PURCHASE AND SALE AGREEMENT

 

THIS PURCHASE AND SALE AGREEMENT (“Agreement”) is made and entered into as of
this 10th day of April, 2012 (the “Effective Date”), by and among the following
parties:

 

SELLER: Sheridan Care Center LLC, dba Sheridan Care Center;       Sheridan
Properties LLC;       Fernhill Estates LLC, dba Fernhill Estates;       Fernhill
Properties LLC;     and Pacific Gardens Estates LLC, dba Pacific Health and
Rehabilitation (“Pacific Gardens”).     BUYER: Cornerstone Healthcare Real
Estate Fund, Inc., a Maryland corporation, or its assigns.

 

RECITALS

 

A.By document dated January 31, 2012, Healthcare Retirement Solutions LLC as
Buyer and Dover Management, Inc., the representative and agent of Sellers,
entered into a Letter of Intent.

 

B.This Purchase and Sale Agreement replaces the obligations of the parties, if
any, provided in the Letter of Intent.

 

C.It is understood that the actual Sellers will be Sheridan Care Center LLC, dba
Sheridan Care Center as the operational entity, and Sheridan Properties LLC as
to the real property located in Sheridan, Oregon, and Fernhill Estates LLC, dba
Fernhill Estates as the operating entity and Fernhill Properties LLC as the
property owner of the facility located in Portland, Oregon, and Pacific Gardens
as to the operating entity located in Tigard, Oregon (the “Tigard Facility”).

 

D.Pacific Gardens does not currently own the Tigard Facility, but Pacific
Gardens has an option to purchase the Tigard Facility (the “Tigard Option”)
pursuant to that certain Option Agreement (the “Tigard Option Agreement”), dated
April 1, 2010, by and between Tigard Investment Group, LLC (the “Tigard Owner”),
as optionor, and Pacific Gardens, as optionee. At the Closing, Pacific Gardens
will assign the Tigard Option to Buyer and will obtain all consents required
from the Tigard Owner in order to assign the Tigard Option to Buyer and allow
Buyer to simultaneously exercise and close on the Tigard Property upon such
assignment. Provided Pacific Gardens satisfies the requirements in the prior
sentence, Buyer will immediately exercise the Tigard Option and acquire the
Tigard Facility concurrently with the Closing under this Agreement. The
consideration to Seller for the acquisition of the Tigard Option is the
difference between the appraised value of the Tigard Facility and the $3,060,000
purchase price which Buyer will be obligated to pay the Tigard Owner for the
Tigard Facility pursuant to the terms of the Tigard Option Agreement. The
$3,060,000 that Buyer is obligated to pay the Tigard Owner shall be deducted
from the Purchase Price that Buyer has to pay to Seller pursuant to this
Agreement.

 

 

 

 

E.Operational Sellers in this Agreement are Sheridan Care Center LLC, dba
Sheridan Care Center, Fernhill Estates LLC, dba Fernhill Estates, and Pacific
Gardens. Real property Sellers in this Agreement are Sheridan Properties LLC and
Fernhill Properties LLC.

 

F.The parties intend this Agreement to be the definitive agreement contemplated
by the Letter of Intent.

 

Therefore, in consideration of the mutual representations, warranties and
promises of the parties, the parties enter into the following:

 

AGREEMENT

 

1.           Purchase and Sale. On the terms and conditions set forth herein,
Seller shall sell, assign, transfer, convey and deliver to Buyer and Buyer shall
purchase from Seller its interest in the following, which are hereinafter
referred to collectively as the “Property”:

 

(a)          The improvements located on the Real Property, consisting of three
(3) skilled nursing facilities as described in Schedule 1(a) attached hereto
(singularly a “Facility” and collectively, the “Facilities”), owned by Seller,
and all right, title and interest of Seller in and to the items described in
this paragraph one (a) through (f) herein;

 

(b)          All of the real estate on which each Facility is situated, together
with all tenements, easements, appurtenances, privileges, rights of way, and
other rights incident thereto, all building and improvements and any parking lot
to such Facility located thereon situated in the State of Oregon, which is
described in Exhibit A attached hereto and made a part hereof by this reference
(collectively, the “Real Property”);

 

