Salem Homes of Florida Inc. v. Res-Care Inc. 4/13/18 Notice of Removal To Middle District Federal Court (Winston-Salem, NC) With With 2/14/18 Complaint Attached

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF NORTH CAROLINA

WINSTON-SALEM DIVISION
Case No.
------------------
Electronically Filed
SALEM HOMES OF FLORIDA, INC. PLAINTIFF
v.
RES-CARE, INC. DEFENDANT
********
NOTICE OF REMOV AL
Defendant Res-Care, Inc. ("ResCare"), by counsel, pursuant to 28 U.S.C. §§ 1441 and
1446, hereby removes this action from the State of North Carolina, Forsyth County General
Court of Justice, Superior Court Division, Civil Action No. 18 CVS 834, to the United States
District Court for Middle District of North Carolina, Winston-Salem Division, on the following
grounds:
Statement of the Case
1. On or about February 14,2018, Plaintiff Salem Homes of Florida, Inc. ("Salem
Florida") filed a civil action in the State of North Carolina, Forsyth County General Court of
Justice, Superior Court Division, entitled Salem Homes of Florida, Inc. v. Res-Care, Inc., No. 18
CVS 834 (the "State Court Action").
2. ResCare first received a copy of Salem Florida's Complaint on March 15,2018,
which had been addressed improperly to a former officer of Res Care. ResCare agreed to accept
service effective March 26,2018 in exchange for Salem Florida's agreement to extend by thirty
(30) days ResCare's deadline to file a responsive pleading.
Case 1:18-cv-00290 Document 1 Filed 04/13/18 Page 1 of 5

3. The State Court Action is a civil action asserting purported causes of action for
breach of contract, "accounting of profits and use of assets," and conversion, and seeking both
damages and a "full accounting of all sources and uses of funds."
4. In connection with the State Court Action, Salem Florida filed a Summons and
Complaint. A copy of these documents (collectively, the "Complaint") are attached hereto as
"Exhibit A."
5. No other pleadings have been filed in the State Court Action as of the date of this
Notice of Removal, ResCare is not in default in the State Court Action as of the time of the filing
of this Notice of Removal, and no proceedings have been conducted in the State Court Action.
6. Pursuant to 28 U.S.C. § 1446(b), this Notice of Removal is timely, as it is being
filed within thirty (30) days of ResCare's receipt of Salem Florida's Complaint.
Diversity Jurisdiction Under 28 U.S.C. § 1332(a)
7. The United States District Court for the Middle District of North Carolina has
jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(l) by reason of the complete diversity
of citizenship between Plaintiff Salem Florida and Defendant ResCare, as described below:
a. Salem Florida's Complaint admits that Salem Florida is a Florida corporation

with its principal place of business allegedly in Winston-Salem, North
Carolina. Assuming the truth of Salem Florida's allegations, at the time of the
filing of the Complaint in the State Court Action, Salem Florida was and is
presently, a citizen of both Florida and North Carolina.
b. As Salem Florida has recognized in its Complaint and otherwise, ResCare is a

corporation formed under the laws of the Commonwealth of Kentucky with a
principal office located at 9901 Linn Station Road, Louisville, Kentucky
40223. At the time ofthe filing of the Complaint in the State Court Action
and presently, ResCare was, and is, a citizen of the Commonwealth of
Kentucky. See Affidavit of Kevin G. Fisher dated April 12, 2018 (the "Fisher
. Aff.," attached as "Exhibit B") at ~4.

8. Complete diversity between Salem Florida and ResCare in this action existed both
at the time ofthe filing of the Complaint in the State Court Action and presently.
9. Salem Florida's Complaint does not seek a specific amount of damages. Instead,
Salem Florida alleges that it has been damaged by ResCare's alleged breach of contract in an
amount "expected to be in excess of $20,000.00," and has been damaged separately by
ResCare's alleged conversion of assets belonging to Salem Florida in amount also "expected to
be in excess of $20,000.00." Complaint ~~ 12, 17.
10. However, Salem Florida's purported conversion claim alone easily satisfies the
jurisdictional threshold set forth in 28 U.S.C. § 1332(a). Indeed, Salem Florida alleges in its
Complaint that "[ w]hen the Management Agreement was terminated as of December 31, 2017,
without authorization and in contravention of the terms of the Management Agreement, Res-
Care swept allfundsfrom all of Salem 's accounts maintained by Res-Care pursuant to the
Management Agreement and converted the funds to its own use, in direct contravention of the
Waterfall and the terms of the Management Agreement." Complaint ~ 8 (emphasis added).
11. The Bank of America checking account statement dated January 31, 2018 for the
account maintained in Salem Florida's name pursuant to the Management Agreement reflects
that as of January 1,2018, the balance on deposit was $166,872.49. See Exhibit A to Fisher Aff.
Accordingly, assuming the truth of Salem Florida's allegations, the amount in controversy
plainly exceeds the $75,000 threshold set forth by 28 U.S.C. § 1332(a). See 28 U.S.C. §
1446( c)(2).
All Procedural Requirements for Removal Have Been Satisfied
12. Pursuant to 28 U.S.C. § 1446(a), a true and correct copy of all of the process,
pleadings, orders, and documents from the State Court Action is being filed with this Notice of
Removal.

13. This Notice of Removal has been filed within thirty (30) days of the first receipt
of the Complaint by ResCare. Accordingly, removal is timely in accordance with 28 U.S.C.
§ 1446(b).
14. A copy of this Notice of Removal is being promptly filed with the Clerk of the
Forsyth County General Court of Justice, Superior Court Division, as required by 28 U.S.C.
§ 1446(d), a copy of which is attached hereto as "Exhibit C."
15. ResCare will give written notice of the filing of this Notice of Removal to Salem
Florida as required by 28 U.S.C. § 1446(d).
16. By filing this Notice of Removal, ResCare does not waive any objection that it
may have to the exercise of personal jurisdiction over it in state or federal court in North
Carolina.
Conclusion
17. By filing this Notice of Removal, ResCare does not waive any objection it may
have to jurisdiction, venue or any other defenses or objection it may have in this action and
instead specifically reserves those objections. ResCare intends no admission of fact, law 01'
liability by the filing of this Notice of Removal and expressly reserves all of its potential
defenses, motions and pleas.
WHEREFORE, ResCare respectfully gives notice of the removal of this action from the
State of North Carolina, Forsyth County General Court of Justice, Superior Court Division, to
the United States District Court for the Middle District of North Carolina.

Respectfully submitted,
SHUMAKER, Loop & KENDRICK LLP

Steven A. Meckler
/s/ Steven A. Meckler

10 1 South Tryon Street
Suite 2200
Charlotte, NC 28280
(704) 945-2187
smeckler@slk-law.com
N.C. State Bar: 26544
Counsel for Defendant Res-Care, Inc.
CERTIFICATE OF SERVICE.
I hereby certify that on Apri113, 2018, I electronically filed the foregoing Notice of
Removal with the Clerk of the Court using the CMIECF system.
I further certify that on April 13, 2018, I served plaintiff Salem Homes of Florida, Inc.,
by electronic and first-class mail through its counsel of record:
Peter J. Juran
Blanco, Tackabery & Matamoros, P.A.
P.O. Drawer 25008
Winston-Salem, NC 27114-5008
pjj@blancolaw.com
Counsel for Plaintiff Salem Homes of Florida, Inc.
/s/ Steven A. Meckler


,
-STATE OF NORTH CAROLINA l~ Fife No.
18CVS 83f
In The General Court Of Justice
Fors~th County
o District 121 Superior Court Division
Name Of Plaintiff
SALEM HOMES OF FLORIDA INC.
!f.ddress CIVIL SUMMONS
clo Blanco Tackabery & Matamoros, PA
City, State, Zip
D ALIAS AND PLURIES SUMMONS (ASSESS FEE~
Winston-Salem NC 27104
VERSUS G.S. 1A-1, Rules 3 and 4
Name Of Def(lndant(s) Date Oriqinal Summons fs~lUed
RES~CARE, INC.
Date(s) Subsequent Summon(es) Issued
To Each of The Defendant(s) Named Below:

Name And Address Of Defendant 1 Name And Address Of Defendant 2
RES-CARE, INC.
By serving Pat Kelley, Chief Operating Officer
9Q01 Linn Station Road
Louisville, KY 40223
A Civil Action Has Been Commenced Against You!
You are notified to appear and answer the complaint of the plaintiff as follows:
1. Serve a copy of your written answer to the complaint upon the plaintiff or plaintiffs attorney within thirty (30) days
after you have been served, You may serve your answer by delivering a copy to the plaintiff or by mafling it to the
plaintiffs last known address, and
2. File the original of the written answer with the Clerk of Superior Court of the county named above.
~d., 't
If you fail to answer the complaint, the plaintiff will apply to the Court for the relief demanded in the complaint.
Name And Address Of Plaintiff's Attorney (If none, Address Of Plaintiff)
Peter J. Juran 336-293-9000
Blanco Tackabery & Matamoros, P.A.
I O\:S fB
Tim
I 4:, Lf- DAM BJ PM
Post Office Drawer 25008 Si~ "~~,~~
~ ~./
Winston-Salem, NC 27114-5008 D Assistant CSC ~ Of Superior Court
l!I=DepuwC"sc
Date Of Endorsement
o ENDORSEMENT (ASSESS FEE) DAM DPM
Signature
This Summons was originally issued on the date
indicated above and returned not served. At the
request of the plaintiff, the time within whioh "this o Deputy esc o Ass/stant CSC D Clerk Of Superior Court
Summons must be served is extended si)}ty'{60)
days.
NOTE TO PARTI ES: Many counties have MANDATORY ARBITRA TtON programs in which most cases where the amount in controversy is
$25,000 or less are heard by an arbitrator before a trial. The parties will be notified if thfs 08S9 is assigned for
mandatory arbitration, and, if so, what procedure is to be followed.
AOC-CV-100, Rev. 6/16 EXHIBIT

© 2016 Administrative Office of the Courts (Over)
A
Case 1:18-cv-00290 Document 1-2 Filed 04/13/18 Page 1 of 44
I
/'
STATE OF NORTH_C1\ltOLlNA I: f j r: rlN THE GENERAL COURT OF JUSTICE

! I l..!". U . SUPERIOR COU~~SION
COUNTY OF FORSYTH 18 CVS~
lGla FEB 1I..\ P 4: ! It
SALEM HOMES OF FLORIDA, )
INC., FORSYTH _0 I C.S.C.
Plaintiff,
) COMPLAINT
v. )
)
RES-CARE, INC., )
)
Defendant. )
Plaintiff, Salem Homes of Florida, Inc. ("Salem"), complaining of Defendant
Res-Care, Inc. eRes~Care"), alleges and says as follows:
1. Salem is a corporation organized and existing under the laws of the State of
Florida but with an office and principal place of business in Winston-Salem, Forsyth County,
North Carolina. Salem maintains its books and records in.Winston-Salem, North Carolina,
conducts its primary operations out of its Winston-Salem office, receives notices, legal papers,
and payments under the contract described herein in Winston-Salem. Most of the individuals
affiliated with Plaintiff who have knowledge of the facts and circumstances which form the basis
oftbis Complaint live and/or work in Winston-Salem, North Carolina.
2. On information and belief, Defendant Res-Care is a corporation
organized and existing under the laws of the State of Kentucky.
3. Salem is the tenant under a certain Lease Agreement of certain real
property located in the State of Florida and operates certain residential facilities
(the "Facilities") for developmentally disabled adults on such real properties, Salem
BTM: 699718v21
leases the Facilities from Clark, Evans & Tate, Inc. ("Landlord") under a Lease
Agreement (the "Lease") which was entered into on or about December 1,2013.
4. Res-Care, among its other businesses, is a manager of residential
facilities for developmentally disabled adults. Res-Care managed the Facilities for
Salem from December 1,2013 for approximately four (4)years under contract with
Salem pursuant to an Amended and Restated Management Agreement dated
December 1, 2013, a true copy of which is attached as Exhibit A and incorporated
herein as if fully set forth (the "Management Agreement"). The Management
Agreement was negotiated over a period of time, including at least two face to face
meetings of the parties in Winston-Salem, North Carolina.
5. In general terms, Res-Care's obligations under the Management
Agreement, insofar as it relates to the Facilities, involved management of the day-
to-day operation of the Facilities, including hiring, retention, training and payment
of all staff, intake maintenance care of residents, preparation (for approval by
Salem) of the annual and capital budgets, operation of the Facilities in compliance
with those budgets, maintenance of all financial and business records of the
Facilities, and submission to the State of Florida of all necessary records and
reports to ensure qualification for, and receipt of, all reimbursements for Medicare
goods and services provided (as well as private reimbursements).
6. The Management Agreement provides for the handling of funds and
the order of distribution of such funds, under a priority listing (the "Waterfall"),
which was under the auspices of Res-Care. Res-Care was responsible for
2
BTM:699718v2
distribution of funds generated by the operation of the Facilities pursuant tothe
Waterfall.
7. Over the course of the term of the Management Agreement, Res-Care
failed in multiple particulars to honor its obligations under the Management
Agreement. Specifically, and without limitation as to other breaches which may
become apparent during discovery, Res-Care has failed:
(a) To comply with the budgets agreed to on an annual basis
between Salem and Res-Care.
(b) To satisfy requirements of the State of Florida to fund certain
expense categories in sufficient amounts to qualify for Medicare reimbursement.
(c) To pay the Lease obligations of the Facilities pursuant to the
Waterfall priority.
(d) To pay its own management fees only in the proper order of
priority relative to other payment obligations, and only after the payment of other
senior obligations of Salem set forth in the Waterfall.
(e) To pay itselffunds to return the working capital advances it
had made only as permitted by the Management Agreement.
(f) To open bank accounts in the name of and for the benefit of
Salem and the Facilities, and not to convert funds to accounts under its own name.
(g) To perform all accounting, bookkeeping and record keeping F=
functions to enable the sale and to meet the financial reporting, record keeping, and
3
BTM:699718v2
budgetary requirements of the lease and all applicable statutes, rules or regulations
of government entities on an annual basis.
(h) To prepare and submit to Salem a draft annual budget and
capital expenditure budget.
(i) To obtain approval of its proposed budgets from Salem, and then
follow the provisions of that budget once approved by Salem.
(j) To prepare monthly statements of operations and combine
monthly statements of operations and submit them to Salem in accurate form
within 30 days after the end of each month.
(k) To maintain a complete and accurate general ledger recording
and summarizing the transactions of the Facilities.
(1) To manage Salem's operation of the Facilities in accordance to
Salem's obligations under the Lease and applicable law, and to perform its duties
under the Management Agreement in a manner to cause Salem's compliance with
its obligations under the Lease and applicable law, including state and federal
permitting, Certificates of Need, and occupancy laws and regulations for group
facilities.
(m) To represent Salem in any and all proceedings or appeals of (i)
Medicaid rate adjustments of determinations before any governmental agencies, or
(ii) ad valorem tax liabilities or valuation determinations.
(n) To arrange for architectural, engineering and construction
services in connection with any and all capital improvements to such Facilities and
4
BTM:699718v2

to oversee on behalf of Salem the construction of all capital improvements, including
ensuring that each Facility operated by Res-Care pursuant to the Management
Agreement is operated in compliance with state and federal law .
(0) To distribute funds only consistent with the provisions of
Section 4 of the Management Agreement, including the Waterfall, and to refrain
from prioritizing payments for its own benefit ahead of priority payments due to
others.
(P) To file all of its cost reports in a manner consistent with the
terms of the Management Agreement, but in all cases in compliance with applicable
law and the rules and regulations applicable to the facilities.
(q) Following termination of the Management Agreement, to pay
any accrued management fees and or advances by Res-Care only pursuant to the
termination provisions of the contract (calling for such payments to he paid over a
24-month period following termination or election not to renew by Res-Care.)
(r) Following termination of the Management Agreement, to
cooperate at termination fully with Salem in effecting orderly transition to avoid
any interruption in rendering the above described services. Specifically, and
without limitation, Salem is informed and believes that Res-Care submitted to the
State of Florida a letter with scandalous, misleading, and/or fraudulent allegations
regarding the operations and financial management of the Facilities, thereby
placing Salem's operations and reimbursements at risk. Alternatively, to the extent
any such allegations set forth in such letter are accurate, such matters are the
5
BTM:699718v2

direct and consequential result of Res-Care's misconduct in its performance under
the Management Agreement.
8. When the Management Agreement was terminated as of December 31. 2017,
without authorization and in contravention of the terms of the Management Agreement, Res~·
Care swept all funds from all of Salem's accounts maintained by Res-Care pursuant to the
Waterfall and the terms of the Management Agreement.
9. ResCare has failed to properly account for all funds and assets
belonging to Salem within Res-Care's custody and control.
FIRST CAUSE OF ACTION:

BREACH OF CONTRACT
lO. The allegations contained in the preceding paragraphs are repeated and re-alleged
as if fully set forth.
11. Defendant is in breach of its contract with Plaintiff.
12. Plaintiff has been damaged by Defendant's breach of contract in an
amount to be proven at trial, but 'expected to be in excess of $20,000.00.
SECOND CAUSE OF ACTION:

ACCOUNTING OF PROFITS AND USE OF ASSETS
13. The allegations contained in the preceding paragraphs are repeated
and re-alleged as if fully set forth.
6
BTM:699118v2

14. Plaintiff is entitled to a full accounting of all funds and assets
controlled by Res-Care under the Management Agreement.
THIRD CAUSE OF ACTION:

CONVERSION
16. Res-Care has converted assets which properly belong to Salem to its
own use.
17. Plaintiff has been damaged by Defendant's conversion in an amount to
be proven at trial, but expected to be in excess of $20,000.00.
WHEREFORE, Plaintiff requests and prays for the following relief:
1. That the Court order judgment in favor of Plaintiff against Defendant
in an amount to be proved at trial but expected to be in excess of $20,000.00.
2. That the Court require that Defendant give a full accounting of all
sources and uses of funds.
3. That the Court tax all of the costs of this action against Defendant; and
4. That the Court award such other and further relief as the Court deems
just and proper.
7
BTM:699718v2
This /!k;day of February, 2018.
~
N.C. State Bar No.13566
Attorney for Plaintiff
OF COUNSEL:
BLANCO, TACKABERY
& MATAMOROS, P.A.
P.O. Drawer 25008
Winston~Salem, NC 27114-5008
Telephone (336) 293-9000
Facsimile (336) 293-9030
8
BTM:699718v2

AMENDED AND RESTATED MANAGEMENT AGREEMENT
rms AMENDED AND RESTATED MANAGEMENT AGREEMENT
("Agreement") is made on the day and year set forth below, by and among SALEM HOMES
OF FLORIDA, INC., a Florida corporation ("Salem") and RES·CARE, INC., a Kentucky
corporation qualified to do business in Florida ("Res-Care'').
RECITALS:
A. Salem operates fourteen (14) six. (6) bed ICFIDO (each such rCF/OD is
hereinafter referred to individually as a "Facility" and collectively as the "Facilities'').
B. Res-Care, through the management and operation of numerous ICFIDD in various
other states, as well as its management and operation of the Gainesville group homes in Florida
and the Facilities for the prior provider, Salem Villages .MRDD, Inc. ("MRDD"). has acquired
experience in the provision of residential service for the developmentally disabled.
C. Salem leases the Facilities from Clark, Evans & Tate, Inc. (the "Landlord"),
pursuant to a certain Lease Agreement ("Lease").
D. Salem desires to retain Res-Care for the provision of specific management
services necessary for operation of the Facilities and Res-Care desires to continue to provide
such assistance.
NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants
contained herein and for other good and valuable consideration, the sufficiency of which is
hereby acknowledged, agree as follows:
1. Salem as Provider. Salem shall be considered the official provider of record for
Medicaid purposes and shall hold all authorizations and licenses necessary or incidental thereto
with respect to the Facilities. Salem shall at all times exercise control over the assets and
BTM:542316v4

operation of the Facilities. It is understood end agreed that the relationship between the parties
hereto is that of independent contractors, and nothing herein contained shall be deemed to create
or authorize the creation of the relationship of partner ship or joint venture between said parties.
2. Res~Care's Obllgations. Res-Care shall assume day-to-day operational
responsibility for each Facility and shall perform the following specific management services for
Salem:
(a) Manage the Facilities so as to provide a level of care that meets all state
and federal licensing, accreditation and reimbursement standards applicable to an IeFIDD
facility, which care shall include the providing or monitoring of the following for the individuals
residing in the Facilities:
(i) the medical and psychological condition of the individuals,
including maintenance of medical records where applicable;
(ii) the activities, both personal and familial, of the individuals;
(iii) the dietary requirements of the individuals;
(iv) pbysical therapy and day program participation by the individuals;
and
(v) the quality of'life of the individuals.
(b) Provide care and treatment to all individuals, protecting their rights
pursuant to applicable state and federal law, including laws pertaining to safe-guarding and
accounting for personal funds.
(c) Maintain each Facility and its premises in good and satisfactory condition,
all in accordance with such obligations of Salem under the Lease.
(d) Provide adequate qualified staff for each Facility. At Res-Care's option,
such staff may be its employees or may be independent contractors. Provided it is complying

with its obligations under this Agreement, Res-Care shall have full authority to hire and fire such
staff. Res-Care covenants that it shall not discriminate against any member of such staff. or
applicant therefor, because of race, religion, color, national origin, sex, handicap, military status
or age, all in accordance with applicable law. Without Salem's prior written consent (which
shall not be unreasonably withheld or delayed). Res-Care shall not terminate the Executive
Director of the Facilities or hire any replacement thereof. Additionally, Res-Care agrees that the
Executive Director and the Business Manager of the Facilities shall work exclusively on behalf
of Salem with respect to the Facilities, except that such individuals may, with the prior written
consent of Salem, which consent shall not be unreasonably withheld or delayed, be assigned to
provide temporary services (for a period or periods not exceeding an aggregate of ten (10)
working days during any twelve (12) month period) to other operations of Res-Care and its
affiliates as reasonably necessary (as for example in the event of disruption of such other
operations due to weather or other unforeseen circumstances), provided qualified personnel at
the Facilities can temporarily perform such individual's functions during such period. For any
period such individuals are assigned to such temporary services, Res-Care shall not charge the
Salem Account for the prorated salary and benefits of such individuals.
(e) Subject to the limitations of Section S, purchase in Salem's name and
behalf, necessary equipment, furniture and fixtures for each Facility.
(1) Subject to the limitations of Section 5, contract, in Salem's name and
behalf, for services with vendors or service providers as necessary for the operation of each
Facility, including the authority to amend, modify or terminate such contracts.
(g) Utilize a set of operational policies for the Facilities and submit that
document to Salem for its review and approval. Said policies shall meet all licensing and
accreditation standards required ofICFIDD group homes by Florida or the federal government.

