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EXHIBIT 10.12
RISK MANAGEMENT CONSULTING SERVICES AGREEMENT
THIS AGREEMENT (this "Agreement") is made and entered into as of
____________, 1996 by and between MANOR CARE, INC., a Delaware corporation
("Manor"), and CHOICE HOTELS HOLDINGS, INC., a Delaware corporation ("Choice").
In consideration of the mutual covenants contained herein, and other
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Choice and Manor agree as follows:
1. Xxxxxxxxxxx.Xx used in this Agreement, the following capitalized terms
shall have the meanings indicated unless the context requires otherwise:
"Distribution" means the distribution to the holders of Manor Care
Common Stock all the outstanding shares of Choice Common Stock.
"Distribution Date" means the date determined by the Board of
Directors of Manor as the date on which the Distribution shall be
effected.
"Prime Rate" shall be the rate identified from time to time in the
New York edition of the Wall Street Journal as being the Prime Rate of
interest.
2. Description of Services
Manor agrees to provide the following risk management consulting services:
Insurance Renewals - Domestic and International: Negotiate the
renewal and placement of property and casualty insurance including property,
boiler, crime, auto liability, general liability, workers' compensation,
umbrella liability and directors and officers liability. This includes
assembling historical loss information and renewal information, calculation of
values, evaluation and negotiation of proposals, premiums and coverages with
brokers and underwriters on behalf of Choice.
Contract Review: Review insurance, indemnity and bond provisions of
proposed contracts as requested. Assist attorneys or others to negotiate
acceptable terms.
Surety Bond Procurement: Assist Choice managers with bond
applications and procedures, request bonds from broker, have bonds executed and
delivered to requesting party. Maintain bond log and schedule. Obtain renewals
or releases of expired bonds, review and approve accuracy of premium invoices.
Certificate Tracking: Monitor licensee certificate tracking program.
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Financial and Regulatory Support: Provide the following accounting
services:
- Annual/quarterly state compliance reports on outstanding
self-insurance liabilities incurred.
- Provide internal reporting associated with outstanding losses,
accounts receivable, LOC and Surety Bond requirements.
Premium and Claims Payment Processing and Reimbursement: Manor shall
process payments on behalf of Choice for Choice's financial obligations under
policies and self-insurance plans with an effective date on or after the
Distribution Date. Reimbursement for all such policies and self-insurance plans
shall be as follows:
(1) Invoices for premiums and services related to such policies and plans
shall be paid within five (5) days of receipt by Choice;
(2) An escrow account shall be established for the payment of claims. This
account will be structured to allow for three (3) months average claims
payments. The replenishment in whole or in part, shall be due to Manor on
the first day of each month, unless the account is in negative balance,
thereby requiring replenishment within forty-eight (48) hours.
Risk Management Resource: Provide research, advice and counsel to Choice
as requested on insurance and risk management related issues, both domestically
and internationally. Review insurance coverage, policies and provide risk
management services listed below:
Certificates of Insurance Review (contractors)
Certificates of Insurance Issuance
Administration of prior programs
Actuarial Review of liabilities
Self Administer Workers' Compensation claims in PA
Monitor Claims (Set reserves, settle claims)
Handle first party claims (Property, Crime, etc.)
Oversee Auto Claims against others
Oversee claims against contractors and/or subcontractors
Self Insurance Filings and Assessments
Oversee Franchise Property and Casualty and Group Insurance Programs
Contract Review and Development
Negotiate and contract with outside services as needed (Brokers, Claims
Adjusters, Managed Care)
Safety and Loss prevention
Budgeting and Allocation of premiums
IOC Policies (Crime and Directors and Officers) and contractual issues
Potential development of International Franchise insurance program
Review Franchise Agreements and recommend appropriate wording
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Determine loss estimates for future years
Any other Risk Management related duties as deemed applicable
All services provided hereunder shall be administered in accordance with
Manor's standard policies, procedures and practices in effect as of the
Distribution Date and as the same may be changed from time to time. In providing
such services, Manor shall follow commonly accepted standards of care in the
industry and exercise the same care and skill as it exercises in performing like
services for itself. Choice shall adopt reasonable measures to limit its
exposure with respect to any potential Losses (defined below).
Manor agrees to provide such services only if it reasonably believes the
service will not interfere with the conduct of the business of Manor or pose an
unreasonable burden.