(c)          All of the tangible personal property, inventory, equipment,
machinery, supplies including drugs and other supplies, spare parts, furniture,
furnishings, warranty claims, contracts, including but not limited to supply
contracts, contracts rights, intellectual property (except for trademarks and
service marks of Dover Management or a related entity using the name “Dover”),
including but not limited to patents, trade secrets, and all rights and title to
the names under which each Facility operates, mailing lists, customer lists,
vendor lists, resident files, books and records owned by the Seller, who may
retain copies of same, and shall have reasonable access to such books and
records after the Closing as required for paying taxes and responding to legal
inquiry, as such personal property is described in Schedule 1(c) attached hereto
(collectively, the “Personal Property”);

 

(d)          All transferable licenses, permits, certifications, assignable
guaranties and warranties in favor of Seller, approvals or authorizations and
all assignable intangible property not enumerated herein which is used by the
Seller in connection with each Facility, and all other assets whether tangible
or intangible; provided, that Seller shall retain all licenses required to be
retained by Seller in order to operate the current business within each
Facility;

 

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(e)          All trade names or other names commonly used to identify each
Facility and all goodwill associated therewith, excluding any name containing
“Dover”, which shall remain the sole property of Seller. The intent of the
parties is to transfer to Buyer only such names and goodwill associated with
each Facility itself and not with Seller or any affiliate of Seller, so as to
avoid any interference with the unrelated business activities of Seller;

 

(f)          All telephone numbers used in connection with the operation of each
Facility, and to the extent not described above, all goodwill of Seller
associated with each Facility (the items described in clauses (e) and (f) above
are collectively referred to as “Intangibles”).

 

2.           Excluded Assets. Seller’s cash, investment securities, bank
account(s) and accounts receivable, and deposits attributable and relating to
the operation of each Facility, and Seller’s corporate minute books and
corporate tax returns, partnership records, and other corporate and partnership
records shall be excluded from the Property sold by Seller to Buyer hereunder as
well as Seller’s real property not identified in Schedule 1(a) (the “Excluded
Assets”).

 

3.           Purchase Price; Deposits. The following shall apply with respect to
the Purchase Price of the Property:

 

(a)          The purchase price (the “Purchase Price”) payable by Buyer to
Seller for the Property is Sixteen Million Eight Hundred Thousand Dollars
($16,800,000).

 

(b)          The Purchase Price as allocated to each Facility by Seller is set
forth on Schedule 3 attached hereto and made a part hereof.

 

(c)          Within three (3) business days after this Agreement is fully
executed by the parties, Buyer shall deposit the sum of One Hundred Thousand
Dollars ($100,000) as an earnest money deposit (“Initial Deposit”) with Lawyers
Title Company, 4100 Newport Place Drive, Suite 120, Newport Beach, California
92660, Attention: Debi Calmelat (“Title Company” or “Escrow Agent”), and Escrow
Agent will deposit it into an interest-bearing account with the interest for the
benefit of Buyer. In addition, if Buyer has not terminated this Agreement on or
before the expiration of the Due Diligence Period (defined below), then Buyer
shall deposit with Escrow Agent an additional non-refundable, except as
otherwise expressly provided herein, One Hundred Thousand Dollars ($100,000)
(“Non-Refundable Additional Deposit”) within three (3) business days following
the expiration of the Due Diligence Period (the Initial Deposit, Non-Refundable
Additional Deposit and (if applicable) the Non-Refundable Extension Deposit (or
applicable portion thereof), as defined below, are collectively referred to as
the “Deposits”). Interest earned on the Deposits shall be paid to the party
entitled to such amount as provided in this Agreement.

 

(d)          At Closing, the Deposits shall be credited against the Purchase
Price and Buyer shall deposit the balance of the Purchase Price in Cash to the
Escrow Agent.

 

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(e)          Buyer shall not assume or pay, and Seller shall continue to be
responsible for, any and all debts, obligations and liabilities of any kind or
nature, fixed or contingent, known or unknown, of Seller not expressly assumed
by Buyer in this Agreement. Specifically, without limiting the foregoing, Buyer
shall not assume any obligation, liability, cost, expense, claim, action, suit
or proceeding pending as of the Closing, nor shall Buyer assume or be
responsible for any subsequent claim, action, suit or proceeding arising out of
or relating to any such other event occurring, with respect to the manner in
which Seller conducted its business at the Facilities. In addition, Buyer shall
not assume successor liability obligations to Medicare, Medicaid, HMO or any
other third party payer programs or be responsible for recoupment’s, fines, or
penalties required to be paid to such parties as a result of the operation of
the Facilities by Seller or Seller’s operating entity (“Operator”).