(h) Perform aU accounting, bookkeeping, and recordkeeping functions to
enable Salem to meet the financial reporting, recordkeeping, and budgetary requirements of
(x) the Lease and (y) all applicable statutes, rules or regulations of governmental agencies. All
such reporting and recordkeeping shall be maintained on a calendar year, accrual basis. The
annual audit of the books and records of the Facilities shall be performed by an independent
certified public accounting finn selected by Salem. The accounting services to be performed by
Res-Care or under Res-Care's supervision shall include the following:
(i) No later than forty-five (45) days before the end of each calendar
year, Res-Care shall prepare for Salem a draft annual budget (the "Budget") for Salem's
review and prior approval covering the operations by Salem of and proposed capital
expenditures to be made by Salem with respect to the Facilities for the next calendar year
as follows:
(A) A capital expenditure budget outlining a program of capital
expenditures and major repairs as Res-Care reasonably believes will be required for the
next calendar year, in which each proposed expenditure will be designated as either
mandatory or desirable. Salem may approve or reject, in its reasonable discretion, each
proposed capital expenditure. However, Salem shall not refuse an expenditure designated
"mandatory capital expenditure" when such refusal wou1d result in the respective Facility
losing its license or becoming ineligible under any third party payor program applicable
to the Facilities.
(B) A budget setting forth an estimate of consolidated operating
revenues and expenses of the Facilities for the next calendar year together with an
explanation of anticipated changes in Facility utilization, charges to residents, payroll

rates and positions, non-wage cost increases, and all other factors offering significantly
from the current year.
(C) A projection of cash receipts and disbursements for the
next calendar year based on the proposed operating and capital budgets, together with
recommendations as to the use of projected cash flow in excess of short-term operating
requirements and/or as to the sources and amounts of additional cash flow that may be
required to meet operating requirements and capital requirements.
At Res-Care's discretion, Res-Care may submit one or more revised Budgets to
Salem during any calendar year, together with a written explanation of the basis for any
modification from the Budget previously approved by Salem. Salem shall not
unreasonably withhold or delay its approval of the Budgets (including any revised
Budget) submitted by Res-Care. Unless and until a revised Budget is approved by Salem,
Res-Care shall continue to operate the Facilities in accordance with the Budget
previously approved by Salem. Subject to Section 2(r), the parties acknowledge and
agree that revenues and expenditures with respect to the Facilities may vary with respect
to categories or line items and amounts from month-to-month and that the Budget is a
projection of'aggregate revenues and expenditures for the entire calendar year.
(ii) The preparation of a monthly statement of operations for each
Facility and a combined monthly statement of operations for the Facilities to be
submitted to Salem within thirty (30) days after the end of each month.
(iii) The maintenance of all records for resident billing, billing for all
accounts receivable and (to the extent practicable without undue expenditure of funds)
collection of same.

(iv) The maintenance of all records for accounts payable and the
payment of the same.
(v) The preparation of all necessary Medicaid and other third party
payor reports.
(vi) The preparation of all necessary reports and returns for all sales,
use, ad valorem and occupancy taxes.
(vii) The maintenance of a complete general ledger recording and
summarizing the transactions of the Facilities.
(viii) The maintenance of detailed records of all funds as required by the
Lease.
(i) Res-Care shall use its best efforts to operate the Facilities in accordance
with the provisions of the Budgets submitted to and approved by Salem.
(j) Subject to the limitations of Section 18, represent Salem in any and all
proceedings or appeals of (i) Medicaid rate acljustments or determinations before any
governmental agencies, or (ii) ad valorem tax liabilities or valuation determinations.
(k) Manage Salem's. operation of the Facilities in accordance with Salem's
obligations under the Lease and applicable law, and to perform its duties under this Agreement,
unless otherwise directed by Salem, in a manner to cause Salem's compliance with its
obligations under the Lease and applicable law. Except as set forth in Section 5, Res-Care shall
have no obligation to pay any Costs of Operation or make repairs, renewals or replacements, or
make any payments under the terms of the Lease except from Salem's funds. Nothing herein
shall constitute a guarantee by Res-Care that the Facilities, whether individually or collectively,
will be able to meet any rate covenants set forth in the Lease or any other level of financial
performance.

(I) Attend not more than quarterly meetings of the Board of Directors of
Salem (and such meetings of committees of such Board as Salem may reasonably request) for
the purpose of providing information and advice concerning the management of the Facilities.
The reasonable out-of-pocket cost of attending any such meetings shall be deemed a part of the
Costs of Operation.
(m) Arrange for architectural, engineering, and construction services in
connection with any and all capital improvements to such Facility, and to oversee on behalf of
Salem the construction of such capital improvements.
(n) Provide online access to Salem's designated employees with respect to the
Salem Account (as defined in Section 4) and the general ledger of the Facilities maintained by
Res-Care, together with access to such other financial information with respect to the Facilities
as requested by Salem from time to time, including providing Salem with read-only access to
select financial reporting so as to enable Salem to access various financial information which is
customarily kept by Res-Care in the ordinary course of business, including, without limitation,
the information described in paragraph (r) of this Section 2.
(0) Res-Care, without the prior written consent of Sa1em (which may be
withheld in its sole discretion), shall not create, assume or suffer to exist any deed of trust,
mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual (except
the lien for ad valorem taxes on the Facilities which are not past due), security interest,
encumbrance or charge, or conditional sale or other title retention document, against or covering
all or any portion of any Facility.
(P) Res-Care shall not use, generate, manufacture, treat, store, recycle,
transport, dispose, spill, leak or release, or permit any other person to use, generate, manufacture,
treat, store, recycle, transport, dispose, spill, leak or release any hazardous substance in, on or

under any Facility. except in compliance with all applicable environmental laws and other
applicable federal, state and local laws. rules, regulations, ordinances and requirements.
(q) Notwithstanding any provision to the contrary in this Section 2 or
elsewhere in this Agreement without the prior written consent of Salem, Res-Care shall have no
responsibility or authority to negotiate, execute or deliver any lease, contract or other agreement,
or to take any other action, for or on behalf of Salem, or which legally binds Salem (the
foregoing shall not limit the ability of Manager to enter into contracts in the name of any Facility
for which Res-Care alone shall be liable), unless it:
(i) is terminable by Salem without premium or penalty by not more
than thirty (30) days' notice; or
(ii) is in the ordinary course of business consistent with past practice
and contained within the Budget.
(r) Within ten (l0) business days after the last day of each calendar month
during the Term, Res-Care shall notify Salem that it has made available online to Salem
(i) detailed information regarding all of the foregoing for the preceding calendar month for the
operations: Costs of Operations, billings, collections, bad debts and capital expenditures; (ii) all
balance sheet information regarding the operations, including without limitation, accounts
receivable and accounts receivable aging; and (iii) an executive summary of the financial
information and the operations of the Facilities for such month, including comparisons to the
Budget, explanations of any material variances to the Budget, and projections of anticipated
future variances to the Budget. Not later than the third business day after such information is
made availabJe to Salem, representatives of Salem and Res-Care shall confer by telephone to
discuss such infonnation, Res-Care's analysis of the same and any objections that Salem may
have (it being understood that a one-time (not continuing) monthly variance of less than five
8
percent (5%) from the Budget, both by category and in the aggregate, and monthly variances that
Res-Care can reasonably demonstrate will be reversed within the calendar year, shall not
normally be objectionable; provided, larger variances which have been previously discussed
with, and approved by. Salem shall not be objectionable nor shall variances which result from
unanticipated disruptions in the timing of receipt of revenues (so long as such disruption is not
the result of a breach by Res-Care hereunder), hut which are not expected to result in a variance
to the annual Budget, shall also not be objectionable). Not later than two (2) business days after
such telephone conference, Salem shall advise Res-Care in writing either (x) that Salem has no
continuing objections, or (y) that Salem has continuing objections, and if so, Salem shall identify
the same. If Salem has no objections, the revenues and expenditures for such month shall
deemed to be in compliance with the Budget for all purposes, To ,the extent that Salem has any
continuing objections, Res-Care and Salem will jointly discuss and agree to actions to be taken,
including, without limitation, as appropriate, additional efforts to collect receivables, adjustments
to Operating Expenses, or adjustments to the Budget. Any adjustments to the Budget shall be
considered an amendment to the Budget as previously approved under paragraph (1) of this
Section 2. In Salem's discretion, the information, analysis and review described in this
paragraph (r) may by provided and performed on a quarterly, rather than monthly, basis.
(s) Res-Care will file all of its cost reports in a manner consistent with the
terms of this Agreement, but in all cases in compliance with applicable law and the rules and
regulations applicable to the Facilities.
3. Salem's Obligations. The obligations of Salem shall consist of the following:
(a) To furnish general policy and procedural guidance and direction for the
operation of the Facilities.

(b) To examine, observe, and inspect the Facilities, and any and all records
and reports applicable thereto and to the services and functions of Res-Care.
(c) To assist in the preparation of, and to approve, the Budgets and annual
plans submitted by Res-Care for the operation of the Facilities, which approval shall not be
unreasonably withheld.
(d) ,To establish operating policies, standards of operation, admission policies,
standards of service-and maintenance and resident rates and other charges for the Facilities'
residents. Salem shall fix, collect, and charge such rental rates and other charges as required to
pay timely all Costs of Operation (as defined below), the Management Fees and all obligations of
Salem pursuant to the Lease, and shall use its best efforts to operate the Facilities in accordance
with the Budgets submitted to and approved by it. Further, Salem covenants and agrees to
comply with all of its obligations set forth in the Lease without limitation on Res-Care's
contractual obligations to effect such compliance on Salem's behalf.
(e) To establish policies affecting the Facilities or the operation thereof which
are not inconsistent with the responsibilities assigned to Res-Care under the terms of this
Agreement.
(t) To play an active role in promoting the good will and public image of the
Facilities, their residents and Res-Care.
(g) To cooperate with Res-Care in executing all forms and returns required
pursuant to applicable taxing statutes, rules and regulations and governmental reimbursement
programs.
4. Revenues. Costs of Operation and Management Fees.
(a) All revenues from operations of, or any interest earned on any deposits or
accounts maintained under this Agreement for, the Facilities (collectively, "Revenues") shall be
10

deposited into, and all Costs of Operation (and aU capital expenditures) paid out of, a bank
account in Salem's name at a financial institution selected by Res-Care and approved by Salem
(the "Salem Account"), which approval shall not be unreasonably withheld for the payment of
the following items on a monthly basis in the following order of priority: (i) the Costs of
Operation (in accordance with the priorities set forth in Section 4(b»; (ii) any outstanding cash
advances made by Res-Care paid or incurred by Res-Cere for the Facilities and normal working
capital advanced by Res-Care pursuant to Section 5; and (iii) any outstanding cash advances
made by Salem, Res-Care, or any other person or entity, pari passu.
(b) The Costs of Operation shall include: (i) (A) all costs and expenses
incurred in the operation and management of the Facilities including matters herein referred to as
Res-Care's responsibility, including but not limited to any salary, compensation or payments to
staff for each Facility and the costs of repairs to, and maintenance of, the Facilities (but not the
cost of capital improvements or capital assets), (B) rent for the Facilities in the amount of
Twenty-Five Thousand Eight Hundred Seven and 30/lO0 Dollars ($25,807.30) per month
(''Rent) (which shall be paid no later than the first business day of each calendar month), (C) all
premiums or charges for insurance coverage with respect to the operations of the Facilities,
(D) expenses and costs incurred in connection with the purchase of necessary supplies, the
furnishing of utilities to the Facilities and other necessary supplies furnished by independent
contractors, (E) the cost to Salem of its annual inspection of the Facilities (not to exceed Five
Hundred and 00/100 Dollars ($500.00) for each Facility), (F) any audit adjustments or payments =
required in connection with or as a consequence of any proceeding or appeal described in
Section 20), (0) any ad valorem taxes payable with respect to the Facilities, (H) any payments
under that certain Promissory Note dated December 1, 2013 payable from Salem to Res-Care in
the amount of Two Million Seven Hundred Fifty Thousand and 00/100 Dollars ($2,750,000.00)
11

(the "Note Payable"), (I) home office expenses of Twenty-Two Thousand and 00/100 Dollars
($22,000.00) payable monthly to Landlord, and (1) Salem's monthly installment on its note
payable (the "Delinquent Rent Note Payable") to Landlord in connection with its assumption
of MRDD's delinquent rental obligation due to Landlord (Items A-J in this clause (i),
collectively, the "Priority Costs of Operation"); and (ii) (A) the Management Fees (as defined
in Sedion 4(d», (B) any interest payable on any advances by Salein, Res-Care (exclusive of the
Note Payable), Landlord, or to any other party, (C) home office expenses of Twenty-Two
Thousand and 001100 Dollars ($22,000.00) payable monthly to Salem, and (0) Seventeen
Thousand and 00/100 Dollars ($17,000.00) payable monthly to Salem for its home office
personnel expenses (Items A-D in this clause (ii), collectively, the "Secondary Costs of
Operation") (with each item of Secondary Costs of Operation paid concurrently, to the extent of
available funds, on or before the first business day of the succeeding calendar month).
Notwithstanding the foregoing, amortization of deferred expenses and depreciation shall not be
included in the Costs of Operation. On a monthly basis, all Priority Costs of Operation shall be
paid before any Secondary Costs of Operation are paid. If sufficient" funds are not available in the
Salem Account during any calendar month to pay all of the Secondary Costs of Operation for
such calendar month or any prior calendar months, then such amounts shall be paid on a basis
which is proportionate to the total amount of Secondary Costs of Operation owed to each party
for such calendar month or any prior calendar months. All payments due to Salem with respect
to the Costs of Operation shall be paid via wire transfer to a bank account designated by Salem,
which bank account shall be under the sole control and custody of Salem.
(c) [INTENTIONALLY OMITTED]
(d) The Management Fee shall be paid to Res-Care, and the home office
expenses shall be paid to Salem, in accordance with the terms of this Seetion 4(d). Subject to
12

adjustment as provided in this paragraph, the Management Fee payable to Res-Care shall initially
be Five Thousand Three Hundred Four and 18/100 Dollars ($5,304.18) per Facility per month.
Notwithstanding any provision in this Section 4(d) to the contrary, if all or any portion of Res-
Care's Management Fee payable under this Section 4(d) shall be disallowed as a reimbursable
cost as a consequence of any proceeding or appeal described in Section 20)(1) and either the
amount disallowed is recouped against billings or accounts receivable from the Facilities or
Salem is required to repay the amount so disallowed (in each such instance, a "Res-Care
Disallowed Amount"), the Management Fee payable shall be reduced to the level determined to
be allowable, effective as of the effective date of such disallowance and the Management Fee
otherwise payable after the date of receipt of the notice of such disallowance shall be withheld
until the amount so withheld equals the Res-Care Disallowed Amount. If any expenditure for the
Facilities is disallowed as a reimbursable cost as a consequence of any proceeding or appeal
described in Section 2(j)(i) by reason of lack of documentation, Res-Care shall pay the amount
of such disallowed expenditure to the Salem Account. Notwithstanding any provision in this
Section 4(d) to the contrary, if all or any portion of (i) any payments on the Delinquent Rent
Note Payable, (ii) the home office expenses paid to Landlord as provided in clause (i)(I) of
Section 4(b), (iii) the home office expenses paid to Salem as provided in clause (ii)(C) of
Section 4(b), or (iv) the home office personnel expenses paid to Salem as provided in clause
(ii)(D) of Section 4{b) (the payments described in clauses (i) through (iv) being referred to as the
"Salem Payments"), are disallowed as a reimbursable cost as a consequence of any proceeding

=
or appeal described in Section 2(j)(i), and either the amount so disallowed is recouped against
billings or accounts receivable from the Facilities or Salem is required to repay the amount
disallowed (in each such instance, a "Salem Disallowed Amount"), the Salem Payment so
disallowed sha11be reduced to the level determined to be allowable, effective as of the effective
13

date of such disallowance, and either (A) to the extent that all of the amounts otherwise payable
under Section 4 have been paid and there is cash available in the Salem Account to pay in full
the Salem Disallowed Amount, no additional reduction of the Salem Payments shall be made, or
(B) to the extent that such recoupment or payment obligation attributable to a disallowance of a
Salem Payment shall result in a shortfall in the payment of all of the Costs of Operation, such
shortfall shall not be appJied on a prorata basis as provided in Section 4(b), but rather shall be
applied solely to reduce the Salem. Payments in the month ending after the date of receipt of the
notice of such disallowance and succeeding months in an aggregate amount equal to such
shortfall, The Management Fee and the home office expenses payable to Salem shall be further
adjusted every twelve (12) months by a percentage proportionate to any adjustment for inflation
or cost of living applied by the Florida Medicaid program or its successor with respecrto costs
utilized for purposes of determining applicable Medicaid rates for such year. In the event one or
more of the Facilities shall no longer be operated under this Agreement, the Management Fees
payable under this Agreement shall be reduced by excluding each such Facility from the
calculation of the Management Fees, commencing with the calendar month following the
cessation of such operation.
(e) To the extent amounts available in the Salem Account in any month are
not sufficient to pay in full the Management Fees, home office expenses and home office
personnel expenses, any unpaid Management Fee, home office expenses and home office
personnel expenses shall accumulate interest at a rate equal to the prime rate (as established from
time to time by Bank of America) plus two percent (P + 2%) (the "Advance Rate"); provided,
•..
;-
however, that in the event the Advance Rate exceeds the rate allowable for reimbursement WIder
the Florida Medicaid system, the interest rate shall be such allowable rate, conunencing as of the
14

last day of the month such fees become payable, and such past due fees plus accumulated interest
thereon shall be paid when revenues are sufficient to do so.
(t) Based upon the needs of Salem, the expertise of Res-Care and the services
to be provided by Res-Care. it is agreed and understood by the parties hereto that the
Management Fee payable to Res-Care will be allocated among the various services provided by
Res-Care as follows:
(i) managerial review, coordination and control services, twenty-five
percent (25%);
(ii) personnel services, twenty-five percent (25%);
(iii) quality control services, thirty percent (30%);
(iv) legal and risk management services, ten percent (1 O%); and
(v) financial services. books and records, ten percent (10%).
Additionally, based upon the needs of Salem, the expertise of Salem and the
services to be perfonned by Salem, it is agreed and understood by the parties hereto that
any management fee payable to Salem will be for home office expenses.
(g) Within twenty (20) days of each calendar quarter end commencing with
the fifth (5th) calendar quarter of the Term, so long as all amounts otherwise previously payable
under Section 4 have been paid and the balance of the Salem Account exceeds $500,000 (the
"Distribution Threshold"), at the written request of Salem, not later than twenty (20) days after
the end of such calendar quarter, all of any portion of such excess over the Distribution
Threshold shall be paid via wire transfer to a bank account designated by Salem, which bank
account shall be under the sole control and custody of Salem.
5. Capital Improvements and Working Capital. To the extent not prohibited by
law or the Lease, Salem shall have the obligation of advancing funds for all capital assets
15

(including personal property and equipment) and improvements to the structures of the Facilities
required by the rules arid regulations of any governmental authority, and required to maintain the
operating licenses of the Facilities and the certification and provider agreements for the Facilities
under the currently existing Medicaid programs or substitute subsidy programs selected by Res-
Care. Subject to Salem's prior written consent, which shall not be unreasonably withheld, Salem
shall be obligated to advance funds for such capital assets or improvements required for the
efficient operation of the Facilities and to maintain the Facilities in good condition competitive
with the standards and quality of other similar facilities.
Res-Care is hereby authorized to incur expenses and liabilities in the ordinary course of
rendering the services described in accordance with the Budget and to purchase individual
capital items necessary for each Facility but which are not set forth in the Budget which do not
have a cost in excess of Ten Thousand and 00/100 Dollars ($10,000.00) per item or Fifty
Thousand and 00/100 Dollars ($50,000.00) in the aggregate. Any other expenditures shall
require the prior written consent of Salem, which shall not be unreasonably withheld. The
determination of whether an expenditure constitutes a capital item shall be made in accordance
with generally accepted accounting principles.
Salem shall be obligated to provide all working capital required to pay timely all Costs of
Operations. and all obligations of Salem pursuant to the Lease. Res-Care shall not be obligated to
provide any working capital for the operation of the Facilities; provided, unless Salem has
caused an Event of Default to then exist, Res-Care shall from time to time advance to Salem
whatever amounts are required subject to a maximum outstanding principal amount equal to two
(2) months of operating expenses for the Facilities (which amount shall include any advances
described in Section 4(a)(ii» to pay Salem's Cost of Operations; provided, further, that to the
extent that Salem shall have received one or more distributions of cash from the Salem Account
16

within the preceding twelve (12) months pursuant to Section 4(g) (collectively, a "Prior
Distribution"), Salem shall be first obligated to make such advance up to a maximum amount
equal to such Prior DIstribution. Each such advance shall bear interest at the Advance Rate and
shall be repaid in accordance with the priority set forth in Section 4.
Notwithstanding the foregoing, Salem shall not be obligated to advance any funds for
capital improvements and/or working capital to the extent the need therefor is not reimbursed
under the Florida Medicaid system and is due to (i) the negligence or misconduct of Res-Care or
its employees and agents, (ii) a breach by Res-Care of its duties and obligations herein, or
(iii) the Budget failed to adequately project the need for such funding advance by Salem, if such
funding was reasonably foreseeable, and in all such cases, Res-Care shall be obligated to provide
funds to cover such expense and, except in the case of funds required by clause (iii), in no event
shall funds advanced by Res-Care pursuant to this paragraph be considered a cash advance by
Res-Care, nor shall Salem be required to repay such advance or pay interest thereon.
6. Term. Unless earlier tenninated in accordance with Section 8 and/or Section 33,
or further extended or agreed by the parties, the term (as may be extended, the "Term") of this
Agreement shall commence at 12:01 a.m. EST on December 1,2013 and shall continue until
11:59 p.m, on November 30, 2018. Unless either party gives the other party written notice of its
election not to extend the Term at least one hundred eighty (180) days prior to the expiration of
the then existing Term, the Term shall be automatically extended for up to four (4) additional
periods of five (5) years each. Notwithstanding anything to the contrary continued herein, the
term of this Agreement shall not Commence until such time as all necessary licensing or
governmental approval has been obtained and the Closing, as such term is defined in that certain
Acquisition Agreement by and between Salem, Res-Care and Salem Villages MRDD, Inc., has
been completed.
17