3. Term. The term of this Agreement shall commence on the Distribution
Date and shall remain in effect through the end of the first full Fiscal Year
immediately following the Distribution Date. Unless terminated pursuant to the
terms hereof, the Agreement shall automatically renew each Fiscal Year
thereafter for the extended term of said Fiscal Year and shall not extend past
the last day of the thirtieth (30th) month following the Distribution; provided,
however, that Choice may terminate this agreement or any services provided
hereunder at any time for any reason or no reason by sending 60 days prior
written notice to Manor. This Agreement may also be terminated in the event of a
default (past the expiration of any applicable cure period provided herein) in
accordance with the provisions of this Agreement.
4. Fees; Premiums.
Fees will be $438,000 per year, prorated through May 31, 1997, payable in
equal monthly installments. Fiscal year fees will be determined within sixty
(60) days prior to the commencement of the subsequent Fiscal Year. Fees for
services rendered in addition to those specified hereunder shall be mutually
agreed upon by Manor and Choice based upon appropriate supporting
documentation. In addition, Choice shall pay Manor for all insurance premiums,
self-insurance and administrative costs.
Payments hereunder shall be made by Choice to Manor within 30 days of
receipt of invoice for payment (with appropriate supporting documentation if
requested). Any payments not made by Choice to Manor when due shall bear
interest, computed daily, from the date due to the date of payment based on the
annual percentage rate equal to the Prime Rate, as same may vary from time to
time, plus two (2) percentage points.
Payment for all policies and self insurance plans with an effective date
on or after Distribution Date shall be payable as follows:
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1) Invoices for premiums and services related to such policies and plans
shall be paid within 5 days of receipt by Choice.
2) An escrow account shall be established for the payment of claims. This
account will be structured to allow for three (3) months average claims
payments, and the replenishment, in whole or in part, shall be due to
Manor on the first of each month, unless the account is in negative
balance, requiring replenishment within 48 hours.
5. Termination.
If either party materially defaults hereunder, the non-defaulting party
may terminate this Agreement effective immediately (subject to the cure periods
set forth herein below) upon written notice to the defaulting party. The
non-defaulting party shall be entitled to all remedies provided by law or equity
(including reasonable attorneys' fees and costs of suit incurred). The following
events shall be deemed to be material defaults hereunder:
(a) Failure by either party to make any payment required to be made to the
other hereunder, which failure is not remedied within five (5) days after
receipt of written notice thereof; or
(b) Except as otherwise provided herein, failure by either party
substantially to perform in accordance with the terms and conditions of
this Agreement, which failure is not remedied within thirty (30) days
after receipt of written notice from the other party specifying the nature
of such default; or
(c) (i) Filing of a voluntary bankruptcy petition by either party; (ii)
filing of an involuntary bankruptcy petition against either party which is
not timely controverted and results in the entry of an order for relief;
(iii) assignment for the benefit of creditors made by either party; or
(iv) appointment of a receiver for either party.
6. Disclaimers; Limitation of Liability; Indemnification.
The following disclaimers, limitation of liability and indemnification
provisions shall apply during the term of this Agreement:
(a) MANOR DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE, WITH RESPECT TO THE SERVICES. Manor shall use
reasonable efforts to perform the services in a professional and
workmanlike manner and in accordance with the standard of care set forth
herein but the results of the services are furnished "as is."
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(b) With regard to Losses arising out of errors or omissions in the
provision of services which are caused by Manor, Manor's sole liability to
Choice for such Losses shall be to furnish correct information, payment
and/or adjustment in the services, at no additional cost or expense to
Choice; provided, Choice must promptly advise Manor of any such error or
omission of which it becomes aware after having used reasonable efforts to
detect any such errors or omissions in accordance with the standard of
care set forth herein. If it is determined that Manor is not guilty of any
errors or omissions, it will be the responsibility of Choice to reimburse
Manor for any costs and expenses incurred.
(c) With regard to Losses arising out of the unavailability, delay or
interruption of any services for any reason beyond Manor's reasonable
control, Manor's sole liability to Choice for such Losses shall be to use
reasonable efforts to make the services available and/or to resume
performing the services as promptly as reasonably practicable and at no
additional charge to Choice.