 

(f)          Each party shall have the right to allocate the Purchase Price in
accordance with their own accounting standards, but neither party’s allocation
of the Purchase Price shall be binding on the other party to this Agreement.
Buyer shall provide Seller with copies of all final appraisals relating to the
property purchased by Buyer pursuant to this Agreement. Such appraisals shall be
provided within five (5) days of receipt by Buyer.

 

4.           Closing. The closing of the purchase and sale transactions pursuant
to this Agreement (“Closing”) shall occur on or before June 29, 2012 (“Closing
Date”); provided, Buyer may unilaterally extend the Closing Date through and
including July 29, 2012 by making a non-refundable payment (subject to the
provisions of Section 13(b)(ii) herein) to Escrow Agent, of One Hundred Thousand
Dollars ($100,000) (“Non-Refundable Extension Deposit”). The Non-Refundable
Extension Deposit shall be applicable to the Purchase Price or, if this
transaction does not close on or before the Closing Date, as extended, then the
Non-Refundable Extension Deposit shall be applied as dictated by the terms of
this Agreement regarding the Deposit. The Closing shall take place through
Seller’s delivery of one or more Warranty deeds in the form attached hereto
marked Exhibit 4, and Buyer’s delivery of cash or immediately available funds
through an escrow agreement (the “Escrow”) to be established with the Escrow
Agent pursuant to form escrow instructions which shall be modified to be
consistent with the terms and provisions of this Agreement, and which shall be
mutually agreed upon by the parties hereto.

 

5.           Conveyance. Title to each Facility shall be conveyed to Buyer by a
Warranty Deed in substantially the same form as Exhibit 4 and bill of sale in
form agreed to by the parties prior to the end of the Due Diligence Period, as
defined herein. Fee simple indefeasible title to the Real Property, and
marketable title to the Personal Property, shall be conveyed from Seller to
Buyer or Buyer’s nominee in “AS-IS, WHERE-IS” condition, free and clear of all
liens, charges, easements and encumbrances of any kind, other than:

 

(a)          Liens for real estate taxes or assessments not yet due and payable;

 

(b)          The standard printed exceptions included in the Title Commitments,
as defined in Section 14(a) herein; unless objected to in writing by Buyer
during the Due Diligence Period;

 

(c)          Such exceptions that appear in the Title Commitments and that are
either waived or approved by Buyer in writing pursuant to Section 14(b) herein;

 

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(d)          Liens or encumbrances caused by the actions of Buyer but not those
caused by the actions of Seller; and

 

(e)          Those matters identified as Permitted Exceptions on the attached
Exhibit B.

 

The items described in this Section 5 are sometimes collectively referred to as
the “Permitted Exceptions.”

 

6.           Buyer’s Due Diligence.

 

(a)          Buyer shall have seventy-five (75) days from the period commencing
from the date Buyer notifies Seller that it has received the requested Due
Diligence material required to complete Buyer’s Due Diligence (the “Due
Diligence Period”)., Seller shall permit the officers, employees, directors,
agents, consultants, attorneys, accountants, lenders, appraisers, architects,
investors and engineers designated by Buyer and representatives of Buyer
(collectively, the “Buyer’s Consultants”) access to, and entry upon the Real
Property and each Facility to perform its normal and customary due diligence,
including, without limitation, the following (collectively, the “Due Diligence
Items”):

 

(i)          Review of vendor contracts (“Contracts”) and leases (“Leases”) to
which each Facility (or the Seller, on behalf of such Facility) are a party, as
set forth on Schedule 8.6 attached hereto;

 

(ii)         Obtain an environmental investigation (including a Phase 1
Environmental Audit);

 

(iii)        Inspection of the physical structure of each Facility;

 

(iv)        Review of current Title Commitments, as defined in Section 14
herein, and underlying documents referenced therein;

 

(v)         Review of ALTA Surveys, as defined in Section 14 herein, for each
Facility;

 

(vi)        Inspection of the books and records of each Facility and that
portion of the Seller’s books and records which pertain to the Facilities;

 

(vii)       Review of the Due Diligence Items, as described in
Schedule 6(a)(vii) attached hereto, to be provided by Seller within five (5)
business days following the Effective Date;

 

(viii)      Complete such other inspections or investigations as Buyer may
reasonably require relating to the ownership, operation or maintenance of the
Facilities;

 

(ix)         View resident files, agreements, and any other documentation
regarding the residents of the Facilities, which review shall in all events be
subject to all applicable laws, rules and regulations concerning the review of
medical records and other types of patient records; and

 

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(x)          Review files maintained by the State of Oregon relating to the
Facilities; and

 

(xi)         Review all drawings, plans and specifications and all engineering
reports for the Facilities in the possession of or readily available to Seller;
and

 

(xii)        Seller will furnish copies of all environmental reports, property
condition reports, appraisals, title reports and ALTA Surveys (or surveys) that
it currently has in its possession.