7. Security Interest in Accounts Receivable; No Additional Indebtedness. Salem
shall execute a Security Agreement and any and all necessary instruments, including any
Financing Statements or other documents as shall be necessary in the discretion of Res-Care to
grant it a first priority security interest in and to any accounts receivable relating to the Facilities,
whether to be collected by Res-Care on behalf of Salem under this Agreement, or otherwise, for
the purpose of securing the payment by Salem to Res-Care of its Management Fees, any
advances made by Res-Care pursuant to Section 5 and the Note Payable. Salem agrees that
except for the Note Payable, the Delinquent Note Payable and any advances by Res-Care
hereunder, Salem shall not incur or assume any additional indebtedness without the prior written
consent of Res-Care.
8. Default. Right to Cure and Termination.
(a) The following shall be deemed to be an "Event of Default" hereunder:
(i) JfRes-Care fails to maintain and operate the Facilities according to
the standards established or imposed by all applicable laws and regulations and
governmental agencies having jurisdiction or authority over the Facilities, other than by
reason of failure of Salem to comply with its obligations thereunder or hereunder.
(ii) Ifthe certificates and authorizations for the Facilities to participate
under the Florida Medicaid program are canceled or revoked because either party has
failed to perform its obligations hereunder and such party is not, in good faith, diligently
pursuing the reinstatement of such certificates and authorizations.
(iii) If either party becomes insolvent or makes an assignment for the
benefit of creditors or commits an act of bankruptcy or files a voluntary petition under the
provisions of the United States Bankruptcy Code, including without limitation, a petition
18

for reorganization or arrangement or consents to an involuntary petition or is adjudicated
a bankrupt.
(iv) If either party violates, or is in breach of, any material term or
condition of this Agreement. For purposes of this paragraph (iv) the failure of Res-Care
to use its respective best efforts to operate the Facilities in accordance with the provisions
of the Budgets submitted to and approved by Salem shall be considered a breach of a
material term of this Agreement.
(b) Upon the occurrence of an Event of Default, the party not causing the
Event of Default (the "Non~Defaulting Party") shall give the defaulting party (the "Defaulting
Party") notice thereof and the Defaulting Party shall have, with respect to any monetary matter,
ten (10) days to cure such default and in all other cases, thirty (30) days to cure such default;
provided, however, if such default is not reasonably subject to cure within thirty (30) days, the
Defaulting Party shall have such additional time 8S is reasonably necessary so long as, at all
times, the Defaulting Party is acting with all reasonable diligence in attempting to effectuate a
cure of such default; provided, further, if any such Event of Default relates to any necessary
certification, authorization, permit or license needed for the operation of any Facility being
suspended, revoked or subject to suspension of revocation, no such cure period shall extend
beyond any applicable governmental deadline, including administrative appeals.
(c) Upon termination of this Agreement for any reason other than (A) Res-
Care causing an Event of Default, or (B) Res-Care's election not to extend this Agreement at the
end of the original term or any renewal term, any outstanding Note Payable, accrued
Management Fees and advances by Res-care to Salem hereunder (collectively, "Res-Care
Obligations") shall become due and payable within fifteen (15) days after submission to Salem
of a calculation of such amounts.
19

(i) Upon termination of this Agreement solely by reason of Res-
Care's election not to extend this Agreement at the end of the original term or any
renewal tenn, any accrued Management Fees and/or advances by Res-Care to Salem
hereunder shall be payable by Salem to Res-Care in twenty-four (24) equal monthly
installments, commencing thirty (30) days after the effective date of such termination,
together with interest accruing from such effective date at the Advance Rate, payable
monthly in arrears.
(ii) Upon termination of this Agreement solely by reason of Res-
Care's causing an Event of Default, any accrued Management Fees and/or advances by
Res-Care to Salem hereunder shall be payable by Salem, together with interest accruing
from the effective date of termination at a rate equal to the Advance Rate less one percent
(1 %) , as revenues from the Facilities are available. after payment of Costs of Operation,
.payment of any current Management Fees payable to any successor to Res-Care
hereunder (provided that' such fees shall not exceed the amounts provided for in
Section 4(d», but before any payment of any other fees to any successor to Res-Care
hereunder. Additionally, upon an Event of Default caused by Res-Care, the security
interest granted to Res-Care pursuant hereunder shall be automatically deemed null and
void.
(iii) . Upon the earlier of (i) an Event of Default caused by Res-Care or
(ii) after payment to Res-Care of all amounts to which it is entitled under this Agreement
(including the Note Payable), the security interest granted in favor of Res-Care as
described in Section 7 shall be terminated and Res-Care and any other party thereto shall
execute all documents or instruments as shall be reasonably necessary to reflect such
termination.
20

(d) In addition to Res-Care's rights under paragraph (c) of this Section. 8, in
the event of a termination of this Agreement as described in Section 8 (c) (i), including but not
limited to Salem's election to terminate this Agreement in accordance with Section 6, Res-Care
or, notwithstanding the provision of Section 11 to the contrary, its assign, shall have the option
("Option"), exercisable by written notice within thirty (30) days after the notification by Salem
of the proposed termination of this Agreement, or in the case of an Event of Default caused by
Salem, within thirty (30) days after the expiration of the ninety (90) day period described in
Section 8(b), to purchase Salem's entire right, title and interest in and to the Facilities, including
but not limited to any rights relating thereto conferred by Florida or the federal government and
Salem's right, title and interest in the Lease. The price at which Res-Care shall purchase and
Salem shall sell, all of Salem's right, title and interest in the Facilities shall be the greater of:
(i) fair market value ("FMV") or (ii) the assumption of any and all liabilities and obligations of
Salem associated with the Facilities (which shaU expressly include Salem's obligations WIder the
Lease and the Res-Care Obligations). FMV shall be determined by an appraiser mutually
agreeable to Res-Care and Salem. If Res-Care and Salem cannot agree on an appraiser each shall
choose an independent appraiser experienced in valuing MRDD facilities in the State of Florida
to determine FMV. Those appraisers shall choose a third appraiser with the FMV to be
determined based on an average of the FMV as shown on each of the three appraisals. The
parties hereby agree to equally share the costs of such appraisals and that the FMV as determined
shall be final and binding.
(e) In addition to the foregoing, upon an Event of Default, the Non-Defaulting
Party shall be entitled to all remedies available at law or in equity, including, without limitation,
specification performance and injunctive relief.
21

9. In.surance.
(a) Res-Care shall procure for Salem and maintain in full force and effect all
insurance coverages required by the Lease. Res-Care shall provide Salem and Landlord with
written evidence of such coverage. AU such insurance to the extent appropriate will name Salem
and Landlord, as co-insureds. Landlord's mortgagee, if any, shall be named an additional
insured. The premiums for all insurance coverage which directly insures the risks of the
Facilities shall be paid as part of the Costs of Operation. Salem and Res-Care hereby each waive
any right or recovery against the other party for any claims that may be brought for any loss
which is covered by fires and extended coverage insurance upon or relating to the Facilities and
the furnishing and equipment thereon. This waiver of subrogation shall be valid and binding only
in the event it is recognized and accepted by the fire and hazard insurance companies under
. policies obtained hereunder. Each party further agrees that its sole source of reimbursement of
loss or damage related to risks which are covered by the insurance required by the Lease shall be
the insurance proceeds of the policies to be provided hereunder and any reserves established
under the Lease for self-insurance and that the other party shall not be liable for any damage or
loss in excess of such insurance coverage or reserves for self-insurance.
Res-Care shall use its best efforts to (i) secure certificates of insurance for Salem and the
Landlord, (ii) maintain the original of such policies at the office of Res-Care, (iii) deliver
duplicate policies to Salem and the Landlord and (iv) procure endorsements thereto prohibiting
any termination or cancellation thereof until the expiration of ten (10) days' written notice of
cancellation to all named insureds.
(b) Res-Care shall, to the extent financially reasonable in Res-Care's
reasonable discretion, insure itself against normal business risks, inherent in its operation of the
Facilities and shall, to the extent possible without increases in premiums unless said increases are
22

paid by Salem, cause Salem to be named as a co-insured, to the extent its interests appear, on the
policies evidencing such insurance. As reasonably requested from time to time, Res-Care shall
provide Salem written evidence that Res-Care is so insured.
10. Use of Premises. Res-Care shall not, without the prior written consent of Salem,
at any time use, or permit any of the Facilities to be used, for purposes other than an ICFIDD
facility in compliance with all applicable rules and regulations of Florida, and such other uses as
may be outlined by Salem.
11. Amendment of Lease. Without Res-Care's prior written consent, Salem shall
not terminate or agree to terminate the Lease lind shall not amend the Lease unless such
amendment (a) does not increase the rent payable thereunder, (b) does not increase the
obligations of Salem thereunder, or (c) does not adversely affect the ability of Salem and Res-
Care to operate the Facilities and render services to the clients of the Facilities.
12. RIght to Inspect. At all reasonable times during regular business hours, and at
any time outside regular business hours ifpriortelephonic notice during regular business hours is
given to the Operational Vice President of Res-Care having jurisdiction over Florida, confirmed
by email, Salem or its representatives shall have the right to inspect the buildings and premises
comprising the Facilities, and the financial and other records (and to make copies of documents
as appropriate and at Salem's expense) maintained by Res-Care at the Facilities in the
performance of its services hereunder.
13. Books and Records. All books, records and reports prepared by Res-Care for or
in connection with the development or management of the Facilities and maintained by Res-Cere
at any location other than the Facilities shall be available for inspection and copying by Salem at
Salem's own expense and during normal business hours with prior written notice to Res-Care, It
is agreed and understood that computer software and the users manuals for such software
23

developed or used by Res-Care in connection with the management of the Facilities shall not be
considered "books, records and reports" as those terms are used in this Section 13, provided that
printouts of data generated by use of such software shall be considered such "books, records and
reports."
14. Cooperation at Termination. Upon the expiration or earlier termination of this
Agreement, the parties hereto shall cooperate fully with the other in effecting an orderly
transition to avoid any interruption in the rendering of the above-described services and, in that
connection, unless Res-Care shall exercise its option described in Section 8(d), Res-Care shall
surrender to Salem all keys. contracts, books, records and reports (as such term is defined in
Section 13) maintained by Res-Care in connection with the management of the Facilities.
15. Covenant Not to Employ.
(a) The parties acknowledge that Res-Care, in the performance of its
obligations hereunder. utilizes certain of its employees. Salem recognizes that Res-Care has
incurred and will incur considerable time and expense in training Res-Care employees. For this
reason. Salem covenants with Res-Care that if Res-Care's employment of any executive Res-
Care employees shall terminate, or if this Agreement is terminated for any reason described in
Section 8( e)(i), Salem, Or any of their respective affiliates shall not, for a period of one (1) year
following the termination of this Agreement, employ any executive employee or encourage or
. permit any successor to Res-Care's dunes hereunder to employ any executive employee for
services rendered at or in connection with the Facilities or at any other ICFIDD facilities owned
or operated by Salem, or its respective affiliates. This covenant shall not apply to: (i) employees ..
.
;:;
'-'-
of Salem, or its affiliates who have not been previously employed by Res-Care or (ii) any person
(including an administrator) working full time at a Facility. Recognizing that Res-Care would not
have an adequate remedy at law in the event of any breach of this covenant, Salem agrees that
24

the covenant set forth herein may be enforced by Res-Care by an appropriate restraining order or
other injunctive relief.
(b) Res-Care covenants with Salem that Res-Care shall not, during the Term
or for a period of one (1) year thereafter, solicit or request that the Res-Care Executive Director
or Business Manager assigned to the Salem operations transfer or be re-assigned to any other
operations of Res-Care, without 1I1eprior written consent of Salem, which consent shall not be
unreasonably withheld or delayed. Provided, however, following such time as a replacement has
been hired and adequately trained, the preceding sentence shall not restrict Res-Care from
transferring or re-assigning either such Executive Director or Business Manager if such
individual has responded to a general posting of a job opening, Res-Care. determines such
individual is the best available candidate for the position posted and Res-Care has not uniquely
or specifically solicited such individual for such position. Recognizing that Salem would not
have an adequate remedy at law in the event of any breach of this covenant, Res-Care agrees that
the covenant set forth herein may be enforced by Salem by an appropriate restraining order or
16. Financial Rel!orts. Each party agrees, within fifteen (15) days after receipt
thereof, to deliver to the other party a copy of the audited, reviewed or, as applicable, compiled
financial statements of such party and any opinion with respect thereto issued by the independent
certified public accountant preparing such statement.
17. Indemnification.
(a) Res-Care agrees to indemnify, reimburse, defend, and hold harmless
Salem and Landlord from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including, without limitation,
interest, penalties, consequential damages, reasonable attorneys' fees, disbursement and
25

expenses, and reasonable consultants' fees, disbursements and expenses (but excluding internal
overhead, administrative and similar costs of Salem), asserted against, resulting to, imposed on.
or incurred by Salem or Landlord, directly or indirectly, in connection with any of the following
occurring during the Tenn: (a) any accident, injury to or death of persons or loss of or damage to
property occurring on or about any Facility, including any claims of malpractice, (b) any use,
misuse, nonuse, condition, maintenance or repair by Res-Care, (c) any ad valorem, employee
withholding or sales taxes and (d) any failure on the part of Res-Care to perform or comply with
any of the terms of this Agreement, except to the extent same are directly caused by Salem's
gross negligence or willful misconduct.
(b) Salem hereby agrees to indemnify, reimburse, defend and hold harmless
Res-Care from and against all demands, claims, actions or causes of action, assessments, loss,
damages, liabilities, costs and expenses, including, without limitation, interest, penalties,
consequential damages, reasonable attorneys' fees, disbursement and expenses, and reasonable
consultants' fees, disbursements and expenses (but excluding internal overhead, administrative
and similar costs of Res-Care), asserted against, resulting to, imposed upon on, or incurred by
Res-Care, directly or indirectly arising from Salem's gross negligence or willful misconduct in
the exercise of its authority retained under this Agreement.
(c) Notwithstanding the foregoing, each of Salem and Res-Care, for
themselves and any insurance carrier, to the fu11est extent possible, waive all claims of
SUbrogation to the extent of any insurance coverage,
18. Litigation or Proceedings on Behalf of Salem. If any claims or causes of action
on behalf of Salem arise during the term of this Agreement, or if any claims, actions, or other
legal proceedings arising from development or management of the Facilities are filed against
Salem, Res-Care shall have the option, exercisable in its discretion, subject to Salem's prior
26

written consent, which consent shall not be unreasonably withheld, to institute or defend such
claims, actions or other legal proceedings in Res-Care's name or Salem's name, as their
respective interests may appear to be claimed, provided that Res-Care uses good faith efforts to
proceed in a manner that is in the parties' respective best interests. The reasonable costs and
expenses of prosecuting and defending such claims, actions, and legal proceedings shall be
reimbursed to Res-Care by Salem as Costs of Operation, except as they relate directly to the
independent acts of Res-Care taken outside the scope of the performance of its duties hereunder.
Salem agrees to provide reasonable assistance to Res-Care in the prosecution and defense of such
actions upon request by Res-Care. Unless Salem promptly and specifically in writing instructs
Res-Care to the contrary, Salem further agrees that Res-Care shall have the right to select legal
counsel to represent the interests of Salem in such claims, actions, and legal proceedings. Res-
Care shall provide Salem with periodic reports regarding the progress of such proceedings.
19. Compliance with Pglic Law 96-499.
(a) Pursuant to regulations promulgated by the Federal Health Care Financing
Administration, an agency of the Department of Health and Human Services. implementing
Section 952 of the Omnibus Reconciliation Act of 1980 (P.L. 96·499) conditioning Medicare
reimbursement on the cost of services performed, insofar as this Agreement covers services
valued at or costing Ten Thousand and 00/100 Dollars ($10.000.00) or more over a twelve (12)
month period, the parties agree to provide the Secretary of Health and Human Resources, upon
written request, or the Comptroller General, or their duly authorized representatives, access to
this Agreement and the parties' books, documents and records necessary to verify the nature and ~
,
extent of the cost of the services provided by the parties. Such access shall be provided until the
expiration of four (4) years after the services are furnished under this Agreement.
27

(b) If Res-Care carries out any duties of this Agreement through a subcontract
with a value or cost of Ten Thousand and 00/100 Dollars ($10,000.00) or more over a twelve
(12) month period with a related organization, Res-Care- shall require in writing that the related
organization shall make available, upon written request, to Salem and to the Secretary of Health
and Human Resources, or the Comptroller General, or their duly authorized representatives, the
-said subcontract and the books, documents and records of the related organization that are
necessary to verify the nature and extent of the costs of the services provided under the said
subcontract. The subcontract shall require that such access shall be provided until the expiration
offour (4) years after the services are furnished under the contract.
20. Health Insurance Portability _and Accountability Act of 1996. In order to
comply with the Health Insurance Portability and Accountability Act of 1996 ('"WPAA"), and
regulations promulgated thereunder, including the Standards for Privacy of Individually
Identifiable Health Information and the Security Standards for the Protection of Electronic
Protected Health Information at 45 C.F.R. Parts 160 and 164 (collectively "Privacy and
Security Reguladons"), the parties agree to execute and deliver the Agreement attached hereto
as Schedule 20 on or before the Effective Date.
21. Parties Bound. The provisions of this Agreement shall be binding upon the
parties hereto and their respective successors and assigns. Except as specifically provided herein,
no assignment of rights or delegation of duties shall relieve either party, as the case may be, of its
obligations hereunder, Except as specifically provided herein, neither party may assign its rights
or delegate its duties under this Agreement without the prior written consent of the other party;
provided that a party may assign its rights and delegate its duties to any subsidiary or a successor
- entity in the event of a merger or a sale of substantially all of the party's assets, if the subsidiary
28

or successor entity assumes all of the party's obligations hereunder, and Salem may collaterally
assign its rights and obligations under this Agreement to Landlord pursuant to the Lease.
22. Attorneys' Fees. In the event it becomes necessary for a Non-Defaulting party to
employ counsel to protect its interests, then the Non-Defaulting Party shall be entitled to receive
"from the Defaulting Party reasonable attorneys' fees for such services, plus all court costs and
other expenses reasonably incurred in the enforcement of the obligations of this Agreement, and
the Defaulting Party shall be liable for those sums and hereby agrees to pay such sums.
23. Severability, In the event any provision hereof shall be modified or held
ineffective by any court in any respect, such adjudication shall not invalidate or render
ineffective the balance of the provisions of this Agreement.
24. Entire Agreement; Modification; Waiver. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof and completely
supersedes all prior oral agreements between the parties. AIl other agreements with respect to the
subject matter hereof between the parties, whether written or oral, are merged herein. No
supplement, modification or amendment of this Agreement shall be binding unless executed in
writing by the parties hereto. No waiver of any of the provisions of this Agreement will be
deemed, or will constitute a waiver of any other provision, whether or not similar. nor will any
waver constitute a continuing waver. No waiver will be binding unless executed in writing by the
party making the waver.
25. Notices. All notices, requests, demands and other communications required or
permitted to be given or made under this Agreement shall be in writing and shall be deemed to
have been given (i) on the date of delivery personally, (ii) on deposit in the United States mail,
postage prepaid by registered or certified mail, return receipt requested, or (iii) on delivery to
Federal Express or United Parcel Service, cost prepaid, for next day delivery; to the appropriate
29

party at the following addresses (or at such other address as shall hereafter be designated by any
party to the other party by notice given in accordance with this Section):
To Salem: Lisbeth C. Evans

8 West Third Street, Suite M-7
Winston Salem, NC 27101
With copy to: George E. Hollodick

110 South Stratford Road, Suite 500
Winston-Salem, NC 27104
To Res-Care: Pat Kelley

Chief Operating Officer, Res-Care, Inc.
9901 Linn Station Road
With a copy to: Steve Reed

Chief Legal Officer, Res-Care, Inc.
26. Execution in Countemarts; Facsimile or Email Delivery. This Agreement may
be executed in multiple counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document. Signature by facsimile transmission or
email of scanned ,PDF copies shall be binding as though an original signature and the parties
shall follow delivery of signature by facsimile or email with delivery of the original signature
within a reasonable time.
27, Further Assurances. The parties each hereby agree to execute and deliver all of
the agreements, documents, and instruments required to be executed and delivered by them in
this Agreement .and to execute and deliver such additional instruments and documents and to
take such additional actions as may reasonably be required from time to time in order to
effectuate the transactions contemplated by this Agreement.
30