(d) EXCEPT FOR ITS OBLIGATION TO COMPLY WITH SUBPARAGRAPHS (a),
(b), and (c),
(i) MANOR SHALL NOT BE LIABLE FOR ANY ERRORS, OMISSIONS, DELAYS, OR
LOSSES UNLESS CAUSED SOLELY BY ITS CRIMINAL CONDUCT, FRAUD, BAD
FAITH OR GROSS NEGLIGENCE. CHOICE AGREES THAT IN NO EVENT WILL MANOR
BE LIABLE FOR INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL
DAMAGES.
(ii) CHOICE FURTHER AGREES THAT IN NO EVENT WILL THE TOTAL AGGREGATE
LIABILITY OF MANOR FOR ANY AND ALL CLAIMS, LOSSES, OR DAMAGES
ARISING UNDER THIS AGREEMENT AND FOR THE SERVICES PERFORMED
HEREUNDER EXCEED THE VALUE OF CHOICE'S PAYMENT FOR SAID SPECIFIC
SERVICE OVER ONE FOUR-WEEK ACCOUNTING PERIOD'S TIME.
(e) CHOICE AGREES TO INDEMNIFY, DEFEND AND HOLD HARMLESS MANOR (ITS
DIRECTORS, OFFICERS, EMPLOYEES AND ATTORNEYS) FROM ALL LOSSES (AS DEFINED)
ASSERTED BY OR ON BEHALF OF THIRD PARTIES OR WHICH RESULT FROM
GOVERNMENTAL ACTION OTHER THAN ANY SUCH LOSSES CAUSED BY MANOR'S SOLE
CRIMINAL CONDUCT, FRAUD, BAD FAITH OR GROSS NEGLIGENCE. THE PROVISIONS OF
THIS INDEMNITY SHALL APPLY ONLY TO LOSSES (AS DEFINED) WHICH RELATE
DIRECTLY TO THE PROVISION OF THE SERVICES.
(f) With regard to either parties' indemnification, the party required to
indemnify pursuant to this Section (the "Indemnitor"), upon demand by the
other party ("Indemnitee"), at its sole cost and expense, shall resist or
defend such claim, action or proceeding (in the Indemnitee's
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name, if necessary), using such attorneys as the Indemnitee shall approve,
which approval shall not be unreasonably withheld. If, in the Indemnitee's
reasonable opinion, there exists a conflict of interest which would make
it inadvisable to be represented by counsel for the Indemnitor, the
Indemnitor and the Indemnitee shall jointly select acceptable attorneys,
and the Indemnitor shall pay the reasonable fees and disbursements of such
attorneys.
(g) The foregoing provisions of this Section set forth the full extend of
the parties' liability (monetary or otherwise) under the Agreement for any
and all Losses.
For purposes of this Agreement, "Losses" shall mean any and all suits,
debts, causes of action, losses, liabilities, claims or demands (whether at law
or in equity), and any damages, settlement, judgment, penalty or other
disposition of the same, and all costs and expense of the same (including,
without limitation, attorneys' fees but in no situation whatsoever shall Manor
be liable to Choice for incidental, indirect, special or consequential damages),
which arise from or are related to the services of this Agreement.
7. Representatives.
Choice and Manor hereby appoint the two managerial level Representatives
to facilitate communications and performance hereunder. Each party may treat an
act of a Representative of the other party as being authorized by such other
party without inquiring behind such act or ascertaining whether such
Representative had authority to so act. The initial Representatives are named
below and either party may change its Representative by providing the other
party notice.
INITIAL REPRESENTATIVES
_________________________________________ - Manor
_________________________________________ - Choice
8. Governing Law.
This Agreement shall be governed by Maryland law, without reference to its
conflict of laws principles.
9. Commercially Reasonable Terms and Conditions.
The terms and provisions of this Agreement are intended to reflect
commercially reasonable terms and conditions (including, but not limited to,
pricing) that are at least as favorable and as competitive to Choice as the
terms and conditions Manor would grant or require of third parties for
substantially similar goods and services.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CHOICE HOTELS HOLDINGS, INC., a
Delaware corporation
By:______________________________________
Name:____________________________________
Title:____________________________________
MANOR CARE, INC., a
Delaware corporation
By:______________________________________
Name:____________________________________
Title:___________________________________
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