 

(xiii)       Review copies of currently effective written employment manuals or
written employment policies and/or procedures have been provided to or for
employees.

 

Notwithstanding the foregoing provisions of this Subsection, in the event Seller
fails to deliver all Due Diligence Items listed in Schedule 6(a)(vii) on or
before the time set forth in Subsection (a)(vii) above, then the Due Diligence
Period shall be deemed extended on a day-to-day basis until Seller completes
such delivery of the Due Diligence Items to Buyer.

 

(b)          Buyer agrees and acknowledges that: (i) Buyer will not disclose the
Due Diligence Items and/or the contents thereof or any other materials received
from Seller pursuant to this Agreement (the “Property Information”) or any of
the provisions, terms or conditions thereof, or any information disclosed
therein or thereby, to any party outside of Buyer’s organization, other than
Buyer’s Consultants; (ii) the Property Information is delivered to Buyer solely
as an accommodation to Buyer; (iii) Seller has not undertaken any independent
investigation as to the truth, accuracy or completeness of any matters set out
in or disclosed by the Property Information; and(iv) except as expressly
contained in this Agreement, Seller has not made and does not make any
warranties or representations of any kind or nature regarding the truth,
accuracy or completeness of the information set out in or disclosed by the
Property Information.

 

(c)          All due diligence activities of Buyer at the Facilities shall be
scheduled with Seller upon two (2) business days prior notice. Reviews,
inspections and investigations at the Facilities shall be conducted by Buyer in
such manner so as not to disrupt the operation of the Facilities.

 

(d)          Buyer may, at its sole cost, obtain third party engineering and
physical condition reports and Phase I Environmental Audits covering each
Facility, certified to Buyer, prepared by an engineering and/or environmental
consultants acceptable to Buyer; provided, no inspection by Buyer’s Consultants
shall involve the taking of samples or other physically invasive procedures
(such as a Phase II environmental audit) without the prior written consent of
Seller, which consent shall not be unreasonably withheld or delayed, and Buyer
shall provide copies of all final reports (except for appraisals or
attorney-client communications) received from such third parties (the “Third
Party Reports”) to Seller within ten (10) days of Buyer receiving the Third
Party Reports. Notwithstanding anything to the contrary contained in this
Agreement, Buyer shall indemnify, defend (with counsel acceptable to Seller) and
hold Seller and its employees and agents, and each of them, harmless from and
against any and all losses, claims, damages and liabilities, without limitation,
attorneys’ fees incurred in connection therewith) arising out of or resulting
from Buyer’s exercise of its right of inspection as provided for in this
Section 6; provided, however, such indemnification shall not extend to matters
merely discovered by Buyer and/ or the acts or omissions of Seller or any third
party, except for the acts or omissions of Buyer’s Consultants. The
indemnification obligation of Buyer under this Section 6 shall survive the
Closing or earlier termination of this Agreement for a period of twelve (12)
months. Following any audit or inspection as provided for herein, Buyer shall
return the Real Property and the Facilities to the condition in which they
existed immediately prior to such audit or inspection.

 

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(e)          On or before 5:00 p.m. (Pacific Time) on the last day of the Due
Diligence Period, Buyer shall provide Seller with copies of all Third Party
Reports and provide Seller with notice that:

 

(i)          The inspections and audits are not acceptable to Buyer in its sole
and absolute discretion and Buyer terminates this Agreement, and in such event,
neither party shall have any further rights and obligations under this
Agreement, except the obligations which expressly survive the termination of
this Agreement; or

 

(ii)          Provide Seller with written notice that the inspections and audits
are acceptable to Buyer in its sole and absolute discretion.

 

(f)          If this Agreement is terminated prior to Closing, Buyer shall
promptly return to Seller or destroy all copies of the Due Diligence items.

