affiliates,
officers, directors, employees, agents, successors and assigns harmless
from any claim, loss, liability, cost, damage or expense (including
court costs and attorney fees) which may arise from the management of
the Facility, provided that the foregoing does not result solely from
the gross negligence or dishonest acts of Manager or its agents,
representative, or employees or from any of them exceeding their
authority.
7. TERMINATION BY OPERATOR OR MANAGER.
(a) Either party may terminate this Agreement if the other is in
material default of any of its obligations under this Agreement and
such breach continues for a period of thirty
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(30) days after the defaulting party is notified by the other of such
default in writing; provided, however, that if the nature of the breach
is such that more than thirty (30) days are required for the cure, this
Agreement may not be terminated if the defaulting party commences to
cure such default within the thirty (30) day period and diligently and
in good faith pursues completion of such curative measures.
(b) Either party may immediately terminate this Agreement if the
other becomes the subject of a voluntary or involuntary bankruptcy,
insolvency, reorganization, liquidation or similar proceeding (which,
in the case of an involuntary proceeding, is not stayed within 30
days), makes a general assignment for the benefit of creditors or
admits in writing its inability to pay its debts when due.
(c) In the event the Agreement is terminated under this paragraph
7, Manager will tender a final accounting to Operator and surrender all
contracts, records, files and other information which may be pertinent
to the continuing operation of the Facility, and Operator will pay to
Manager any Management Fees and/or net profits due hereunder.
8. INSURANCE.
(a) Manager agrees to use its best efforts to negotiate, procure
and maintain in full force and effect, at the expense of the Facility,
insurance against fire and other hazards, including, without
limitation, personal injury, workmen's compensation, property damage,
liability and such other insurance in such amounts and covering such
risks as are normally maintained by and for the protection of owners
and operators of Facility of a type similar to the Facility, such as
professional negligence insurance. Operator agrees that the insurance
in force upon execution of this Agreement is acceptable.
(b) Operator and Manager hereby waive subrogation against the
other for any claims that might be brought from any loss which is fully
covered by insurance and agree to look solely to the insurance
proceeds. To the extent that claims are not covered by insurance and
paid out of insurance proceeds entirely, nothing in this clause will
prevent the parties from enforcing their rights at law or in equity
against each other.
9. USE OF PREMISES. Manager agrees that it will not at any time use, or
permit to be used, the Facility for purposes other than a nursing home
facility without the prior written consent of Operator.
10. BOOKS AND RECORDS. All books, records and reports prepared by Manager
for use of or in connection with the operation of the Facility will be
the property of Operator, provided that Manager may make copies thereof
for its own use as Manager may desire.
11. ASSIGNMENT. The provisions of this Agreement will be binding upon the
parties hereto and their respective successors and assigns; provided,
however, that neither party will have the right to assign or delegate,
by operation of law or otherwise, its rights or obligations
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under this Agreement, other than as provided in Section 5; and,
provided further that such assignment or delegation will not relieve
either party from its obligations under this Agreement.
12. RIGHT TO INSPECT; AUDIT. The parties hereto agree that at all
reasonable times Manager will permit the Operator or its
representatives to inspect the buildings, premises and records of the
Facility and to perform such audits of Manager's financial books and
records relating to the Facility as Operator may request to confirm the
financial results reported by Manager.
13. NOTICE. All notices required or permitted under this Agreement will be
in writing and will be deemed delivered the same day as personally
delivered or delivered by confirmed facsimile transmission, one day
after confirmed delivery to an overnight courier service, or three (3)
days after mailing by registered mail, return receipt requested,
postage paid, at the addresses set forth below or such other addresses
as either party may specify to the other in accordance with this
paragraph 13:
Operator: Diversicare Leasing Corp.
277 Mallory Station Road
Suite 130
Franklin, Tennessee 37067
Attn: President
With a copy to: Harwell Howard Hyne Gabbert & Manner, P.C.
315 Deaderick Street, Suite 1800
Nashville, Tennessee 37238-1800
Attention: Mark Manner, Esq.
Manager: Diversicare Management Services Co.