28. Exhibits. The Exhibits attached hereto constitute a part of this Agreement and are
incorporated herein by reference in their entirety as if fully set forth in this Agreement at the
point where first mentioned herein.
29. Tense. Captions. In construing this Agreement, whenever appropriate, the
singular tense shall also be deemed to mean the plural, and vice-versa, and the captions
contained in this Agreement shall be ignored.
30. No Third Party Rights. Except as may otherwise be expressly provided herein,
the provisions of this Agreement shall not entitle any person not a signatory hereto to any rights
or reliance hereunder or in respect hereof, as a third party beneficiary or otherwise, it being the
specific intention of the parties herein to preclude any and all such persons non-signatory hereto
from such rights.
31. Governing Law. This agreement shall be construed, interpreted, and enforced in
accordance with the substantive laws of the State of Florida.
32. Survival. The provisions of Sections S(c), 13, 14, 15, 17, 18, 19, 20, 22~25,27,
30 and 34 hereof shall survive the termination, for any reason, of this Agreement, in accordance
with their respective terms,
33. Salem Termination Rights. Notwithstanding the foregoing in the event of (i) a
sale by Salem and/or Landlord of its respective interest in anyone or more Facilities (which may
include all Facilities) to an individual or entity that is not an affiliate of Salem or Landlord, or (ii)
the occurrence of an event of casualty or condemnation of any Facility such that such Facility is
no longer operable and Landlord and Salem, in their discretion, elect not to reconstruct such
Facility, from and after such date, such Facility (Facilities) shall be excluded hereafter.
In the event of a bona fide offer from a third party acceptable to Salem and/or Landlord
to purchase anyone or more Facilities from Salem andIor Landlord, Res-Care shall be given
31

notice within three (3) business days. Res-Care shall then be given the opportunity to purchase
on the same tenus and conditions offered by the third party by giving Salem notice of its
acceptance within fifteen (1-5) business days. If Res-Care does not accept the offer or does not
continue as manager of the Facilities, Res-Care shall cooperate with such party which shall
succeed Salem as the operator of such Facility (Facilities). Additionally, upon payment of the
Res-Care Obligations, Res-Care shall execute such document andlor authorize the filing of such
vee Financing Statement requested by Salem in order to terminate any security interest in favor
of Res-Care related to any asset of Salem (including accounts) used or generated in connection
with such Facility (Facilities).
34. No Personal Liability. No officer, director, shareholder and/or employee of any
party shall have any liability to the other party in the event of a default by any party hereto;
notwithstanding any theory of law which allows "piercing the corporate veil."
35. Amend and Restate. The parties agree that this Agreement amends and restates
in the entirety that certain Management Agreement between the parties executed on or about
June 30. 2013.
36. Letter Agreement. Salem and Res-Care agree that that certain Letter Agreement
between the parties dated June 27. 2013 is null and void and of no further force or effect.
SEPARATE SIGNATURE PAGE FOLLOWS
32

,r
SEPARATE SIGNATURE PAGE
MANAGEMENT AGREEMENT
Ii IN WI1NESS WHEREOF the parties have executed this Agreement on the day and year
j set forth below, effective as of 12:01 a.m., December 1,2013.
i
I SALEM:
SALEM HOMES OF FLORIDA, INC.
I
I
BY~
Its:~
L.tUP'~
I
~
Date:
RES-CARE:
RES-CARE, INC.
By:
Its: Patrick Kelley, Chief OperatingOfficer
'LANDLORD:
CLARK, EVANS & TATE, INC.
BTM:S42316v4

r

IN WITNESS WHEREOF the parties have executed this Agreement on the day and year
set forth below, effective as of 12:01 a.m., December 1, 2013.
SALEM:
By:
Its:
Date:
RES-CARE:
RES.CARE, INC.
By;
Its: perating Officer
LANDLORD:
By:
Its:
Date:
[FOR PURPOSES OF SECTION 33 ONLYJ
BTM;542316v4

,.. I
Schedule 20
[Privacy and Security]
B1M:S42316v4

Case No.
-----------------
v.
********
AFFIDAVIT OF KEVIN G. FISHER
1. I, Kevin G. Fisher, am a resident of the Commonwealth of Kentucky, am of legal
age, and am competent to make this Affidavit.
2. I have personal knowledge regarding the following facts I offer and could testify
thereto if called as a witness.
3. At all times relevant to this proceeding, I have served as Assistant Treasurer of
ResCare, Inc. ("ResCare").
4. ResCare is a Kentucky corporation with its principal place of business located at
9901 Linn Station Road, Louisville, Kentucky 40223.
5. Pursuant to the Amended and Restated Management Agreement between Salem
Homes of Florida, Inc. ("Salem Florida") and ResCare executed on December 31, 2013, certain
revenues from operations were to be deposited into a bank account in Salem Florida's name at a
financial institution selected by ResCare (and approved by Salem Florida), for the payment of
certain agreed items.
EXHIBIT
I B

6. The document attached hereto as "Exhibit A" is a true and correct copy of the
account statement for the above-refenced bank account, maintained at Bank: of America in Dallas,
Texas, for the period December 30, 2017 through January 31, 2018.
7, As of January 1,2018, the approximate balance in the above-referenced account
was $166,872.49.
Under penalty ofperjury, I declare that the facts stated herein are true.
KEVIN 6 FISHER
COMMONWEALTH OF KENTUCKY )
)
COUNTY OF JEFFERSON )
SWORN to and SUBSCRIBED before me, the undersigned authority, on the 1l_th day
of April, 2018, by Kevin O. Fisher.
My Commission Expires: ]{~J;Z- I$?
':;::-~.
Sharon D. Jetar -
V
M ~ Notary Public, !D No. 517922
~t·· State at Large, Kentucky
":a'" My C'.(Jmmission EX~ro8 on Aug. 22, 2018
..~~-< ~ (".l ~

Bankof A·m.erica
H
CUSTOMER CONNECTION
BANK OF AMERICA, N.A.
DALLAS, TEXAS 75283-2406
This Statement:
Customer Service
1-888-400-9009
RES-CARE INC
SALEM HOMES OF FLORIDA, INC
9901 LINN STATION RD Page 1 of 4
LOUISVILLE KY 40223-3808
Effective February 2018, the Deposit Agreement and Disclosures booklet which
governs your account has been updated. The account will continue to be
subject to agreement as updated from time to time. Please contact your
account repjesentattve to receive the updated version. Continued use of this
account indicates your agreement to be bound by the terms and conditions
contained in this booklet.
ANAL VZED CHECKING

Account Summary Information
Statement Period 12/30/2017 - 01/31/2018 Statement Beginning Balance 166,872.49
Number of Deposits/Credits 14 Amount of Deposits/Credits 743,636.46
Number of Checks 1 Amount of Checks 52,701.34
Number of Other Debits 9 Amount of Other Debits 797,159.51
Statement Ending Balance 60,648.10
Number of Enclosures o
Service Charge .00
Deposits and Credits
Date Customer Bank
Posted Reference Amount Description Reference
01/25 37,378.65 STATE OF FLORIDA DES:HCCLAIMPMT 10:012373500 24014785562
INDN:SALEM HOMES OF FLORIDA CO ID:1593452939 CCD
PMT INFO:TRN*1*059403925*1593452939
01/25 39,086.42 STATE OF FLORIDA DES:HCCLAIMPMT ID:012074800 24014785550
INDN:SALEM HOMES OF FLORIOA CO 10:1593452939 CCD
PMT INFO:TRN*1*059403876*1593452939
INON:SALEM HOMES OF FLORIDA CO 10:1593452939 CCD
PMT INFO:TRN*1*059403877*1593452939
01/25 49,474.14 STATE OF FLORIDA OES:HCCLAIMPMT 10:012392700 24014785576
PMT INFO:TRN*1*059403941*1593452939
INON:SALEM HOMES OF FLORIDA CO 10:1593452939 CCO
PMT INFO:TRN*1*059403929*1593452939
PMT 1NFO:TRN*1*059403879*1593452939
INDN:SALEM HOMES OF FLORIDA CO 10:1593452939 CCD
PMT INFO:TRN*1*059403940*1593452939
01/25 56,067.79 STATE OF FLORIDA DES:HCCLA1MPMT ID:012374200 24014785564
INON:SALEM HOMES OF FLORIDA CO 1D:1593452939 CCO
PMT INFO:TRN*1*059403927*1593452939
01/25 56,293.06 STATE OF FLORIOA DES:HCCLAIMPMT 10:012075700 24014785554
PMT INFO:TRN*1*059403878*1593452939
PMT INFO:TRN*1*059403928*1593452939
EXHiBIT
1
; A ~'E~41f"t:4

H
CUSTOMER CONNECTION
This Statement: 01/31/2018
customer Service
1-888-400-9009
RES-CARE INC
-
Page 2 of 4
ANALYZED CHECKING
Date Customer Bank

INDN:SALEM HOMES OF FLORIDA CO 1D:1593452939 CCD
PMT INFO:TRN*1*059403938*1593452939
01/25 59,742.08 STATE OF FLORIDA OES:HCCLAIMPMT ID:012410100 24014785578
PMT INFO:TRN*1*059403942*1593452939
PMT INFO:TRN*1*059403874*1593452939
01/25 63,597.32 STATE OF FLORIDA DES:HCCLAIMPMT 10;012074200 24014785548
INDN:SALEM HOMES OF FLORIDA CO ID:1593452939 CCO
PMT 1NFO:TRN*1*059403875*1593452939
Withdrawals and Debits
Checks
Check Date Bank Check Date Bank
Number Amount Posted Reference Number Amount Posted Reference
50123514 52,701.34 01/16 4992289417
Other Debits
Date Customer Bank
01/02 4,648.10 WIRE TYPE:BOOK OUT DATE:180102 TIME:1247 ET 00370353829
TRN;2018010200353829 RELATED REF:1812B18148DWOS87
BNF:ROBYN DENNY MACKAY REVOC T 10:005501793549
PMT OET:Rent for Office Space for Salem Homes of F
lorida
01/02 19,417.09 WIRE TYPE:BOOK OUT OATE:180102 TIME:1247 ET 00370353826
TRN:2018010200353826 RELATED REF: 1812B1935G6S1M19
BNF:RESCARE INC 10:004427591059 PMT DET:Promissory
Note Installment number 49
01/03 17,000.00 WIRE TYPE:WIRE OUT DATE:180103 TIME:1634 ET 00370389592
TRN:2018010300389592 SERVICE REF:012831
BNF:WEST THIRD STREET, INC. 10:0005103366285
BNF BK:BRANCH BANKING AND TRUS ID:053101121
PMT DET:1813A46178VSOK5017K Payroll
01/03 22,000.00 WIRE TYPE:WIRE OUT DATE:180103 TIME;1634 ET 00370389588
TRN:2018010300389588 SERVICE REF:012856
BNF BK:BRANCH BANKING AND TRUS 10;053101121
PMT DET;1813A49150MT0937Home Office 22K

H
CUSTOMER CONNECTION
-- This 01/31/2018
Customer Service
1-888-400-9009
RES-CARE INC
-
Page 3 of 4
ANAL VZED CHECKING

Other Debits - Continued
Date Customer Bank

01/03 22,000.00 WIRE TYPE:WIRE OUT DATE:IBOI03 TIME:1634 ET 00370389591
TRN:201B0103003B9591 SERVICE REF:012864
BNF:CLARK EVANS AND TATE, INC. ID:0005104428B88
PMT DET:1813A475868XOU16Home Office Expense
TRN:2018010300389594 SERVICE REF:012855
BNF:CLARK EVANS AND TATE, INC. ID:0005104428888
PMT DET:1813A5031B1TIA89SVFL Rent
01/16 148.37 Account Analysis Fee 08790013985
ANALYSIS CHARGE DECEMBER BILLING FOR
PARENT 10424-99999
01/26 350.00 WIRE TYPE:WIRE OUT DATE:180126 TIME:1640 ET 00370382220
TRN:2018012600382220 SERVICE REF:0133B1
BNF:993 RESCARE, INC. F/B/O SA 10:2000036899128
BNF BK:WELLS FARGO BANK, N.A. 10:121000248
PMT OET:181QE38360EOOI94Transfer client liability
TRN:2018013100472646 RELATED REF:18lVE2l050UNOQI5
BNF:RESCARE INC ID:004427591059 PMT OET:Monthly Tr
ansfer
Dail Balances
Date Ledger Balance Collected Balance Date Ledger Balance Collected Balance
12/29 166,872.49 166,B72.49 01/25 746,786.75 746,786.75
01/02 142,807.30 142,807.30 01/26 746,436.75 746,436.75
01/03 56,000.00 56,000.00 01/31 60,648.10 60,648.10
01/16 3,150.29 3,150.29

H
CUSTOMER CONNECTION
This Statement: 01/31/2018
Customer Service
1-888-400-9009
RES-CARE INC
-
Page 4 of 4
IMPORTANT INFORMATION
CHANGE OF ADDRESS. Please call us at the customer service telephone number listed on
the front of this statement to tell us about a change of address.
TERMS AND CONDITIONS, All deposits to, withdrawals from, or other transactions pertaining
to your account(s) are subject to the terms and conditions of the agreement you received
when you opened your account and any amendments thereto, Amendments to the agreement
may be made from time to time in the manner stated therein.
IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR ELECTRONIC TRANSFERS. If you think your
statement or receipt is wron9 or if you need more information about an electronic
transfer (e.g., ATM transact~ons, direct deposits or withdrawals, point-of-sale
transactions) on the statement or receipt, telephone or write us at the address or
number listed on the front of this statement as soon you can. We must hear from
you no later than 60 days after we sent you the FIRST statement on which the error
or problem appeared.
* Tell us your name and account number
* Describe the error or the transfer you are unsure about, and ex~lain as clearly as
you can why you believe there is an error or why you need more ~nformation
* Tell us the dollar amount of the suspected error.
For consumer accounts used primarily for personal, family or household purposes, we
will investigate your complaint and will correct any error promptly, If we take
more than 10 business days (20 business days if you are a new customer, for electronic
transfers occurrin9 during the first 30 days after the first deposit is made to your
account), to do th~s, we will re-credit your account for the amount you think is in
error so that ¥ou will have use of the money during the time it takes us to complete
our investigat1on.
For other accounts, we investigate, and if we find we have made an error, we will make
the appropriate adjustment to your account at the conclusion of our investigation.
DIRECT DEPOSITS,
If you have arranged to have direct deposits made to your account at least once every
60 days from the same person or com~any, you may call us at the telephone number listed
on the front of this statement to f1nd out if the deposit was made as scheduled,
REPORTING OTHER PROBLEMS.
You must examine your statement carefully and promptly. You are in the best position to
discover errors and unauthorized transactions on your account. If you fail to notify us
in writing of suspected problems or unauthorized transactions within the time periods
specified in the deposit agreement (which periods are no more than 60 days after we make
the statement available to you and in some cases are 30 days or less), we are not liable
to you for, and you agree not to ,make a claim against us for the problems or unauthorized
transactions.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF FORSYTH 18 CVS 834
SALEM HOMES OF FLORIDA, INC., )

)
Plaintiff, )
)
v. )
NOTICE OF FILING
)
NOTICE OF REMOVAL
RES-CARE, INC., )
)
Defendant. )
)
TO: THE CLERK OF THE FORSYTH COUNTY GENERAL COURT OF JUSTICE

Pursuant to 28 U.S.C. §1446(d), defendant Res-Care, Inc. ("ResCare") files with you a
copy (attached hereto) of its Notice of Removal to the United States District Court. This Notice
of Removal has been filed in the United States District COUli for the Middle District of North
Carolina, Winston-Salem Division.
Filing this Notice with the Clerk of the COUliremoves this action from this Court to the
United States District Court, "and the state court shall proceed no further unless and until the
case is remanded." 28 U.S.C. § 1446(d). ResCare's compliance with the form and procedure of
removal automatically removes this case from this Court to Federal District Court, and such
removal stays any further action in this Court until further order from the Federal District Court.
See id.; South Carolina v. Moore, 447 F.2d 1067, 1073 (4th Cir. 1971).
EXHIBIT
, 0
Respectfully submitted this the 13th day of April,
2018,
SHUMAKER, Loop & KENDRlCK LLP
101 South ryan Street

Suite 2200
Charlotte, NC 28280
(704) 945-2187
CERTIFICATE OF SERVICE
I further certify that on April 13th, 2018, I served plaintiff Salem Homes of Florida, Inc.,
Peter J. Juran
P.O. Drawer 25008
pjj@blancolaw.com
Counsel for Plaintiff Salem. Homes of Florida, Inc.

v.
********
NOTICE OF REMOVAL
Defendant Res-Care, Inc. C'ResCare"), by counsel, pursuant to 28 U.S.C. §§ 1441 and
1446, hereby removes this action from the State of North Carolina, Forsyth County General
Court of Justice, Superior Court Division, Civil Action No. 18 CVS 834, to the United States
District Court for Middle District of North Carolina, Winston-Salem Division, on the following
grounds:
Statement of the Case
1. On or about February 14, 2018, Plaintiff Salem Homes of Florida, Inc. ("Salem
Florida") filed a civil action in the State of North Carolina, Forsyth County General Court of
Justice, Superior Court Division, entitled Salem Homes of Florida, Inc. v. Res-Care, Inc., No. 18
CVS 834 (the "State Court Action").
2. ResCare first received a copy of Salem Florida's Complaint on March 15,2018,
which had been addressed improperly to a former officer of ResCare. ResCare agreed to accept
service effective March 26, 2018 in exchange for Salem Florida's agreement to extend by thirty
(30) days ResCare's deadline to file a responsive pleading.

3. The State Court Action is a civil action asserting purported causes of action for
breach of contract, "accounting of profits and use of assets," and conversion, and seeking both
damages and a "full accounting of all sources and uses of funds."
4. In connection with the State Court Action, Salem Florida filed a Summons and
Complaint. A copy of these documents (collectively, the "Complaint") are attached hereto as
"Exhibit A."
5. No other pleadings have been filed in the State Court Action as of the date of this
Notice of Removal, ResCare is not in default in the State Court Action as of the time of the filing
of this Notice of Removal, and no proceedings have been conducted in the State Court Action.
6. . Pursuant to 28 U.S.C. § 1446(b), this Notice of Removal is timely, as it is being
filed within thirty (30) days of ResCare's receipt of Salem Florida's Complaint.
Diversity Jurisdiction Under 28 U.S.C. § 1332(a)
7. The United States District Court for the Middle District of North Carolina has
jurisdiction over this case pursuant to 28 U.S.c. § 1332(a)(1) by reason of the complete diversity
of citizenship between Plaintiff Salem Florida and Defendant ResCare, as described below:
a. Salem Florida's Complaint admits that Salem Florida is a Florida corporation

with its principal place of business allegedly in Winston-Salem, North
Carolina. Assuming the truth of Salem Florida's allegations, at the time of the
filing of the Complaint in the State Court Action, Salem Florida was and is
presently, a citizen of both Florida and North Carolina.
b. As Salem Florida has recognized in its Complaint and otherwise, ResCare is a

corporation formed under the laws of the Commonwealth of Kentucky with a
principal office located at 9901 Linn Station Road, Louisville, Kentucky
40223. At the time of the filing of the Complaint in the State Court Action
and presently, ResCare was, and is, a citizen of the Commonwealth of
Kentucky. See Affidavit of Kevin G. Fisher dated April 12, 2018 (the "Fisher
Aff.," attached as "Exhibit B") at ~4.

8. Complete diversity between Salem Florida and ResCare in this action existed both
at the time of the filing of the Complaint in the State Court Action and presently.
9. Salem Florida's Complaint does not seek a specific amount of damages. Instead,
Salem Florida alleges that it has been damaged by ResCare's alleged breach of contract in an
amount"expected to be in excess of $20,000.00," and has been damaged separately by
ResCare's alleged conversion of assets belonging to Salem Florida in amount also "expected to
be in excess of $20,000.00." Complaint ~~ 12, 17.
10. However, Salem Florida's purported conversion claim alone easily satisfies the
jurisdictional threshold set forth in 28 U.S.C. § 1332(a). Indeed, Salem Florida alleges in its
Complaint that "[ wJhen the Management Agreement was terminated as of December 31, 2017,
Waterfall and the terms of the Management Agreement." Complaint ~ 8 (emphasis added).
11. The Bank of America checking account statement dated January 31, 2018 for the
account maintained in Salem Florida's name pursuant to the Management Agreement reflects
that as of January 1, 2018, the balance on deposit was $166,872.49. See Exhibit A to Fisher Aff.
Accordingly, assuming the truth of Salem Florida's allegations, the amount in controversy
plainly exceeds the $75,000 threshold set forth by 28 U.S.C. § 1332(a). See 28 U.S.C. §
1446( c)(2).
All Procedural Requirements for Removal Have Been Satisfied
12. Pursuant to 28 U.S.C. § 1446(a), a true and correct copy of all of the process,
pleadings, orders, and documents from the State Court Action is being filed with this Notice of
Removal.