 

7.           Prorations; Closing Costs; Possession; Post Closing Assistance.

 

(a)          There will be no prorations at the Closing since Seller shall
remain responsible for all taxes, costs and expenses relating to the Facilities
following the Closing pursuant to the Post Closing Lease (as defined in
Section 12(a)(v)).

 

(b)          Seller shall pay any state, county and local transfer taxes arising
out of the transfer of the Real Property.

 

(c)          Seller shall pay the cost of the standard owner’s title insurance
policy, as described in this Agreement (excluding any survey exception or
deletion of coverage). Buyer shall pay the cost of any lender’s policy for
Buyer’s lender, any title endorsements requested by Buyer and its lender and the
cost of updating or obtaining new Surveys. Seller shall pay all fees of Escrow
Agent. All other costs associated with title and survey matters shall be paid in
accordance with custom and practice of the County in which each Facility is
located.

 

(d)          Buyer and Seller shall each pay their own attorney’s fees. Buyer
shall pay for all costs of review of the Due Diligence Items and its additional
due diligence inspection costs including, without limitation, the cost of any
environmental reports.

 

(e)          On the Closing Date, Seller shall retain possession of the
Facilities pursuant to the Post Closing Lease.

 

(f)          Buyer shall bear all costs of financing its acquisition of the Real
Property, except Seller shall be responsible for any repairs to the Facilities
or reserves for repairs to the Facilities required by Buyer’s lender or the
United States Department of Housing and Urban Development (“HUD”).

 

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8.           Representations and Warranties of Seller. Seller hereby represents
and warrants to Buyer that:

 

(a)          Legality.

 

(i)          Organization, Corporate Powers, Etc. Each Seller entity is duly
organized, validly existing and in good standing under the laws of the State of
Oregon. Seller has full power, authority and legal right (A) to execute and
deliver, and perform and observe the provisions of this Agreement and each
Transaction Document, as defined herein, to which it is a party, (B) to transfer
good, indefeasible title to the Property to Buyer free and clear of all liens,
claims and encumbrances except for Permitted Exceptions (as defined in Section 5
hereof), and (C) to carry out the transactions contemplated hereby and by such
other instruments to be carried out by such party.

 

(ii)         Due Authorization, Etc. This Agreement and the Closing Documents
(collectively the “Transaction Documents”) have been, and each instrument
provided for herein or therein to which Seller is a party will be, when executed
and delivered as contemplated hereby authorized, executed and delivered by
Seller and the Transaction Documents constitute, and each such instrument will
constitute, when executed and delivered as contemplated hereby, legal, valid and
binding obligations of Seller and enforceable in accordance with their terms.

 

(iii)        Governmental Approvals. To the best of Seller’s knowledge, no
consent, approval or other authorization (other than corporate or other
organizational consents which have been obtained), or registration, declaration
or filing with, any court or governmental agency or commission is required for
the due execution and delivery of any of the Transaction Documents to which
Seller is a party or for the validity or enforceability thereof against such
party other than the recording or filing for recordation of the Oregon form
Warranty Deeds in substantially the same form as Exhibit 4 (collectively, the
“Deed”) which recordings shall be accomplished at Closing.

 

(iv)        Other Rights. No right of first refusal, option or preferential
purchase or other similar rights are held by any person with respect to any
portion of the Property.

 

(v)         No Litigation. Except as set forth on Schedule 8(a)(v) attached
hereto, neither Seller nor its registered agent for service of process has been
served with summons with respect to any actions or proceedings pending or, to
Seller’s actual knowledge, no such actions or proceedings are threatened,
against Seller before or by any court, arbitrator, administrative agency or
other governmental authority, which (A) individually or in the aggregate, are
expected, in the reasonable judgment of Seller, to materially and adversely
affect Seller’s ability to carry out any of the transactions contemplated by any
of the Transaction Documents or (B) otherwise involve any portion of the
Property including, without limitation, the Facilities.

 

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(vi)        No Conflicts. Neither the execution and delivery of the Transaction
Documents to which Seller is a party, compliance with the provisions thereof,
nor the carrying out of the transactions contemplated thereby to be carried out
by such party will result in (A) a breach or violation of (1) any material law
or governmental rule or regulation applicable to Seller now in effect, (2) any
provision of any of Seller’s organizational documents, (3) any material
judgment, settlement agreement, order or decree of any court, arbitrator,
administrative agency or other governmental authority binding upon Seller, or
(4) any material agreement or instrument to which Seller is a party or by which
Seller or its respective properties are bound; (B) the acceleration of any
obligations of Seller; or (C) the creation of any lien, claim or encumbrance
upon any properties or assets of Seller.