277 Mallory Station Road
Suite 130
Franklin, Tennessee 37067
Attn: President
Attention: President
With a copy to: Harwell Howard Hyne Gabbert & Manner, P.C.
315 Deaderick Street, Suite 1800
Nashville, Tennessee 37238-1800
Attention: Mark Manner, Esq.
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14. GENERAL.
(a) Nothing herein contained will prevent either party from
owning, leasing, operating, managing, cooperating or having an interest
in any other nursing home, retirement center or other long term care or
residential facility, whether or not neighboring one of the Facility,
nor preclude either party from engaging in any other activity.
(b) This Agreement will be governed by and construed in accordance
with the laws of the State of Tennessee, without giving effect to
conflict of law rules.
(c) It is understood and agreed that this Agreement contains all
terms and conditions relating to the subject matter of this Agreement
and supersedes all prior and contemporaneous agreements, negotiations,
correspondence, undertakings and communications of the parties or their
representatives, oral or written, respecting such subject matter.
(d) Any interpretation of the terms of this Agreement will not
take into consideration which party hereto drafted this instrument, it
being agreed and understood that the parties have agreed to the terms
of this Agreement only after extensive negotiations.
(e) This Agreement shall not be amended or modified except by a
writing duly executed by the parties hereto. Waiver of any term or
condition of this Agreement by any party shall only be effective if in
writing and shall not be construed as a waiver of any subsequent breach
or failure of the same term or condition, or a waiver of any other term
or condition of this Agreement.
(f) This Agreement may be executed in one or more counterparts,
each of which will be deemed an original, but all of which together
will constitute one and the same instrument.
(g) If any provision of this Agreement is deemed invalid, illegal
or unenforceable, the validity, legality and enforceability of all
other provisions will not be affected thereby. Further, a substitute
and equitable provision shall be automatically substituted therefor in
order to carry out, so far as may be valid, legal and enforceable, the
intent and purpose of the invalid, illegal or unenforceable provision.
(h) If the Manager's role as manager under this Agreement is
terminated or significantly altered by any Landlord due to a default by
the Operator of its obligations under the Lease, the Operator will pay
the Manager an amount equal to the product of (i) one-half (1/2) of the
Management Fees earned by the Manager during the immediately preceding
fiscal year of the Facility, annualized if necessary, multiplied by
(ii) the number of years remaining in the then current term. Amounts
payable under this Section 15(h) shall be paid annually over the period
remaining in the then current term.
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(i) The parties acknowledge that the Manager will sustain an
amount of damages which will be substantial and irreparable but
difficult to determine as a result of (i) the failure of the Operator
to provide the Manager notice of expiration as required by subparagraph
2(b); or (ii) the termination of this Agreement or the alteration of
the Manager's role due to the Operator's default under either the Lease
or the Indebtedness (collectively, the "Liquidated Damages Events").
Accordingly, the parties agree that the liquidated damages described in
subparagraphs 2(b) and 15(b) will constitute full satisfaction for the
respective claims for damages which the Manager shall have against the
Operator in respect of either of the Liquidated Damages Events, and
each of the parties hereby agrees not to contest the existence or the
amount of any damages resulting solely from either of the Liquidated
Damages Events.
(j) A party's decision to terminate this Agreement in accordance
with its terms will not limit or alter in any way its right, at law or
in equity, to seek damages or another form of remedy for the breach or
other action which precipitated termination. If any party exercises any
right hereunder against the other, the prevailing party in the exercise
of such right will be entitled to costs and expenses associated with
such enforcement, including without limitation, court costs and
reasonable attorneys' fees.
(k) Nothing contained in this Agreement is intended or is to be
construed to create any association, partnership or joint venture
between Operator and Manager. Manager is an independent contractor
retained by Operator.
(l) The headings contained in this Agreement are intended solely
for convenience of reference and shall not affect the rights of the
parties to this Agreement.
IN WITNESS WHEREOF, the parties have hereunto executed this Agreement
as of the date set forth above.
MANAGER: OPERATOR:
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Diversicare Management Services Co. Diversicare Leasing Corp.