13. This Notice of Removal has been filed within thirty (30) days of the first receipt
of the Complaint by ResCare. Accordingly, removal is timely in accordance with 28 U.S.C.
§ 1446(b).
14. A copy of this Notice of Removal is being promptly filed with the Clerk of the
Forsyth County General Court of Justice, Superior Court Division, as required by 28 U.S.C.
§ 1446(d), a copy of which is attached hereto as "Exhibit C."
15. ResCare will give written notice of the filing of this Notice of Removal to Salem
Florida as required by 28 U.S.C. § 1446(d).
16. By filing this Notice of Removal, ResCare does not waive any objection that it
may have to the exercise of personal jurisdiction over it in state or federal court in North
Carolina.
Conclusion
17. By filing this Notice of Removal, ResCare does not waive any objection it may
have to jurisdiction, venue or any other defenses or objection it may have in this action and
instead specifically reserves those objections. ResCare intends no admission of fact, law or
liability by the filing of this Notice of Removal and expressly reserves all of its potential
defenses, motions and pleas.
WHEREFORE, ResCare respectfully gives notice of the removal of this action from the
State of North Carolina, Forsyth County General Court of Justice, Superior Court Division, to
the United States District Court for the Middle District of North Carolina.

Respectfully submitted,
SHUMAKER, Loop & KENDRICK LLP

Steven A. Meckler
lsi Steven A. Meckler

101 South Tryon Street
Suite 2200
Charlotte, NC 28280
(704) 945-2187
smeckler@slk-Iaw.com
N.C. State Bar: 26544
Ihereby certify that on April13, 2018, I electronically filed the foregoing Notice of
Removal with the Clerk of the Court using the CMlECF system.
I further certify that on April 13, 2018, I served plaintiff Salem Homes of Florida, Inc.,
Peter 1. Juran
Blanco, Tackabery & Matamoros, P .A.
P.O. Drawer 25008
pjj@blancolaw.com
Counselfor Plaintiff Salem Homes of Florida, Inc.
lsi Steven A. Meckler


,
.,
.STATE OF NORTH CAROLINA , .. FileNo .
18 CVS 83£
Fors;ith County In The General Court Of Justice
o District ~ Superior Court Division
Name Of Plaintiff
Address CIVil SUMMONS
cIa Blanco TackabElfY & Matamoros, P.A.
City, State, Zip
o ALIAS AND PLURIES SUMMONS (ASSESS FEEl
Winston-Salem, NC 27104
VERSUS G.S. 1A-1. Rules 3 and 4
Name Of Defendant(si Dale Orjqinal Summons Issued
RES-CARE, INC.
Dale(s) Subsequent Summon(es) Issued
To Each of The Oefendant(s) Named Below:

Name And Address Of Defendant 1 Name And Address Of Defendant 2
RES-CARE, INC.
By serving Pat Kelley, Chief Operating Officer
9~01 Linn Station Road
Louisvifle, KY 40223
A Civil Action Has Been Commenced Against You!
You are notified to appear and answer the complaint of the plaintiff as fo[fows:
1. Serve a copy of your written answer to the complaint upon the plaintiff or plaintiff's attorney within thirty (30) days
after you have been served, You may serve your answer by deUverlng a copy to the plaintiff or by mailing it to the
plaintiffs last known address, and
2. File the original of the written answer with the Clerk of Superior Court of the county named above.
If you fail to answer the complaint, the plaintiff will apply to the Court for the relief demanded in the complaint.
Name And Address Of Plaintiff's Attorney (if none, Address Of Plaintiff)
Peter J. Juran 336-293-9000 Drebd.llf f 0t5 tB
Tim
I 4:) 4- DAM BJ PM
Post Office Drawer 25008 Si~ve~~~
Winston-Salem, NC 27114-5008 l!j:Depu~SC D Assistant esc ~ Of Superior Court
.,
Date Of Endorsement
o ENDORSEMENT (ASSESS FEE) DAM DPM
Skmature
This Summons was originally issued on the date
indicated above and returned not served. At the
request of the plaintiff, the time within which this o Deputy esc o Asslslant esc o Clerk Of Superior Court
Summons must be served is extended si~ty"(60)

days.
NOTE TO PARTIES: Many counties have MANDATORY ARBITRA TlON programs in which most cases where the amount In controversy is
$25,000 or less are heard by an arbitrator before It trial. The partlas will be notified if this case Is assigned for
mandatolY arbitration, and, if so, what procedure Is to be foltowed.
AOC-CV-100, Rev. 6/16 EXHIBIT

© 2016 Administrative Office of the Courts (Oyer)
A
/
.~
STATE OF NORTH ,CABOLINA 1:7 ~ t r; rlN THE GENERAL COURT OF JUSTICE
1 [ - t., L/ , SUPERIOR COU~'JJ,_f.TJYISION
COUNTY OF FORSYTH , 18 CVS t2T
luIS FEB l Lj P ~: tt.j
SALEM HOMES OF FLORIDA,
INC., Plaintiff, F~:S~:' )
) COMPUUNT
~ )
)
RES-CARE, INC., )
)
Defendant. )
Plaintiff, Salem Homes of Florida, Inc. ("Salem"), complaining of Defendant
Res-Care, Inc. ("Res-Care"), alleges and says as follows:
1. Salem is a corporation organized and existing under the laws of the State of
Florida but with an office and principal place of business in Winston-Salem, Forsyth County,
North Carolina. Salem maintains its books and records in, Winston-Salem; North Carolina,
conducts its primary operations out of its Winston-Salem office, receives notices, legal papers,
and payments under the contract described herein in Winston-Salem.Most of the individuals
affiliated with Plaintiff who have knowledge of the facts and circumstances which form the basis
of this Complaint live and/or work in Winston-Salem, North Carolina.
2. On information and belief, Defendant Res-Care is a corporation
organized and existing under the laws of the State of Kentucky.
3. Salem is the tenant under a certain Lease Agreement of certain real
property located in the State of Florida and operates certain residential facilities
(the "Facilities") for developmentally disabled adults on such real properties. Salem
BTM: 699718v21

leases the Facilities from Clark, Evans & Tate, Inc. ("Landlord") under a Lease
Agreement (the "Lease") which was entered into on or about December 1, 2013.
4. Res-Care, among its other businesses, is a manager of residential
facilities for developmentally disabled adults. Res-Care managed the Facilities for
Salem from December 1,2013 for approximately four (4) years under contract with
Salem pursuant to an Amended and Restated Management Agreement dated
December 1, 2013, a true copy of which is attached as Exhibit A and incorporated
herein as iffully set forth (the "Management Agreement"). The Management
Agreement was negotiated over a period of time, including at least two face to face
meetings of the parties in Winston-Salem, North Carolina.
5. In general terms, Res-Carets obligations under the Management
Agreement, insofar as it relates to the Facilities, involved management of the day-
to-day operation of the Facilities, including hiring, retention, training and payment
of all staff, intake maintenance care of residents, preparation (for approval by
Salem) of the annual and capital budgets, operation of the Facilities in compliance
with those budgets, maintenance of all financial and business records of the
Facilities, and submission to the State of Florida of all necessary records and
reports to ensure qualification for, and receipt of, all reimbursements for Medicare
goods and services provided (as well as private reimbursements).
6. The Management Agreement provides for the handling of funds and
the order of distribution of such funds, under a priority listing (the "Waterfall"),
which was under the auspices of Res-Care. Res-Care was responsible for
2
BlM:699718v2

distribution of funds generated by the operation of the Facilities pursuant to the
Waterfall.
7. Over the course of the term of the Management Agreement, Res-Care
failed in multiple particulars to honor its obligations under the Management
Agreement. Specifically, and without limitation as to other breaches which may
become apparent during discovery, Res-Care has failed:
(a) To comply with the budgets agreed to on an annual basis
between Salem and Res-Care.
(b) To satisfy requirements of the State of Florida to fund certain
expense categories in sufficient amounts to qualify for Medicare reimbursement:
(c) To pay the Lease obligations of the Facilities pursuant to the
WaterfaJ.I priority.
(d) To pay its own management fees only in the proper order of
priority relative to other payment obligations, and only after the payment of other
senior obligations of Salem set forth in the Waterfall.
(e) To pay itself funds to return the working capital advances it
had made only as permitted by the Management Agreement.
(f) To open bank accounts in the name of and for the benefit of
Salem and the Facilities, and not to convert funds to accounts under its own name.
(g) To perform all accounting, bookkeeping and record keeping F=
functions to enable the sale and to meet the financial reporting, record keeping, and
3
BTM:699718v2
budgetary requirements of the lease and all applicable statutes, rules or regulations
of government entities on an annual basis.
(h) To prepare and submit to Salem a draft annual budget and
capital expenditure budget.
(i) To obtain approval of its proposed budgets from Salem, and then
follow the provisions of that budget once approved by Salem.
6) To prepare monthly statements of operations and combine
monthly statements of operations and submit them to Salem in accurate form
within 30 days after the end of each month.
(k) To maintain a complete and accurate general ledger recording
and summarizing the transactions of the Facilities.
(1) To manage Salem's operation of the Facilities in accordance to
Salem's obligations under the Lease and applicable law, and to perform its duties
under the Management Agreement in a manner to cause Salem's compliance with
its obligations under the Lease and applicable law, including state and federal
permitting, Certificates of Need, and occupancy laws and regulations for group
facilities.
(m) To represent Salem in any and all proceedings or appeals of (i)
Medicaid rate adjustments of determinations before any governmental agencies, or
(ii) ad valorem tax liabilities or valuation determinations.
(n) To arrange for architectural, engineering and construction
services in connection with any and all capital improvements to such Facilities and
4
BTM:699718v2

to oversee on behalf of Salem the construction of all capital improvements, including
ensuring that each Facility operated by Res-Care pursuant to the Management
Agreement is operated in compliance with state and federal law .
(0) To distribute funds only consistent with the provisions of
Section 4 of the Management Agreement, including the Waterfall, and to refrain
from prioritizing payments for its own benefit ahead of priority payments due to
others.
(P) To file all of its cost reports in a manner consistent with the
terms of the Management Agreement, but in all cases in compliance with applicable
law and the rules and regulations applicable to the facilities.
(q) Following termination of the Management Agreement, to pay
any accrued management fees and or advances by Res-Care only pursuant to the
termination provisions of the contract (calling for such payments to be paid over a
24-month period following termination or election not to renew by Res-Care.)
(1') Following termination of the Management Agreement, to
cooperate at termination fully with Salem in effecting orderly transition to avoid -,
any interruption in rendering the above described services, Specifically, and
without limitation, Salem is informed and believes that Res-Care submitted to the
State of Florida a letter with scandalous, misleading, and/or fraudulent allegations
regarding the operations and financial management of the Facilities, thereby
placing Salem's operations and reimbursements at risk. Alternatively, to the extent
any such allegations set forth in such letter are accurate, such matters are the
5
BTM:699718v2

direct and consequential result of Res-Care's misconduct in its performance under
the Management Agreement.
8. When the Management Agreement was terminated as of December 31, 2017,
Waterfall and the terms of the Management Agreement.
9. ResCare has failed to properly account for all funds and assets
belonging to Salem within Res-Care's custody and control.
FIRST CAUSE OF ACTION:

BREACH OF CONTRACT
lO. The allegations contained in the preceding paragraphs are repeated and re-alleged
as iffully set forth..
11. Defendant is in breach of its contract with Plaintiff.
12. Plaintiff has been damaged by Defendant's breach of contract in an
amount to be proven at trial, but 'expected to be in excess of $20,000.00.
SECOND CAUSE OF ACTION:

ACCOUNTING OF PROFITS AND USE OF ASSETS
6
BTM:699718v2
14. Plaintiff is entitled to a full accounting of all funds and assets
controlled by Res-Care under the Management Agreement.
THIRD CAUSE OF ACTION:

CONVERSION
16. Res-Care has converted assets which properly belong to Salem to its
own use.
17. Plaintiff has been damaged by Defendant's conversion in an amount to
be proven at trial, but expected to be in excess of $20,000.00.
WHEREFORE, Plaintiff requests and prays for the following relief:
1. That the Court order judgment in favor of Plaintiff against Defendant
in an amount to be proved at trial but expected to be in excess of $20,000.00.
2. That the Court require that Defendant give a full accounting of all
sources and uses of funds.
3. That the Court tax all of the costs of this action against Defendant; and
4. That the Court award such other and further relief as the Court deems
just and proper.
7
BTM:699718v2
This &day of February, 2018.
, ~
N.C. State Bar No.13566
Attorney for Plaintiff
OF COUNSEL:
BLANCO,TACKABERY
& MATAMOROS, P.A.
P.O. Drawer 25008
Winston-Salem, NO 27114-5008
Telephone (336) 293-9000
Facsimile (336) 293-9030
8
BTM:699718v2

AMENDED AND RESTATED MANAGEMENT AGREEMENT
THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT
(HAgreement") is made on the day and year set forth below, by and among SALEM HOMES
OF FLORIDA, INC., a Florida corporation ("Salem") and RES-CARE, INC., a Kentucky
corporation qualified to do business in Florida ("Res-Care'').
RECITALS:
A. Salem operates fourteen (14) six (6) ·bed ICFIDD (each such reF/OD is
hereinafter referred to individually as a "Facility" and collectively as the "Facilities'').
B. Res-Care, through the management and operation of numerous ICFIDD in various
other states, as well as its management and operation of the Gainesville group homes in Florida
and the Facilities for the prior provider, Salem Villages MRDD, Inc. ("MRDD"), has acquired
experience in the provision of residential service for the developmentally disabled.
C. Salem leases the Facilities from Clark. Evans & Tate, Inc. (the "Landlord"),
pursuant to a certain Lease Agreement ("Lease").
D. Salem desires to retain Res-Care for the provision of specific management
services necessary for operation of the Facilities and Res-Care desires to continue to provide
such assistance.
NOW, THEREFORE, the parties hereto, in consideration of the mutual covenants
contained herein and for other good and valuable consideration, the sufficiency of which is
=
hereby acknowledged, agree as follows:
1. Salem as Provider. Salem shall be considered the official provider of record for
Medicaid purposes and shall hold all authorizations and licenses necessary or incidental thereto
with respect to the Facilities. Salem shall at all times exercise control over the assets and
BTM:542316v4
operation of the Facilities. It is understood and agreed that the relationship between the parties
hereto is that of independent contractors, and nothing herein contained shall be deemed to create
or authorize the creation of the relationship of partnership or joint venture between said parties.
2. Res-Care}s Obligations. Res-Care shall assume day-to-day operational
responsibility for each Facility and shall perform the following specific management services for
Salem:
(a) Manage the Facilities so as to provide a level of care that meets all state
and federal licensing, accreditation and reimbursement standards applicable to an ICFIDD
facility, which care shall include the providing or monitoring of the following for the individuals
residing in the Facilities:
(i) the medical and psychological condition of the individuals,
including maintenance of medical records where applicable;
(ii) the activities, both personal and familial, of the individuals;
(iii) the dietary requirements of the individuals;
(iv) physical therapy and day program participation by the individuals;
and
(v) the qualityof life of the individuals.
(b) Provide care and treatment to all individuals, protecting their rights
pursuant to applicable state and federal law, including laws pertaining to safe-guarding and
accounting for personal funds.
(c) Maintain each Facility and its premises in good and satisfactory condition,
all in accordance with such obligations of Salem under the Lease.
(d) Provide adequate qualified staff for each Facility. At Res-Care's option,
such staff may be its employees or may be independent contractors. Provided it is complying

with its obligations under this Agreement, Res-Care shall have full authority to hire and fire such
staff. Res-Care covenants that it shall not discriminate against any member of such staff, or
applicant therefor, because of race, religion, color, national origin, sex, handicap, military status
or age, all in accordance with applicable law. Without Salem's prior written consent (which
shall not be unreasonably withheld or delayed), Res-Care shall not terminate the Executive
Director of the Facilities or hire any replacement thereof. Additionally, Res-Care agrees that the
Executive Director and the Business Manager of the Facilities shall work exclusively on behalf
of Salem with respect to the Facilities, except that such individuals may, with the prior written
consent of Salem. which consent shall not be unreasonably withheld Or delayed, be assigned to
provide temporary services (for a period or periods not exceeding an aggregate of ten (10)
working days during any twelve (12) month period) to other operations of Res-Care and its
affiliates as reasonably necessary (as for example in the event of disruption of such other
operations due to weather or other unforeseen circumstances), provided qualified personnel at
the Facilities can temporarily perform such individual's functions during such period. For any
period such individuals are assigned to such temporary services, Res-Care shall not charge the
Salem Account for the prorated salary and benefits of such individuals.
(e) Subject to the limitations of Section 5, purchase in Salem's name and
behalf, necessary equipment, furniture and fixtures for each Facility.
(t) Subject to the limitations of Section 5, contract, in Salem's name and
behalf, for services with vendors or service providers as necessary for the operation of each
Facility, including the authority to amend, modify or terminate such contracts.
(g) Utilize a set of operational policies for the Facilities and submit that
document to Salem for its review and approval. Said policies shall meet all licensing and
. accreditation standards required of ICFIDD group homes by Florida or the federal government.

(b) Perform all accounting, bookkeeping, and recordkeeping functions to
enable Salem to meet the financial reporting, recordkeeping, and budgetary requirements of
(x) the Lease and (y) all applicable statutes, rules or regulations of governmental agencies. All
such reporting and recordkeeping shall be maintained on a calendar year, accrual basis. The
annual audit of the books and records of the Facilities shall be performed by an independent
certified public accounting firm selected by Salem. The accounting services to be performed by
Res-Care or under Res-Care's supervision shall include the following:
(i) No later than forty-five (45) days before the end of each calendar
year, Res-Care shall prepare for Salem a draft annual budget (the "Budget") for Salem's
review and prior approval covering the operations by Salem of and proposed capital
expenditures to be made by Salem with respect to the Facilities for the next calendar year
as follows:
(A) A capital expenditure budget outlining a program of capital
expenditures and major repairs as Res-Care reasonably believes will be required for the
next calendar year, in which each proposed expenditure will be designated as either
mandatory or desirable. Salem may approve or reject, in its reasonable discretion, each
proposed capital expenditure. However, Salem shall not refuse an expenditure designated
"mandatory capital expenditure" when such refusal would result in the respective Facility
losing its license or becoming ineligible under any third party payor program applicable
to the Facilities.
(B) A budget setting forth an estimate of consolidated operating
revenues and expenses of the Facilities for the next calendar year together with an
explanation of anticipated changes in Facility utilization, charges to residents, payroll

rates and positions, non-wage cost increases, and all other factors offering significantly
from the current year.
(C) A projection of cash receipts and disbursements for the
next calendar year based on the proposed operating and capital budgets, together with
recommendations as to the use of projected cash flow in excess of short-term operating
requirements and/or as to the sources and amounts of additional cash flow that may be
required to meet operating requirements and capital requirements.
At Res-Care's discretion, Res-Care may submit one or more revised Budgets to
Salem during any calendar year, together with a written explanation of the basis for any
modification from the Budget previously approved by Salem. Salem shall not
unreasonably withhold or delay its approval of the Budgets (including any revised
Budget) submitted by Res-Care. Unless and until a revised Budget is approved by Salem,
Res-Care shall continue to operate the Facilities in accordance with the Budget
previously approved by Salem. Subject to Section 2(r), the parties acknowledge and
agree that revenues and expenditures with respect to the Facilities may vary with respect
to categories or line items and amounts from month-to-month and that the Budget is a
projection of aggregate revenues and expenditures for the entire calendar year.
(ii) The preparation of a monthly statement of operations for each
Facility and a combined monthly statement of operations for the Facilities to be
submitted to Salem within thirty (30) days after the end of each month. =
(iii) The maintenance of all records for resident billing, billing for all
accounts receivable and (to the extent practicable without undue expenditure of funds)
collection of same.
5
(iv) The maintenance of all records for accounts payable and the
payment of the same.
(v) The preparation of all necessary Medicaid and other third party
payor reports.
(vi) The preparation of all necessary reports and returns for all sales,
use, ad valorem and occupancy taxes.
(vii) The maintenance of a complete general ledger recording and
summarizing the transactions of the Facilities.
(viii) The maintenance of detailed records of all funds as required by the
Lease.
(i) Res-Care shall use its best efforts to operate the Facilities in accordance
with the provisions of the Budgets submitted to and approved by Salem.
(j) Subject to the limitations of Section 18, represent Salem in any and all
proceedings or appeals of (i) Medicaid rate adiustrnents or determinations before any
governmental agencies, or (ii) ad valorem tax liabilities or valuation determinations.
(k) Manage Salem's operation of the Facilities in accordance with Salem's
obligations under the Lease and applicable law, and to perform its duties under this Agreement,
unless otherwise directed by Salem, in a manner to cause Salem's compliance with its
obligations under the Lease and applicable law. Except as set forth in Section 5, Res-Care shall
have no obligation to pay any Costs of Operation or make repairs, renewals or replacements, or
make any payments under the terms of the Lease except from Salem's funds. Nothing herein
shall constitute a guarantee by Res-Care that the Facilities, whether individually or collectively,
will be able to meet any rate covenants set forth in the Lease or any other level of financial
performance.