By: James F. Mills Jr. By:
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Title: Sr. Vice President Title: Sr. Vice President
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EXHIBIT A TO MANAGEMENT AGREEMENT
LIST OF FACILITIES
LOCATION/ADDRESS
ALABAMA
CANTERBURY HEALTH FACILITY
1720 Knowles Road
Phenix City, Alabama 36869
LYNWOOD NURSING HOME
4164 Halls Mills Road
Mobile, Alabama 36693
NORTHSIDE HEALTHCARE
700 Hutchins Avenue
Gadsden, Alabama 35904
WESTSIDE HEALTHCARE
4320 Judith Lane
Huntsville, Alabama 35805
ARKANSAS
ASH FLAT NURSING & REHAB CENTER
HC-67, Box 5A
Ash Flat, Arkansas 72513
DES ARC NURSING & REHAB CENTER
2216 W. Main Street
Des Arc, Arkansas 72040
EUREKA SPRINGS NURSING & REHAB CENTER
235 Huntsville Road
Eureka Springs, Arkansas 72632
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LOCATION/ADDRESS
FAULKNER NURSING & REHAB CTR.
2603 Dave Ward Drive
Conway, Arkansas 72032
POCAHONTAS NURSING & REHAB CTR.
105 Country Club Rd
Pocahontas, Arkansas 72455
WALNUT RIDGE NURSING & REHAB CTR.
1500 West Main
Walnut Ridge, Arkansas 72476
GARLAND NURSING & REHAB CTR.
610 Carpenter Dam Road
Hot Springs, Arkansas 71901
THE PINES NURSING & REHAB CTR.
534 Carpenter Dam Road
Hot Springs, Arkansas 71901
SHERIDAN NURSING & REHAB CTR.
113 South Briarwood Dr.
Sheridan, Arkansas 72150
OUACHITA NURSING & REHAB CTR.
1411 Country Club Road
Camden, Arkansas 71701
RICH MT. NURSING & REHAB CTR.
306 Hornbeck
Mena, Arkansas 71953
STILLMEADOW NURSING & REHAB CTR.
105 Russelville Road
Malvern, Arkansas 72104
FLORIDA
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LOCATION/ADDRESS
MAYFIELD REHAB. & SPECIAL CARE CTR.
200 Mayfield Drive
Smyrna, Tennessee 37167
LAUREL MANOR HEALTH CARE FACILITY
902 Buchanan Road
New Tazwell, Tennessee 37825
MANOR HOUSE OF DOVER
Hwy 49 East P.O. Box 399
Dover, TN. 37058
KENTUCKY
CARTER NURSING & REHAB CTR.
P.O. Box 904 - 250 McDavid Blvd.
Grayson, Kentucky 41143
SOUTH SHORE NURSING & REHAB CTR.
P.O. BOX 489 (James Hannah Drive)
South Shore, Kentucky 41175
WEST LIBERTY NURSING & REHAB CTR.
P.O. Box 219 (744 Liberty Rd.)
West Liberty, Kentucky 41472
WURTLAND HEALTH CARE CENTER
P.O. Box 677 (100 Wurtland Ave.)
Greenup, Kentucky 41144-0677
BOYD NURSING & REHABILITATION
12800 Princeland Drive
Ashland, Kentucky 41102
ELLIOTT NURSING & REHAB CTR.
RTE 32 East, (P.O. Box 694) Howard Crk Rd.
Sandy Hook, Kentucky 41171
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LOCATION/ADDRESS
OHIO
BEST CARE
2159 Dogwood Ridge
Wheelersburg, Ohio 45694
WEST VIRGINIA
BOONE HEALTHCARE
P.O. Box 605 (Route 119) Lick Creek Rd.
Danville, West Virginia 25053
LAUREL NURSING & REHAB CENTER
H.C. 75, Box 153 Clinic Rd.
Ivydale, West Virginia 25113
NOTES:
Omega(1) - 1992 Omega Master Lease
Omega(2) - 1994 Omega Master Lease
Omega(3) - 1994 Omega Master Sublease
Omega(4) - 1997 Omega Master Lease
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