(1) Attend not more than quarterly meetings of the Board of Directors of
Salem (and such meetings of committees of such Board as Salem may reasonably request) for
the purpose of providing information and advice concerning the management of the Facilities.
The reasonable out-of-pocket cost of attending any such meetings shall be deemed a part of the
Costs of Operation.
(m) Arrange for architectural, engineering, and construction services in
connection with any and all capital improvements to such Facility, and to oversee on behalf of
Salem the construction of such capital improvements.
(n) Provide online access to Salem's designated employees with respect to the
Salem Account (as defined in Section 4) and the general ledger of the Facilities maintained by
Res-Care, together with access to such other financial information with respect to the Facilities
as requested by Salem from time to time, including providing Salem with read-only access to
.
select financial reporting so as to enable Salem to access various financial information which is
customarily kept by Res-Care in the ordinary course of business, including, without limitation,
the information described in paragraph (r) of this Section 2.
(0) Res-Care, without the prior written consent of Salem (which may be
withheld in its sole discretion), shall not create, assume or suffer to exist any deed of trust,
mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual (except
the lien for ad valorem taxes on the Facilities which are not past due), security interest,
encumbrance or charge, or conditional sale or other title retention document, against or covering
all or any portion of any facility.
(P) Res-Care shall not use, generate, manufacture, treat, store, recycle)
transport, dispose, spill, leak or release, or permit any other person to use, generate, manufacture,
treat, store, recycle, transport, dispose, spill, leak or release any hazardous substance in, on or
7
under any Facility, except in compliance with all applicable environmental laws and other
applicable federal, state and local laws, rules, regulations, ordinances and requirements.
(q) Notwithstanding any provision to the contrary in this Section 2 or
elsewhere in this Agreement without the prior written consent of Salem, Res-Care shall have no
responsibility or authority to negotiate, execute or deliver any lease, contract or other agreement,
or to take any other action, for or on behalf of Salem, or which legally binds Salem (the
foregoing shall not limit the ability of Manager to enter into contracts in the name of any Facility
for which Res-Care alone shall be liable), unless it:
(i) is terminable by Salem without premium or penalty by not more
than thirty (30) days' notice; or
(ii) is in the ordinary course of business consistent with past practice
and contained within the Budget.
(r) Within ten (10) business days after the last day of each calendar month
during the Term, Res-Care shall notify Salem that it has made available online to Salem
(i) detailed information regarding all of the foregoing for the preceding calendar month for the
operations: Costs of Operations, billings, collections, bad debts and capital expenditures; (ii) all
balance sheet information regarding the operations, including without limitation, accounts
receivable and accounts receivable aging; and (iii) an executive summary of the financial
information and the operations of the Facilities for such month, including comparisons to the
Budget, explanations of any material variances to the Budget, and projections of anticipated
future variances to the Budget. Not later than the third business day after such information is
made available to Salem, representatives of Salem and Res-Care shall confer by telephone to
discuss such information, Res-Care's analysis of the same and any objections that Salem may
have (it being understood that a one-time (not continuing) monthly variance of less than five

percent (5%) from the Budget, both by category and inthe aggregate, and monthly variances that
Res-Care can reasonably demonstrate will be reversed within the calendar year, shall not
normally be objectionable; provided, larger variances which have been previously discussed
with, and approved by, Salem shall not be objectionable nor shall variances which result from
unanticipated disruptions in the timing of receipt of revenues (so long as such disruption is not
the result of a breach by Res-Care hereunder), but which are not expected to result in a variance
to the annual Budget, shall also not be objectionable). Not later than two (2) business days after
such telephone conference, Salem shall advise Res-Care in writing either (x) that Salem has no
continuing objections, or (y) that Salem has continuing objections, and if so, Salem shall identify
the same. If Salem has no objections, the revenues and expenditures for such month shall
deemed to be in compliance with the Budget for all purposes. To the extent that Salem has any
continuing objections, Res-Care and Salem will jointly discuss and agree to actions to be taken,
including, without limitation, as appropriate, additional efforts to collect receivables, adjustments
to Operating Expenses, or adjustments to the Budget. Any adjustments to the Budget shall be
considered an amendment to the Budget as previously approved under paragraph (i) of this
Sectlen 2. In Salem's discretion, the information, analysis and review described in this
paragraph (r) may by provided and performed on a quarterly, rather than monthly, basis.
(s) Res-Care will file all of its cost reports in a manner consistent with the
terms of this Agreement, but in all cases in compliance with applicable law and the rules and
regulations applicable to the Facilities.
3. Salem's Obligations. The obligations of Salem shall consist of the following:
(a) To furnish general policy and procedural guidance and direction for the
operation of the Facilities.

(b) To examine, observe. and inspect the Facilities, and any and all records
and reports applioable thereto and to the services and functions of Res-Care.
(c) To assist in the preparation of, and to approve, the Budgets and annual
plans submitted by Res-Care for the operation of the Facilities, which approval shall not be
unreasonably withheld.
(d) .To establish operating policies, standards of operation, admission policies,
standards of service and maintenance and resident rates and other charges for the Facilities'
residents. Salem shall fix, collect, and charge such rental rates and other charges as required to
pay timely an Costs of Operation (as defined below), the Management Fees and-all obligations of
Salem pursuant to the Lease, and shall use its best efforts to operate the Facilities in accordance
with the Budgets submitted to and approved by it. Further, Salem covenants and agrees to
comply with all of its obligations set forth in the Lease without limitation on Res-Care's
contractual obligations to effect such compliance on Salem's behalf.
(e) To establish policies affecting the Facilities or the operation thereof which
are not Inconsistent with the responsibilities assigned to Res-Care under the terms of this
Agreement.
(t) To play an active role in promoting the good will and public image of the
Facilities, their residents and Res-Care.
(g) To cooperate with Res-Care in executing all forms and returns required
pursuant to applicable taxing statutes, rules and regulations and governmental reimbursement
programs.
~.
4. Revenues. Costs of Operation and Management Fees.
(a) All revenues from operations of, or any interest earned on any deposits or
accounts maintained under this Agreement for, the Facilities (collectively, "Revenues") shall be
10

deposited into, and all Costs of Operation (and all capital expenditures) paid out of, a bank
account in Salem's name at a financial institution selected by Res-Care and approved by Salem
(the "Salem Account"), which approval shall not be unreasonably withheld for the payment of
the following items on a monthly basis in the following order of priority: (i) the Costs of
Operation (in accordance with the priorities set forth in Section 4(b»; (ii) any outstanding cash
advances made by Res-Care paid or incurred by Res-Care for the Facilities and noma! working
capital advanced by Res-Care pursuant to Section 5; and (iii) any outstanding cash advances
made by Salem, Res-Care, or any other person or entity, pari passu.
(b) The Costs of Operation shall include: (i) (A) all costs and expenses
incurred in the operation and management of the Facilities including matters herein referred to as
Res-Care's responsibility, including but not limited to any salary, compensation or payments to
staff for each Facility and the costs of repairs to, and maintenance 04 the Facilities (but not the
cost of capital improvements or capital assets), (B) rent for the Facilities in the amount of
Twenty-Five Thousand Eight Hundred Seven and 30/100 Dollars ($25,807.30) per month
("Rent) (which shall be paid no later than the first business day of each calendar month), (C) all
premiums or charges for insurance coverage with respect to the operations of the Facilities,
(D) expenses and costs incurred in connection with the purchase of necessary supplies, the
furnishing of utilities to the Facilities and other necessary supplies furnished by independent
contractors, (E) the cost to Salem of its annual inspection of the Facilities (not to exceed Five
Hundred and 001100 Dollars ($500.00) for each Facility), (F) any audit adjustments or payments
required in connection with or as a consequence of any proceeding or appeal described in

~.:
Section 2(j), (0) any ad valorem taxes payable with respect to the Facilities, (H) any payments
under that certain Promissory Note dated December 1,2013 payable from Salem to Res-Care in
the amount of Two Million Seven Hundred Fifty Thousand and 001100 Dollars ($2,750,000.00)
II

(the "Note Payable"), (1) home office expenses of Twenty-Two Thousand and 00/100 Dollars
($22,000.00) payable monthly to Landlord, and (J) Salem's monthly installment on its note
payable (the "Delinquent Rent Note Payable") to Landlord in connection with its assumption
of MRDD's delinquent rental obligation due to Landlord (Items A-J in this clause (i),
collectively, the "Priority Costs of Operation"); and (ii) (A) the Management Fees (as defined
in Section 4(d», (B) any interest payable on any advances by Salem, Res-Care (exclusive of the
Note Payable), Landlord, or to any other party, (C) home office expenses of Twenty-Two
Thousand and 00/100 Dollars ($22,000.00) payable monthJy to Salem, and (D) Seventeen
Thousand and 00/100 Dollars ($17,000.00) payable monthly to Salem for its home office
personnel expenses (Items A-D in this clause (ii), collectively, the "Secondary Costs of
Operation") (with each item of Secondary Costs of Operation paid concurrently, to the extent of
available funds, on or before the first business day of the succeeding calendar month).
Notwithstanding the foregoing, amortization of deferred expenses and depreciation shall not be
included in the Costs of Operation. On a monthly basis, all Priority Costs of Operation shall be
paid before any Secondary Costs of Operation are paid. If sufficient' funds are not available in the
Salem Account during any calendar month to pay all of the Secondary Costs of Operation for
such calendar month or any prior calendar months, then such amounts shall be paid on a basis
which is proportionate to the total amount of Secondary Costs of Operation owed to each party
for such calendar month or any prior calendar months. All payments due to Salem with respect
to the Costs of Operation shall be paid via wire transfer to a bank account designated by Salem, =
which bank account shall be under the sale control and custody of Salem,
(c) [INTENTIONALLY OMITTED]
(d) The Management Fee shan be paid to Res-Care, and the home office
expenses shall be paid to Salem, in accordance with the terms of this Section 4(d). Subject to
12
adjustment as provided in this paragraph, the Management Fee payable to Res-Care shall initially
be Five Thousand Three Hundred Four and 18/100 Dollars ($5,304.18) per Facility per month.
Notwithstanding any provision in this Section 4(d) to the contrary, if all or any portion of Res-
Care's Management Fee payable under this Section 4(d) shall be disallowed as a reimbursable
cost as a consequence of any proceeding or appeal described in Section 20)(i) and either the
amount disallowed is recouped against billings or accounts receivable from the Facilities or
Salem is required to repay the amount so disallowed (in each such instance, a "Res-Care
Disallowed Amount"), the Management Fee payable shall be reduced to the level determined to
be allowable, effective as of the effective date of such disallowance and the Management Fee
otherwise payable after the date of receipt of the notice of such disallowance shall be withheld
until the amount so withheld equals the Res-Care Disallowed Amount. If any expenditure for the
Facilities is disallowed as a reimbursable cost as a consequence of any proceeding or appeal
described in Section l(j)(j) by reason of lack of documentation, Res-Care shall pay the amount
of such disallowed expenditure to the Salem Account. Notwithstanding any provision in this
Section 4(d) to the contrary, if all or any portion of (i) any payments on the Delinquent Rent
Note Payable, (ii) the home office expenses paid to Landlord as provided in clause (i)(I) of
Section 4(b), (iii) the home office expenses paid to Salem as provided in clause (ii)(C) of
Section 4(b), or (iv) the home office personnel expenses paid to Salem as provided in clause
(ii)(D) of Section 4(b) (the payments described in clauses (i) through (iv) being referred to as the
"Salem Payments"), are disallowed as a reimbursable cost as a consequence of any proceeding
or appeal described in Section 2(j)(i), and either the amount so disallowed is recouped against
billings or accounts receivable from the Facilities or Salem is required to repay the amount
disallowed (in each such instance, a "Salem Disallowed Amount"), the Salem Payment so
disallowed shall be reduced to .the level determined to be allowable, effective as of the effective
13
date of such disallowance, and either (A) to the extent that all of the amounts otherwise payable
under Section 4 have been paid and there is cash available in the Salem Account to pay in full
the Salem Disallowed Amount, no additional reduction of the Salem Payments shall be made, or
(B) to the extent that such recoupment or payment obligation attributable to a disallowance of a
Salem Payment shall result in a shortfall in the payment of all of the Costs of Operation, such
shortfall shall not be applied on a prorata basis as provided in Section 4(b), but rather shall be
applied solely to reduce the Salem Payments in the month ending after the date of receipt of the
notice of such disallowance and succeeding months in an aggregate amount equal to such
shortfall. The Management Fee and the home office expenses payable to Salem shall be further
adjusted every twelve (12) months by a percentage proportionate to any adjustment for inflation
or cost of living applied by the Florida Medicaid program or its successor with respecrto costs
utilized for purposes of determining applicable Medicaid rates for such year. In the event one or
more of the Facilities shall no longer be operated under this Agreement, the Management Fees
payable under this Agreement shall be reduced by excluding each such Facility from the
calculation of the Management Fees, commencing with the calendar month following the
cessation of such operation ..
(e) To the extent amounts available in the Salem Account in any month are
not sufficient to pay in full the Management Fees, home office expenses and home office
personnel expenses, any unpaid Management Fee, home office expenses and home office
personnel expenses shall accumulate interest at a rate equal to the prime rate (as established from =
time to time by Bank of America) plus two percent (P + 2%) (the "Advance Rate"); provided,
however, that in the event the Advance Rate exceeds the rate allowable for reimbursement WIder
the Florida Medicaid system, the interest rate shall be such allowable rate, commencing as of the
14
last day ofthe month such fees become payable, and such past due fees plus accumulated interest
thereon shall be paid when revenues are sufficient to do so.
(1) Based upon the needs of Salem, the expertise of Res-Care and the services
to be provided by Res-Care, it is agreed and understood by the parties hereto that the
Management Fee payable to Res-Care will be allocated among the various services provided by
Res-Care as follows:
(i) managerial review, coordination and control services, twenty-five
percent (25%);
(ii) personnel services, twenty-five percent (25%);
(iii) quality control services, thirty percent (30%);
(iv) legal and risk management services, ten percent (10%); and
(v) financial services, books and records, ten percent (10%).
Additionally, based upon the needs of Salem, the expertise of Salem and the
services to be performed by Salem, it is agreed and understood by the parties hereto that
any management fee payable to Salem will be for home office expenses.
(g) Within twenty (20) days of each calendar quarter end commencing with
the fifth (5th) calendar quarter of the Term, so long as all amounts otherwise previously payable
under Section 4 have been paid and the balance of the Salem Account exceeds $500,000 (the
"Distribution Threshold"), at the written request of Salem, not later than twenty (20) days after
the end of such calendar quarter, all of any portion of such excess over the Distribution
Threshold shall be paid via wire transfer to a bank account designated by Salem, which bank
account shall be under the sole control and custody of Salem.
5. Capital Improvements and Working Capital. To the extent not prohibited by
law or the Lease, Salem shall have the obligation of advancing funds for all capital assets
15

(including personal property and equipment) and improvements to the structures of the Facilities
required by the rules arid regulations of any governmental authority, and required to maintain the
operating licenses of the Facilities and the certification and provider agreements for the Facilities
under the currently existing Medicaid programs or substitute subsidy programs selected by Res-
Care. Subject to Salem's prior written consent, which shall not be unreasonably withheld, Salem
shall be obligated to advance funds for such capital assets or improvements required for the
efficient operation of the Facilities and to maintain the Facilities in good condition competitive
with the standards and quality of other similar facilities.
Res-Care is hereby authorized to incur expenses and liabilities in the ordinary course of
rendering the services described in accordance with the Budget and to purchase individual
capital items necessary for each Facility but which are not set forth in the Budget which do not
have a cost in excess of Ten Thousand and 00/100 Dollars ($10,000.00) per item or Fifty
Thousand and 00/100 Dollars ($50,000.00) in the aggregate. Any other expenditures shall
require the prior written consent of Salem, which shall not be unreasonably withheld. The
determination of whether an expenditure constitutes a capital item shall be made in accordance
with generally accepted accounting principles.
Salem shall be obligated to provide all working capital required to pay timely all Costs of
Operations, and all obligations of Salem pursuant to the Lease. Res-Care shall not be obligated to
provide any working capital for the operation of the Facilities; provided, unless Salem has
caused an Event of Default to then exist, Res-Care shall from time to time advance to Salem
whatever amounts are required subject to a maximum outstanding principal amount equal to two
(2) months of operating expenses for the Facilities (which amount shall include any advances
described in Section 4(a)(ii») to pay Salem's Cost of Operations; provided, further, that to the
extent that Salem shall have received one or more distributions of cash from the Salem Account
16

within the preceding twelve (12) months pursuant to Section 4(g) (collectively, a "Prior
Distribution"), Salem shall be first obligated to make such advance up to a maximum amount
equal to such Prior Distribution. Each such advance shall bear interest at the Advance Rate and
shall be repaid in accordance with the priority set forth in Section 4.
Notwithstanding the foregoing, Salem shall not be obligated to advance any funds for
capital improvements and/or working capital to the extent the need therefor is not reimbursed
under the Florida Medicaid system and is due to (i) the negligence or misconduct of Reg-Care or
its employees and agents, (ii) a breach by Res-Care of its duties and obligations herein, or
(iii) the Budget failed to adequately project the need for such funding advance by Salem, if such
funding was reasonably foreseeable, and in all such cases, Res-Care shall be obligated to provide
funds to cover such expense and, except in the case of funds required by clause (iii), in no event
shall funds advanced by Res-Care pursuant to this paragraph be considered a cash advance by
Res-Care, nor shall Salem be required to repay such advance or pay interest thereon.
6. Term. Unless earlier terminated in accordance with Section 8 and/or Section 33,
or further extended or agreed by the parties, the term (as may be extended, the "Term") of this
Agreement shall commence at 12:01 a.m. EST on December 1,2013 and shall continue until
11:59 p.m. on November 30,2018. Unless either party gives the other party written notice of its
election not to extend the Term at least one hundred eighty (180) days prior to the expiration of
the then existing Term, the Term shall be automatically extended for up to four (4) additional
periods of five (5) years each. Notwithstanding anything to the contrary continued herein, the
term of this Agreement shall not commence until such time as all necessary licensing or f.:.-
,..
governmental approval has been obtained and the Closing, as such term is defined in that certain
Acquisition Agreement by and between Salem, Res-Care and Salem Villages MRDD, Inc., has
been completed.
17

7. Security Interest in Accounts Receivable; No Additional Indebtedness. Salem
shall execute a Security Agreement and any and all necessary instruments, including any
Financing Statements or other documents as shall be necessary in the discretion of Res-Care to
grant it a first priority security interest in and to any accounts receivable relating to the Facilities,
whether to be collected by Res-Care on behalf of Salem under this Agreement, or otherwise, for
the purpose of securing the payment by Salem to Res-Care of its Management Fees, any
advances made by Res-Care pursuant to Section 5 and the Note Payable. Salem agrees that
except for the Note Payable, the Delinquent Note Payable and any advances by Res-Care
hereunder, Salem shall not incur or assume any additional indebtedness without the prior written
consent of'Res-Care,
8. Default. Right to Cure and Termination.
(a) The following shall be deemed to be an "Event of Default" hereunder:
(i) If Res-Care fails to maintain and operate the Facilities according to
the standards established or imposed by all applicable laws and regulations and
governmental agencies having jurisdiction or authority over the Facilities, other than by
reason of failure of Salem to comply with its obligations thereunder or hereunder.
(ii) If the certificates and authorizations for the Facilities to participate
under the Florida Medicaid program are canceled or revoked because either party has
failed to perform its obligations hereunder and such party is not, in good faith, diligently
pursuing the reinstatement of such certificates and authorizations.
(iii) If either party becomes insolvent or makes an assignment fur the
benefit of creditors or commits an act of bankruptcy or files a voluntary petition under the
provisions of the United States Bankruptcy Code, including without limitation, a petition
18

for reorganization or arrangement or consents to an involuntary petition or is adjudicated
a bankrupt.
(iv) If either party violates, or is in breach of, any material term or
condition of this Agreement. For purposes of this paragraph (iv) the failure of Res-Care
to use its respective best efforts to operate the Facilities in accordance with. the provisions
of the Budgets submitted to and approved by Salem shall be considered a breach of a
material term of this Agreement.
(b) Upon the occurrence of an Event of Default, the party not causing the
Event of Default (the "Non-Defaulting Party") shall give the defaulting party (the "Defaulting
-,
Party") notice thereof and the Defaulting Party shall have, with respect to any monetary matter,
ten (10) days to cure such default and in all other cases, thirty (30) days to cure such default;
provided, however, if such default is not reasonably subject to cure within thirty (30) days, the
Defaulting Party shall have such additional time as is reasonably necessary so long as, at all
times, the Defaulting Party is acting with all reasonable diligence in attempting to effectuate a
cure of such default; provided, further, if any such Event of Default relates to any necessary
certification, authorization. permit or license needed for the operation of any Facility being
suspended, revoked or subject to suspension of revocation, no such cure period shall extend
beyond any applicable governmental deadline, including administrative appeals.
(c) Upon termination of this Agreement for any reason other than (A) Res-
Care causing an Event of Default, or (B) Res-Care's election not to extend this Agreement at the
end of the original term or any renewal term, any outstanding Note Payable, accrued
Management Fees and advances by Res-Care to Salem. hereunder (collectively, "Res-Care
Obligations") shall become due and payable within fifteen (15) days after submission to Salem
of a calculation of such amounts.
19

(i) Upon termination of this Agreement solely by reason of Res-
Care's election not to extend this Agreement at the end of the original term or any
renewal term, any accrued Management Fees and/or advances by Res-Care to Salem
hereunder shall be payable by Salem to Res-Care in twenty-four (24) equal monthly
installments, commencing thirty (30) days after the effective date of such termination,
together with interest accruing from such effective date at the Advance Rate, payable
monthly in arrears.
(ii) Upon termination of this Agreement solely by reason of Res-
Care's causing an Event of Default, any accrued Management Fees and/or advances by
Res-Care to Salem hereunder shall be payable by Salem, together with interest accruing
from the effective date of termination at a rate equal to the Advance Rate less one percent
(1 %) I as revenues from the Facilities are available. after payment of Costs of Operation,
payment of any current Management Fees payable to any successor to Res-Care
hereunder (provided that such fees shall not exceed the amounts provided for in
Section 4(d», but before any payment of any other fees to any successor to Res-Care
hereunder. Additionally, upon an Event of Default caused by Res-Care, the security
interest granted to Res-Care pursuant hereunder shall be automatically deemed null and
void.
(iii) . Upon the earlier of (i) an Event of Default caused by Res-Care or
(ii) after payment to Res-Care of all amounts to which it is entitled under this Agreement
(including the Note Payable), the security interest granted in favor of Res-Care as
described in Section 7 shall be terminated and Res-Care and any other party thereto shan
execute all documents or instruments as shall be reasonably necessary to reflect such
termination.
20

(<I) In addition to Res-Care's rights under paragraph (c) of this Section 8, in
the event of a termination of this Agreement as described in Section 8 (c) (i). including but not
limited to Salem's election to terminate this Agreement in accordance with Section 6, Res-Care
Of, notwithstanding the provision of Section 21 to the contrary, its assign, shall have the option
("Option"), exercisable by written notice within thirty (30) days after the notification by Salem
of the proposed termination of this Agreement, or in the case of an Event of Default caused by
Salem, within thirty (30) days after the expiration of the ninety (90) day period described in
Section 8(b), to purchase Salem's entire right, title and interest in and to the Facilities, including.
but not limited to any rights relating thereto conferred by Florida or the federal government and .
Salem's right, title and interest in the Lease. The price at which Res-Care shall purchase and
Salem shall sell, all of Salem's right, title and interest in the Facilities shall be the greater of:
(i) fair market value ("FMV") or (ii) the assumption of any and all liabilities and obligations of
Salem associated with the Facilities (which shall expressly include Salem's obligations under the
Lease and the Res-Care Obligations). FMV shall be determined by an appraiser mutually
agreeable to Res-Care and Salem. If Res-Care and Salem cannot agree on an appraiser each shall
choose an independent appraiser experienced in valuing MRDD facilities in the State of Florida
to determine FMV. Those appraisers shall choose a third appraiser with the FMV to be
determined based on an average of the FMV as shown on each of the three appraisals. The
parties hereby agree to equally share the costs of such appraisals and that the FMV as determined
shall be final and binding.
(e) . In addition to the foregoing, upon an Event of Default, the Non-Defaulting
Party shall be entitled to all remedies available at law or in equity, including, without limitation,
specification performance and injunctive relief
21

9. Insuranee.
(a) Res-Care shall procure for Salem and maintain in full force and effect all
insurance coverages required by the Lease. Res-Care shall provide Salem and Landlord with
written evidence of such coverage. All such insurance to the extent appropriate will name Salem
and Landlord, as co-insureds. Landlord's mortgagee, if any, shall be named an additional
insured. The premiums for all insurance coverage which directly insures the risks of the
Facilities shall be paid as part of the Costs of Operation. Salem and Res-Care hereby each waive
any right or recovery against the other party for any claims that may be brought for any loss
which is covered by fires and extended coverage insurance upon or relating to the Facilities and
the furnishing and equipment thereon. This waiver of subrogation shall be valid and binding only
in the event it is recognized and accepted by the fire and hazard insurance companies under
. policies obtained hereunder. Bach party further agrees that its sole source of reimbursement of
loss or damage related to risks which are covered by the insurance required by the Lease shall be
the insurance proceeds of the policies to be provided hereunder and any reserves established
under the Lease for self-insurance and that the other party shall not be liable for any damage or
loss in excess of such insurance coverage or reserves for self-insurance.
Res-Care shall use its best efforts to (i) secure certificates of insurance for Salem and the
Landlord, (ii) maintain the original of such policies at the office of Res-Care, (iii) deliver
duplicate policies to Salem and the Landlord and (iv) procure endorsements thereto prohibiting
any termination or cancellation thereof until the expiration of ten (10) days' written notice of
=
cancellation to all named insureds.
(b) Res-Care shall, to the extent financially reasonable in Res-Care's
reasonable discretion, insure itself against normal business risks, inherent in its operation of the
Facilities and shall, to the extent possible without increases in premiums unless said increases are
22

paid by Salem, cause Salem to be named as a co-insured, to the extent its interests appear, on the
policies evidencing such insurance. As reasonably requested from time to time, Res-Care shall
provide Salem written evidence that Res-Care is so insured.
10. Use of Premises. Res-Care shall not, without the prior written consent of Salem,
at any time use, or permit any of the Facilities to be used, for purposes other than an ICFIDD
facility in compliance with all applicable rules and regulations of Florida, and such other uses as
may be outlined by Salem.
11. Amendment of Lease. Without Res-Care's prior written consent, Salem shall
not terminate or agree to terminate the Lease and shall not amend the Lease unless such
amendment (a) does not increase the rent payable thereunder, (b) does not increase the
obligations of Salem thereunder, or (c) does not adversely affect the ability of Salem and Res-
Care to operate the Facilities and render services to the clients of the Facilities.
12. Right to Inspect. At all reasonable times during regular business hours, and at
any time outside regular business hours if prior telephonic notice during regular business hours is
given to the Operational Vice President of Res-Care having jurisdiction over Florida, confirmed
by email, Salem or its representatives shall have the right to inspect the buildings and premises
comprising the Facilities, and the financial and other records (and to make copies of documents
as appropriate and at Salem's expense) maintained by Res-Care at the Facilities in the
performance of its services hereunder.
13. Books and Recprds. All books, records and reports prepared by Res-Care for or
in connection with the development or management of the Facilities and maintained by Res-Care
at any location other than the Facilities shall be available for inspection and copying by Salem at
Salem's own expense and during normal business hours with prior written notice to Res-Care. It
is agreed and understood that computer software and the users manuals for such software
23

developed or used by Res-Care in connection with the management of the Facilities shall not be
considered "books, records and reports" as those terms are used in this Section 13, provided that
printouts of data generated by use of such software shall be considered such "books; records and
reports."
14. Cooperation at Termination. Upon the expiration or earlier termination of this
Agreement, the parties hereto shall cooperate fully with the other in effecting an orderly
transition to avoid any interruption in the rendering of the above-described services and, in that
connection, unless Res-Care shall exercise its option described in Section 8(d), Res-Care shall
surrender to Salem all keys, contracts, books, records and reports (as such term is defined in
Section 13) maintained by Res-Care in connection with the management of the Facilities.
15. Covenant Notto Employ.
(a) The parties acknowledge that Res-Care, in the performance of its
obligations hereunder, utilizes certain of its employees. Salem recognizes that Res-Care has
incurred and will incur considerable time and expense in training Res-Care employees. For this
reason, Salem covenants with Res-Care that if Res-Care's employment of any executive Res-
Care employees shall terminate, or if this Agreement is terminated for any reason described in
Sec.ti?n 8(c)(i), Salem, Or any of their respective affiliates shall not, for a period of one (1) year
following the termination of this Agreement, employ any executive employee or encourage or
permit any successor to Res-Care's duties hereunder to employ any executive employee for
services rendered at or in connection with the Facilities or at any other ICFIDD facilities owned
or operated by Salem, or its respective affiliates. This covenant shall not apply to: (i) employees
of Salem, or its affiliates who have not been previously employed by Res-Care or (ii) any person
(including an administrator) working full time at a Facility. Recognizing that Res-Care would not
have an adequate remedy at law in the event of any breach of this covenant, Salem agrees that
24

the covenant set forth herein may be enforced by Res-Care by an appropriate restraining order or
(b) Res-Care covenants with Salem that Res-Care shall not, during the Term
or for a period of one (1) year thereafter, solicit or request that the Res-Care Executive Director
or Business Manager assigned to the Salem operations transfer or be re-assigned to any other
operations of Res-Care, without the prior written consent of Salem, which consent shall not be
unreasonably withheld or delayed. Provided, however, following such time as a replacement has
been hired and adequately trained, the preceding sentence shall not restrict Res-Care from
transferring or re-assigning either such Executive Director or Business Manager if such
individual has responded to a general posting of a job opening, Res-Care determines such
individual is the best available candidate for the position posted and Res-Care has not uniquely
or specifically solicited such individual for such position. Recognizing that Salem would not
have an adequate remedy at law in the event of any breach of this covenant, Res-Care agrees that
the covenant set forth herein may be enforced by Salem by an appropriate restraining order or
16. Financial Reports. Each party agrees, within fifteen (15) days after receipt
thereof, to deliver to the other party a copy of the audited, reviewed or, as applicable, compiled
financial statements of such party and any opinion with respect thereto issued by the independent
certified public accountant preparing such statement.
17. Indemnification.
(a) Res-Care agrees to indemnify, reimburse, defend, and hold harmless
Salem and Landlord from and against all demands, claims, actions or causes of action,
assessments, losses, damages, liabilities, costs and expenses, including, without limitation,
interest, penalties, consequential damages, reasonable attorneys' fees, disbursement and
25

expenses, and reasonable consultants' fees, disbursements and expenses (but excluding internal
overhead, administrative and similar costs of Salem), asserted against, resulting to, imposed on,
or incurred by Salem or Landlord, directly or indirectly, in connection with any of the following
occurring during the Term: (a) any accident, injury to or death of persons or loss of or damage to
property occurring on or about any Facility, including any claims of malpractice, (b) any use,
misuse, nonuse, condition, maintenance or repair by Res-Care, (c) any ad valorem, employee
withholding or sales taxes and (d) any failure on the part of Res-Care to perform or comply with
any of the tenus of this Agreement, except to the extent same are directly caused by Salem's
gross negligence or willful misconduct.
(b) Salem hereby agrees to indemnify, reimburse, defend and hold harmless
Res-Care from and against all demands, claims, actions or causes of action, assessments, loss,
damages, liabilities, costs and expenses, including, without limitation, interest, penalties,
consequential damages, reasonable attorneys' fees, disbursement and expenses, and reasonable
consultants' fees, disbursements and expenses (but excluding internal overhead, administrative
and similar costs of Res-Care), asserted against, resulting to, imposed upon on, or incurred by
Res-care, directly or indirectly arising from Salem's gross negligence or willful misconduct in
the exercise of its authority retained under this Agreement.
(c) Notwithstanding the foregoing, each of Salem and Res-Care, for
themselves and any insurance carrier, to the fullest extent possible, waive all claims of
=
subrogation to the extent of any insurance coverage.
18. Litigation or Proceedings on Behalf of Salem. If any claims or causes of action
on behalf of Salem arise during the term of this Agreement, or if any claims, actions, or other
legal proceedings arising from development or management of the Facilities are filed against
Salem, Res-Care shall have the option, exercisable in its discretion, subject to Salem's prior
26

written consent, which consent shall not be unreasonably withheld, to institute or defend such
claims, actions or other legal proceedings in Res-Care's name or Salem's name, as their
respective interests may appear to be claimed, provided that Res-Care uses good faith efforts to
proceed in a manner that is in the parties' respective best interests. The reasonable costs and
expenses of prosecuting and defending such claims, actions, and legal proceedings shall be
reimbursed to Res-Care by Salem as Costs of Operation, except as they relate directly to the
independent acts of Res-Care taken outside the scope of the performance ofits duties hereunder.
Salem agrees to provide reasonable assistance to Res-Care in the prosecution and defense of such
actions upon request by Res-Care. Unless Salem promptly and specifically in writing instructs
Res-Care to the contrary, Salem further agrees that Res-Care shall have the right to select Legal
counsel to represent the interests of Salem in such claims, actions, and legal proceedings. Res-
Care shall provide Salem with periodic reports regarding the progress of such proceedings.
19. Compliance with Public Law 96-499.
(a) Pursuant to regulations promulgated by the Federal Health Care Financing
Administration, an agency of the Department of Health and Human Services, implementing
Section 952 of the Omnibus Reconciliation Act of 1980 (P.L. 96-499) conditioning Medicare
reimbursement on the cost of services performed, insofar as this Agreement covers services
valued at or costing Ten Thousand and 00/100 Dollars ($10,000.00) or more over a twelve (12)
month period, the parties agree to provide the Secretary of Health and Human Resources. upon
written request, or the Comptroller General, or their duly authorized representatives, access to
this Agreement and the parties' books, documents and records necessary to verify the nature and
extent of the cost of the services provided by the parties. Such access shall be provided until the
expiration of four (4) years after the services are furnished under this Agreement.
27

(b) If Res-Care carries out any duties of this Agreement through a subcontract
with a value or cost of Ten Thousand and 00/100 Dollars ($10,000.00) or more over a twelve
(12) month period with a related organization, Res-Care" shall require in writing that the related
organization shall make available, upon written request, to Salem and to the Secretary of Health
and Human Resources, or the Comptroller General, or their duly authorized representatives, the
"said subcontract and the books, documents and records of the related organization that are
necessary to verify the nature and extent of the costs of the services provided under the said
subcontract. The subcontract shall require that such access shall be provided until the expiration
of four (4) years after the services are furnished under the contract.
20. Health Insurance Portability and Accountability Ad of 1996. In order to
comply with the Health Insurance Portability and Accountability Act of 1996 ("mPAA"), and
regulations promulgated thereunder, including the Standards for Privacy of Individually
Identifiable Health Information and the Security Standards for the Protection of Electronic
Protected Health Information at 45 C.F.R. Parts 160 and 164 (collectively "Privacy and
Security Regulations"), the parties agree to execute and deliver the Agreement attached hereto
as Schedule 20 on or before the Effective Date.
21. Parties Bound. The provisions of this Agreement shall be binding upon the
parties hereto and their respective successors and assigns. Except as specifically provided herein,
no assignment of rights or delegation of duties shall relieve either party, as the case may be, of its
obligations hereunder. Except as specifically provided herein, neither party may assign its rights
or delegate its duties under this Agreement without the prior written consent of the other party;
provided that a party may assign its rights and delegate its duties to any subsidiary or a successor
entity in the event of a merger or a sale of substantially all of the party's assets, if the subsidiary
28

or successor entity assumes all of the party's obligations hereunder, and Salem may collaterally
assign its rights and obligations under this Agreement to Landlord pursuant to the Lease.
22. Attorneys' Fees. In the event it becomes necessary for a Non-Defaulting party to
employ counsel to protect its interests, then the Non-Defaulting Party shall be entitled to receive
"from the Defaulting Party reasonable attorneys' fees for such services, plus all court costs and
other expenses reasonably incurred in the enforcement of the obligations of this Agreement, and
the Defaulting Party shall be liable for those sums and hereby agrees to pay such sums,
23. Severability. In the event any provision hereof shall be modified or held
ineffective by any court in any respect, such adjudication shall not invalidate or render
ineffective the balance ofthe provisions of this Agreement.
24. Entire Agreement; Modification; Waiver. This Agreement constitutes the
entire agreement between the parties with respect to the subject matter hereof and completely
supersedes all prior oral agreements between the parties. AU other agreements with respect to the
subject matter hereof between the parties, whether written or oral, are merged herein. No
supplement, modification or amendment of this Agreement shall be binding unless executed in
writing by the parties hereto. No waiver of any of the provisions of this Agreement will be
deemed, or will constitute a waiver of any other provision, whether or not similar, nor will any
waver constitute a continuing waver. No waiver will be binding unless executed in writing by the
party making the waver.
25. Notices. All notices, requests, demands and other communications required or
permitted to be given or made under this Agreement shall be in writing and shall be deemed to
have been given (i) on the date of delivery personally, (ii) on deposit in the United States mail,
postage prepaid by registered or certified mail, return receipt requested, or (iii) on delivery to
Federal Express or United Parcel Service, cost prepaid, for next day delivery, to the appropriate
29

party at the following addresses (or at such other address as shall hereafter be designated by any
party to the other party by notice given in accordance with this Section):
To Salem: Lisbeth C. Evans

8 West Third Street, Suite M-7
Winston Salem, NC 27101
With copy to: George E. Hollodick

110 South Stratford Road, Suite 500
Winston-Salem, NC 271 04
To Res-Care: Pat Kelley

Chief Operating Officer, Res-Care, Inc.
With a copy to: Steve Reed

Chief Legal Officer, Res-Care, Inc.
26. Execution in Countemarts; Facsimile or Email Delivery. This Agreement may
be executed in multiple counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same document. Signature by facsimile transmission or
email of scanned .PDF copies shall be binding as though an original signature and the parties
shall follow delivery of signature by facsimile or email with delivery of the original signature
within a reasonable time.
27. Further Assurances. The parties each hereby agree to execute and deliver aU of
the agreements, documents, and instruments required to be executed and delivered by them in
this Agreement and to execute and deliver such additional instruments and documents and to
take such additional actions as may reasonably be required from time to time in order to
effectuate the transactions contemplated by this Agreement.
30

28. Exhibits. The Exhibits attached hereto constitute a part of this Agreement and are
incorporated herein by reference in their entirety as if fully set forth in this Agreement at the
point where first mentioned herein.
·29. Tense. Captions. In construing this Agreement, whenever appropriate, the
singular tense shall also be deemed to mean the plural, and vice-versa, and the captions
contained in this Agreement shall be ignored.
30. No Third Party Rights. Except as may otherwise be expressly provided herein,
the provisions of this Agreement shall not entitle any person not a signatory hereto to any rights
or reliance hereunder or in respect hereof, as a third party beneficiary or otherwise, it being the
specific intention of the parties herein to preclude any and all such persons non-signatory hereto
from such rights.
31. Governing Law. This agreement shall be construed, interpreted, and enforced in
accordance with the substantive laws of the State of Florida.
32. Survival. The provisions of Sections See), 13, 14, 15, 17, 18,19,20,22,25,27,
30 and 34 hereof shall survive the termination, for any reason, of this Agreement, in accordance
with their respective terms.
33. Salem Termination Rights. Notwithstanding the foregoing in the event of (i) a
sale by Salem. and/or Landlord of its respective interest in anyone or more Facilities (which may
include all Facilities) to an individual or entity that is not an affiliate of Salem or Landlord, or (ii)
the occurrence of an event of casualty or condemnation of any Facility such that such Facility is
no longer operable and Landlord and Salem, in their discretion, elect not to reconstruct such
Facility, from and after such date, such Facility (Facilities) shall he excluded hereafter.
In the event of a bona fide offer from a third party acceptable to Salem and/or Landlord
to purchase anyone or more Facilities from Salem and/or Landlord, Res-Care shall be given
31

notice within three (3) business days. Res-Care shall then be given the opportunity to purchase
on the same terms and conditions offered by the third party by giving Salem notice of its
acceptance within fifteen (1-5) business days. If Res-Care does not accept the offer or does not
continue as manager of the Facilities, Res-Care shall cooperate with such party which shall
succeed Salem as the operator of such Facility (Facilities). Additionally, upon payment of the
Res-Care Obligations. Res-Care shall execute such document and/or authorize the filing of such
UCC Financing Statement requested by Salem in order to terminate any security interest in favor
of Res-Care related to any asset of Salem (including accounts) used or generated in connection
with such Facility (Facilities).
34. No Personal Liability. No officer, director, shareholder and/or employee of any
party shall have any liability to the other party in the event of a default by any party hereto,
notwithstanding any theory of law which allows "piercing the corporate veil."
35. Amend and Restate. The parties agree that this Agreement amends and restates
in the entirety that certain Management Agreement between the parties executed on or about
June 30, 2013.
36. Letter Agreement. Salem and Res-Care agree that that certain Letter Agreement
between the parties dated June 27, 2013 is null and void and of no further force or effect.
SEPARATE SIGNATURE PAGE FOLLOWS
f::
..--
,.
32

SALEM:
BY~~
Its: ~
Date:
RES-CARE:
RES-CARE, INC.
By:
Its: Patrick Kelley, Chief Operating Officer
LANDLORD;
~~:~-------
Date:
[FOR PURPOSES OF SECTION 33 ONL YJ
=
BTM:542316Y4

r

MANAGEMENTAGREEMmNT
SALEM:
By;
Its:
Date:
RES·CARE:
RES·CARE, lNC.
By;
Its: erating Officer
LANDLORD:
By:
Its:
Date:
[FOR PURPOSES OF SECTION 33 ONLY]
BTM;S~2316v4

Schedule 20
[Privacy and Security]
BTM:S423l6v4
Case No. -------------- __ -
v.
********
AFFIDAVIT OF KEVIN G. FISHER
1. I, Kevin G. Fisher, am a resident of the Conunonwealth of Kentucky, am oflegal
age, and am competent to make this Affidavit.
2. I have personal knowledge regarding the following facts I offer and could testify
thereto if called as a witness.
3. At all times relevant to this proceeding, I have served as Assistant Treasurer of
ResCare, Inc. ("ResCare").
4. ResCare is a Kentucky corporation with its principal place of business located at
9901 Linn Station Road, Louisville, Kentucky 40223.
5. Pursuant to the Amended and Restated Management Agreement between Salem
Homes of Florida, Inc. ("Salem Florida") and ResCare executed on December 31,2013, certain
revenues from operations were to be deposited into a bank account in Salem Florida's name at a
financial institution selected by ResCare (and approved by Salem Florida), for the payment of
certain agreed items.
EXHIBIT
I B
6. The document attached hereto as "Exhibit A" is a true and correct copy of the
account statement for the above-refenced bank account, maintained at Bank of America in Dallas,
Texas, for the period December 30, 2017 through January 31,2018,
7. As of January 1,2018, the approximate balance in the above-referenced account
was $166,872.49.
Under penalty of perjury, Ideclare that the facts stated herein are true.
KEVIN 6. FISHER
COMMONWEALTH OF KENTUCKY )
)
COUNTY OF JEFFERSON )
SWORN to and SUBSCRIBED before me, the undersigned authority, on the 1QLth day
of April, 2018, by Kevin G. Fisher.
My Commission Expires: 1?-d2~-1 Q
/oc~~~
if' ~ .~'i Notary Public, 10 No. 517922
~~kMyState at Large, Kentucky
">,~, ('«;"lmlssion Expiw., on Aug, 22,2018
>;~!>
~~~~~.ere~~~~

Bank of America
H
CUSTOMER CONNECTION
- This Statement:
customer Service
1-888-400-9009
RES-CARE INC
SALEM HOMES OF FLORIDA, INC
9901 LINN STATION RD Page 1 of 4
LOUISVILLE KY 40223-3808
Effective February 2018, the Deposit Agreement and Disclosures booklet which
governs your account has been updated. The account will continue to be
sUbject to agreement as updated from time to time. Please contact your
account rewesentative to receive the updated version. Continued use of this
account Indicates your agreement to be bound by the terms and conditions
contained in this booklet.
ANAL VZED CHECKING

Account Summary Information
Statement Period 12/30/2017 - 01/31/2018 statement Beginning Balance 166,872.49
Number of Deposits/Credits 14 Amount of Deposits/Credits 743,636.46
Number of Checks 1 Amount of Checks 52,701.34
Number of Other Debits 9 Amount of other Debits 797,159.51
Statement Ending Balance 60,648.10
Number of Enclosures o
Service Charge .00
Date Customer Bank
Fosted Reference Amount Description Reference
PMT INFO:TRN*1*059403925*1593452939
PMT INFO:TRN*1*059403876*1593452939
01/25 47,074.85 STATE OF FLORIDA OES:HCCLAIMPMT ID:012075300 24014785552
PMT INFO:TRN*1*059403877*1593452939
INON:SALEM HOMES OF FLORIDA CO 10:1593452939 CCD
PMT INFO:TRN*1*059403941*1593452939
INDN:SALEM HOMES OF FLORIDA CO 10:1593452939 CeD
PMT INFO:TRN*1*OS9403929*1593452939
PMT INFO:TRN*1*059403879*1593452939
01/25 54,454.46 STATE OF FLORIDA OES:HCCLAIMPMT 10:012390800 24014785574
PMT INFO:TRN*1*059403940*1593452939
01125 56,067.79 STATE OF FLORIDA DES:HCCLAIMPMT 10:012374200 24014785564
INDN:SALEM HOMES OF FLORIDA CO 10:1593452939 CCO
PMT INFO:TRN*1*059403927*1593452939
PMT INFO:TRN*1*059403878*1593452939
PMT INFO:TRN*1*059403928*1593452939
EXHIBIT

H
CUSTOMER CONNECTION
-
This Statement:
customer Service
1-888-400-9009
RES-CARE INC
-
Page 2 of 4
ANALYZED CHECKING
Date Customer Bank

01/25 57,418.30 STATE OF FLORIDA DES:HCCLA1MPMT 1D:012386400 24014785572
1NDN:SALEM HOMES OF FLORIDA CO 10:1593452939 CCD
PMT INFO:TRN*1*059403938*1593452939
PMT 1NFO:TRN*1*059403942*1593452939
INDN:SALEM HOMES OF FLORIDA CO 1D:1593452939 CCD
PMT INFO:TRN*1*059403874*1593452939
01/25 63,597.32 STATE OF FLORIDA DES:HCCLA1MPMT 10:012074200 24014785548
INON:SALEM HOMES OF FLORIDA CO 10:1593452939 CCO
PMT INFO:TRN*1*059403875*1593452939
Withdrawals and Debits
Checks
Check Date Bank Check Date Bank
Number Amount Posted Reference Number Amount Posted Reference
50123514 52,701.34 01/16 4992289417
other Debits
Date Customer Bank
Posted Reference Amount Descr.iption Reference
01/02 WIRE T¥PE:BOOK OUT DATE:180102 TIME:1247 ET 00370353829
TRN:2018010200353829 RELATED REF:1812B18148DWOS87
BNF:ROBYN DENNY MACKAY REVOC T ID:005501793549
PMT DET:Rent for Office Space for Salem Homes of F
lorida
TRN:201B010200353826 RELATED REF:1B12B1935G6S1M19
BNF:RESCARE INC 10:004427591059 PMT DET:Promissory
Note Installment number 49
TRN:20180103003B9592 SERVICE REF:012831
PMT DET:1813A46178VSOK5017K Payroll
TRN:201B010300389588 SERVICE REF:012856
BNF BK:BRANCH BANKING AND TRUS 10:053101121
PMT DET:1813A49150MT0937Home Office 22K

H
CUSTOMER CONNECTION
-- This statement: 01/31/2018
Customer Service
1-888-400-9009
RES-CARE INC
Page 3 of 4
-
ANAL VZED CHECKING
Other Debits - continued
Date customer Bank

Posted Reference Amount Descripti.on Reference
TRN:201B010300389591 SERVICE REF:012864
BNF:CLARK EVANS AND TATE, INC. 10:0005104428888
BNF BK:BRANCH BANKING AND TRUS 1D:053101121
PMT DET:1813A475868XOU16Home Office Expense
TRN:2018010300389594 SERVICE REF:012855
BNF:CLARK EVANS AND TATE, INC. ID:0005104428888
BNF BK:BRANCH BANKING AND TRUS 10:053101121
PMT DET:1813A503l81TIA89SVFL Rent
01/16 148.37 Account Analysis Fee 08790013985
ANALYSIS CHARGE DECEMBER BILLING FOR
PARENT 10424-99999
01/26 350.00 WIRE TYPE:WIRE OUT DATE:180126 TIME:1640 ET 00370382220
TRN:2018012600382220 SERVICE REF:013381
BNF;993 RESCARE, INC. F/B/O SA 1D:2000036899128
BNF BK:WELLS FARGO BANK, N.A. 10;121000248
PMT DET:181QE38360EDOI94Transfer client liability
TRN;2018013100472646 RELATED REF: 181VE21050UNOQ15
BNF:RESCARE INC ID:004427591059 PMT DET:Monthly Tr
ansfer
Dail Balances
Date Ledger Balance Collected Balance Date Ledger Balance Collected Balance
12/29 166,872.49 166,872.49 01/25 746,786.75 746,786.75
01/02 H2,807.30 142,807.30 01/26 746,436.75 746,436.75
01/03 56,000.00 56,000.00 01/31 60,648.10 60,648.10
01/16 3,150.29 3,150.29

H
CUSTOMER CONNECTION
-
This Statement;
Customer Service
1-888-400-9009
RES-CARE INC
-
Page 4 of 4
IMPORTANT INFORMATION
CHANGE OF ADDRESS, Please call us at the customer service telephone number listed on
the front of this statement to tell us about a change of address.
TERMS AND CONDITIONS, All deposits to, withdrawals from, or other transactions pertaining
to your account(s) are subject to the terms and conditions of the agreement you received
when you opened your account and any amendments thereto. Amendments to the agreement
may be made from time to time in the manner stated therein.
IN CASE OF ERRORS OR QUESTIONS ABOUT YOUR ELECTRONIC TRANSFERS, If you think your
statement or receipt is wron~ or if you need more information about an electronic
transfer (e.g., ATM transact~ons, direct deposits or withdrawals, point-of-sale
transactions) on the statement or receipt, telephone or write us at the address or
number listed on the front of this statement as soon you can, We must hear from
you no later than 60 days after we sent you the FIRST statement on which the error
or problem appeared.
* Tell us your name and account number
* Describe the error or the transfer you are unsure about, and ex~lain as clearly as
you can why you believe there is an error or why you need more ~nforrnation
* Tell us the dollar amount of the suspected error.
For consumer accounts used primarily for personal, family or household purposes, we
will investigate your complaint and will correct any error promptly. If we take
more than 10 business days (20 business days if you are a new customer, for electronic
transfers occurring during the first 30 days after the first deposit is made to your
account), to do th~s, we will re-credit your account for the amount you think is in
error so that ¥ou will have use of the money during the time it takes us to complete
our investigat~on.
For other accounts, we investigate, and if we find we have made an error, we will make
the appropriate adjustment to your account at the conclusion of our investigation.
DIRECT DEPOSITS,
If you have arranged to have direct deposits made to your account at least once every
60 days from the same person or com~any, you may call us at the telephone number listed
on the front of this statement to f1nd out if the deposit was made as scheduled.
REPORTING OTHER PROBLEMS,
You must examine your statement carefully and promptly. You are in the best position to
discover errors and unauthorized transactions on your account. If you fail to notify us
in writing of suspected problems or unauthorized transactions within the time periods
specified in the aeposit agreement (which periods are no more than 60 days after we make
the statement available to you and in some cases are 30 days or less), we are not liable
to you for, and you agree not to make a claim against us for the problems or unauthorized
transactions,

ST A TE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
COUNTY OF FORSYTH 18 CVS 834
SALEM HOMES OF FLORIDA, INC., )

)
Plaintiff, )
)
v. )
NOTICE OF FILING
)
NOTICE OF REMOVAL
RES-CARE,lNC., )
)
Defendant. )
)
TO: THE CLERK OF THE FORSYTH COUNTY GENERAL COURT OF JUSTICE

Pursuant to 28 U.S.C. §1446(d), defendant Res-Care, Inc. ("ResCare") files with you a
copy (attached hereto) of its Notice of Removal to the United States District Court. This Notice
of Removal has been filed in the United States District Court for the Middle District of North
Carolina, Winston-Salem Division.
Filing this Notice with the Clerk of the Court removes this action from this Court to the
United States District Court, "and the state court shall proceed no further unless and until the
case is remanded." 28 U.S.c. § 1446(d). ResCare's compliance with the form and procedure of
removal automatically removes this case from this Court to Federal District Court, and such
removal .stays any further action in this Court until further order from the Federal District Court.
See id.; South Carolina v. Moore, 447 F.2d 1067, 1073 (4th Cir. 1971).
EXHIBIT
I 0
Respectfully submitted this the 13 til day of April,
2018,
SHUMAKER, Loop & KENDRfCK LLP
101 South Tryon Street

Suite 2200
Charlotte, NC 28280
(704) 945-2187
Counselfor Defendant Res-Care. Inc.
Ifurther certify that on April 13th, 2018, r served plaintiff Salem Homes of Florida, Inc.,
Peter 1. Juran
P.O. Drawer 25008
pjj@blancolaw.com
Counselfor PlaintiffSalem Homes of Florida, Inc.
--c------~----------------------------

JS 44 (Rev, 06/17)
CIVIL COVER SHEET
The IS 44 civil cover sheet and the information contained herein neither replace nor supplement the filing and service of pleadings or other papers as required by lAW, except as
provided by local rules of court. TIllS form, approved by the Judicial Conference of the United States in September 1974, is required for the use of the Clerk of Court for the
PlIllJOSC of initi:lting the civil docket sheet. (SEE INSTRUCTIONS ON NEXT P,IG£. OF 71IIS FORA-/)
I, (11) PLAINTIFFS DEFENDANTS

Salem Homes of Florida, Inc, Res-Care, Inc,
(b) County of Residence ofFirst Lisled Plainlilf For!.lyJh gOY!J!YJJiQ_,_._ County of Residence of First Listed Defendant )~tf~r§Qn_gQ!-:!!lJYJJSY. _
(EXCEP1' IN us. PUfNTIFF CASES) (IN U.S PlAINTIFF CAS!:.'SONL),}
NOTE: IN L/\ND CONDEMNA TlON CASES, USE THE LOCATION OF
THE TRACT OF LAND INVOLVED.
(C) JA1IOmeys (Brm N"me....;J(/dIi~ssba/l(1 Tdcli!utre Number) Attorneys flf Klloll'lIi

Pelet .uuran- Blanco, I acxa ery IX Matamoros, P,A, Steven A. Meckle'r - Shumaker, Loop & Kendrick LLP
P.O. Drawer 25008, Winston-Salem, NC 27114-5008 101 South Tryon Street, Suite 2200, Charlotte, NC 28280
(336) 293-9000 (704) 945·2187
II. BASIS OF ,JURISDICTION (P/lICCdl1 "X"i"Ollc/JaxOtrly) III. CITIZENSHIP OF PRINCIPAL PARTIES {Ptoce an .~\''' /lfOll<Buxjill'PM/ur(lr
(For DiVt!t"sil), Cases On(ll) and OIlL' Box for DefelldmrO
o I U,S, Government o 3 Federal Question PH PD nF D~
PlaillliO' (U.S. G~J\'i!I'l}mjJl1I Not" ParlY) Cit'7.cn of This State 0 I o 1 Incorporatcd or Principal Place )!l 4 0 4
of Business In This Stale
o U.S, Govcrumcnt M4 Diversity Citizen of Another State o 2 0 2 Incorporated and Principal Plac" o 5 ~5
Defendant (JII(/;cale CiliZtlJl,thip of PIII";f!S ill Item Iff) of'Busincss III Another SI.le
Citizen or Subject of a a 3 0 3 Foreign Nation o 6 06

Ford III Countrv
IV N t\ TURE , OF SUIT (Ptace 1111 "X" ill one Box Onty) Click here for: Nature of Suit COl e Descriptions.
·.:.·:.'c c.:' :CONTRACT' .,:,.. -, ":TORTS" . ... '.... ::;. .... , 'I'Onn:ITURElPENAI/rv ,:',. : ,:,lIANKRUPTCY: ':,', "~ ; onmaS'I'ATUTES ' .
0 I I0 tnsuruece PERSONAl. INJURY PERSONAL INJURY o 625 Drug Related Seizure o 422 Appeal 28 USC 15R a 375 False Claims Act
0 120 Marine o 310 Airplane o 365 Pcrsoual lnjury_ of'Propcrty 21 USC 881 o 423 Wirhdruwul o 376 Qui ram(31 USC
0 DO Miller ACI o 315 Airplane Product Product Liability 06900111« 28 USC 157 3729(a»
0 140 Negotiable Instrument Liability o 367 Healtn Card o 400 Siale Reapportionment
0 150 Recovery of Overpayment o J~I) ".saull, Libel & Plmnnaceuticul . PROPllRTY RIGl 1'S o 410 Antitrust
& Entorccmcnt of J udgmcrn Slander Personal Injury o 820 Copyrights o 43111lanks nnd Hunking
0 151 Medicare ACI o 33ll federal Emplnycrs' Prod""1 LiabililY o 830 Patent o 450 Commerce
0 152 Recovery of Dc(;mlt<'ti liobililY o 368 Aspestos Personal o 835 Patent . Abbreviated o 460 Deportation
Student Loans 0340 M.rine Injury ProdUCI New Drug Application o 410 Rocketeer Influenced and
(Exclu_dcs Veterans) a 145 Marine Product liability a 840 Trademark Corrupt Organizations
0 15] Recovery ofO\'el]1"YIl1,,"1 Liability PEnSONAL PROPERTY tAnOR<· "'SOCIALSECURJ'IY" . o 480 Consumer Credit
of'Vcicrsu's Benefits o 350 Motor Vehicle o 370 Other fraud o 710 Fair l.abor Standards o 861 HlA (1J9~ff) o 490 Cable/Sal TV
o 160 Stockholders' Suits o JSS Motor Vehicle o 371 Truth in Lending Act o 862 Block Lung (923) o 850 SceuriticsiCommodhic,u
ll( 190 Other Contract Product Liubil ilY o 380 Other Personal o 720 Labor/Managcrucnt o 863 DIWClDIWIV (405(g» Exchange
D 195 Contract Product Liability a 360 Other Pcrsonat Property Damage Relations o 864 ssio Tille XVI o 890
Other Statu lory Actions
0 196 Franchise h~ury a 385 Propcny Damage o 740 Railway labor Act o 865 RSI (405(g)) o 891
AgriCUltural Acts
a .162 Pcrsonal lniury• Product Liebillty o 751 Family and MediC'JI o 893
Fnvircmucntnl Mailers
Medical Malpracricc leave Act a 895
Freedom or lnfomuuion
.. ' . 'REAL I'ROPEltI:V' . "'CIVil/nIGHTS' .: .... ,.'RlSONER PETITIONS o 790 Other Labor Litigation .:, :FEDlmALTAXSUITS::", Act
o 2](1 Lind Condcmnmlon o 440 Other Civil Rights Halle", Corpus! o 791 Employee Retirement o 87U Tuxes (U.S. Plaimiff a 896 Arbitration
a 220 foreclosure 0441 Voting o 463 Alien Detainee Income Security ACI Or Defendant) o 899 Administrative Procedure
o lJ.O Relit Lease & Ejectment o 442 Bmployrncnt o 510 MOl"'"' 10 Vacate a 871 IRS- Third Pan)' Act/Review or Appeal of
o 240 Torts 10 Land o 443 Housing/ Sentence 26 USC 7609 Agency Decision
o 245 Tort Product Liabihry Accummodations o 530 General o 950 Constituticnality of
o 290 All Other Real Property o 445 Amcr, wlDisahili1ics . o 535 Death Penally .:,_c ,.:. IMMIG,RA l'JON, , -v , Stall!" Stntutes
Employment Other: o 462 Nnturulizarion Application
o ,t46 Amcr. wiDisabilities _ o 540 Mandamus & Other o 465 Other lmmigrarion
OdICI' o 550 Civil Rights Actions
o 448 Education o 555 Prison Condition
o 560 Civil Dctnincc •
Conditions of
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V. ORIGIN (Ptace on "X't in One BosOnty)

a I Original ~2 Removed from a J Remanded from o 4 Reinstated or o 5 Transferred from o 6 Multidistrict o 8 Multidistrict
Proceeding Stare Court Appellate Court Reopened Another District Litigation _ Litigation _
(.,pl'eIM Transfer Direct File
Cite the U,S, Civil Statute under which YaH are tiling (Do 1101 cifejur/,,,Ih,tlmlnl stotntes tmless diversity);
VI CAUSE OF \CTION~2~8~U~,S~.~C~,1~3~3~2~aL_ -----------
, - f Brief description of cause:
Pur orted claims for breach of contract, accountin and conversion
VII, REQUESTED IN o CHECK IF THIS IS A CLASS ACTION DEMAND S CHECK YES only itdemanded in complaint:
COMPLAINT: UNDER RULE 23, F,R,Cv.!', JURY DEMAND; 0 Yes )(No

VIII, RELATED CASE(S)
(Set! insl"U[,liOiJs):
IF ANY JUDGE DOCKET NUMBER
DATE
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RECEIPT # AMOUNT APPl YING IFP JUDGE MAG,JUDGE

Salem Homes of Florida Inc. v. Res-Care Inc. 4/13/18 Notice of Removal To Middle District Federal Court (Winston-Salem, NC) With With 2/14/18 Complaint Attached

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Salem Homes of Florida Inc. v. Res-Care Inc. 4/13/18 Notice of Removal To Middle District Federal Court (Winston-Salem, NC) With With 2/14/18 Complaint Attached

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UNITED STATES DISTRICT COURT

MIDDLE DISTRICT OF NORTH CAROLINA

SALEM HOMES OF FLORIDA, INC. PLAINTIFF

RES-CARE, INC. DEFENDANT

Defendant Res-Care, Inc. ("ResCare"), by counsel, pursuant to 28 U.S.C. §§ 1441 and

Statement of the Case

1. On or about February 14,2018, Plaintiff Salem Homes of Florida, Inc. ("Salem

CVS 834 (the "State Court Action").

2. ResCare first received a copy of Salem Florida's Complaint on March 15,2018,

(30) days ResCare's deadline to file a responsive pleading.

Case 1:18-cv-00290 Document 1 Filed 04/13/18 Page 1 of 5

damages and a "full accounting of all sources and uses of funds."

6. Pursuant to 28 U.S.C. § 1446(b), this Notice of Removal is timely, as it is being

Diversity Jurisdiction Under 28 U.S.C. § 1332(a)

a. Salem Florida's Complaint admits that Salem Florida is a Florida corporation

b. As Salem Florida has recognized in its Complaint and otherwise, ResCare is a

Case 1:18-cv-00290 Document 1 Filed 04/13/18 Page 2 of 5

amount "expected to be in excess of $20,000.00," and has been damaged separately by

be in excess of $20,000.00." Complaint ~~ 12, 17.

All Procedural Requirements for Removal Have Been Satisfied

Case 1:18-cv-00290 Document 1 Filed 04/13/18 Page 3 of 5

of the Complaint by ResCare. Accordingly, removal is timely in accordance with 28 U.S.C.

§ 1446(d), a copy of which is attached hereto as "Exhibit C."

Florida as required by 28 U.S.C. § 1446(d).

defenses, motions and pleas.

Case 1:18-cv-00290 Document 1 Filed 04/13/18 Page 4 of 5

SHUMAKER, Loop & KENDRICK LLP

/s/ Steven A. Meckler

/s/ Steven A. Meckler

Case 1:18-cv-00290 Document 1 Filed 04/13/18 Page 5 of 5

To Each of The Defendant(s) Named Below:

A Civil Action Has Been Commenced Against You!

AOC-CV-100, Rev. 6/16 EXHIBIT

STATE OF NORTH_C1\ltOLlNA I: f j r: rlN THE GENERAL COURT OF JUSTICE

Plaintiff, Salem Homes of Florida, Inc. ("Salem"), complaining of Defendant

Res-Care, Inc. eRes~Care"), alleges and says as follows:

oftbis Complaint live and/or work in Winston-Salem, North Carolina.

2. On information and belief, Defendant Res-Care is a corporation

organized and existing under the laws of the State of Kentucky.

3. Salem is the tenant under a certain Lease Agreement of certain real

4. Res-Care, among its other businesses, is a manager of residential

Salem pursuant to an Amended and Restated Management Agreement dated

December 1, 2013, a true copy of which is attached as Exhibit A and incorporated

herein as if fully set forth (the "Management Agreement"). The Management

meetings of the parties in Winston-Salem, North Carolina.

5. In general terms, Res-Care's obligations under the Management

Agreement, insofar as it relates to the Facilities, involved management of the day-

of all staff, intake maintenance care of residents, preparation (for approval by

goods and services provided (as well as private reimbursements).

6. The Management Agreement provides for the handling of funds and

7. Over the course of the term of the Management Agreement, Res-Care

failed in multiple particulars to honor its obligations under the Management

Agreement. Specifically, and without limitation as to other breaches which may

become apparent during discovery, Res-Care has failed:

(a) To comply with the budgets agreed to on an annual basis

between Salem and Res-Care.

(b) To satisfy requirements of the State of Florida to fund certain

expense categories in sufficient amounts to qualify for Medicare reimbursement.

(c) To pay the Lease obligations of the Facilities pursuant to the

senior obligations of Salem set forth in the Waterfall.

(e) To pay itselffunds to return the working capital advances it

had made only as permitted by the Management Agreement.

(g) To perform all accounting, bookkeeping and record keeping F=