 

(b)          Property.

 

As of the Effective Date and the Closing Date, except as set forth on
Schedule 8(b):

 

(i)          Seller has no actual knowledge of and has not received any notice
of outstanding deficiencies or work orders of any authority having jurisdiction
over any portion of the Property;

 

(ii)         Seller has no actual knowledge of and has not received any notice
of any claim, requirement or demand of any licensing or certifying agency
supervising or having authority over any Facility to rework or redesign it in
any material respect or to provide additional furniture, fixtures, equipment or
inventory so as to conform to or comply with any law which has not been fully
satisfied;

 

(iii)        Seller has not received any notice from any governmental authority
of any material violation of any law applicable to any portion of the Real
Property or to the Facilities;

 

(c)          Condemnation. There is no pending or, to the actual knowledge of
Seller, threatened condemnation or similar proceeding or assessment affecting
the Real Property, nor, to the actual knowledge of Seller, is any such
proceeding or assessment contemplated by any governmental authority.

 

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(d)          Hazardous Substances. Except as disclosed on Schedule 8(d) (and as
disclosed to Buyer during the Due Diligence Period), and to Seller’s actual
knowledge, there has been no production, storage, manufacture, voluntary or
involuntary transmission, use, generation, treatment, handling, transport,
release, dumping, discharge, spillage, leakage or disposal at, on, in, under or
about the Real Property of any Hazardous Substances by Seller, or any affiliate
or agent thereof, except in strict compliance with all applicable Laws. To
Seller’s actual knowledge there are no Hazardous Substances at, on, in, under or
about the Real Property in violation of any Law, and to Seller’s actual
knowledge, there is no proceeding or inquiry by any federal, state or local
governmental agency with respect thereto. For purposes of this Agreement,
“Hazardous Substances” shall mean any hazardous or toxic substances, materials
or wastes, including, without limitation, those substances, materials and wastes
listed in the United States Department of Transportation Table (49 CFR 172.1 01)
or by the Environmental Protection Agency as hazardous substances (40 CFR Part
302 and amendments thereto) or such substances, materials and wastes which are
or become regulated under any applicable local, state or federal law
(collectively, “Laws”), including, without limitation, any material, waste or
substance which is (i) a hazardous waste as defined in the Resource Conservation
and Recovery Act of 1976, as amended (42 U.S.C. § 6901 et seq.); (ii) a
pollutant or contaminant or hazardous substance as defined in the Comprehensive
Environmental Response. Compensation and Liability Act of 1980, as amended (42
U.S.C. § 9601 et seq.); (iii) a hazardous substance pursuant to § 311 of the
Clean Water Act (33 U.S.C. § 1251, et seq., 33 U.S.C. § 1321) or otherwise
listed pursuant to § 307 of the Clean Water Act (33 U.S.C. § 1317); (iv) a
hazardous waste pursuant to § 1004 of the Resource Conservation and Recovery Act
(42 U.S.C. § 6901 et seq.); (v) polychlorinated biphenyls (PCBs) as defined in
the Federal Toxic Substance Control Act, as amended (15 U.S.C. § 2501 et seq.);
(vi) hydrocarbons, petroleum and petroleum products; (vii) asbestos; (viii)
formaldehyde or medical or biohazardous waste; (ix) radioactive substances; (x)
flammables and explosives; (xi) any state statutory counterparts to those
federal statutes listed herein; or (vii) any other substance, waste or material
which could presently or at any time in the future require remediation at the
behest of any governmental agency. Any reference in this definition to Laws
shall include all rules and regulations which have been promulgated with respect
to such Laws.

 

(e)          Brokers. Other than Lee Blake of JCH Consulting Group, Inc. located
at 1777 NW Rimrock Road, Bend, Oregon 97701 (“Broker”), neither Seller nor Buyer
has dealt with any broker or finder in connection with the transactions
contemplated hereby. Seller shall be responsible for payment of a real estate
brokerage commission to Broker pursuant to a separate agreement between the
Seller entities and/or Dover Management, Inc. and Broker. Each party represents
and warrants to the other party that it has not dealt with any other broker,
salesman, finder or consultant with respect to this Agreement or the
transactions contemplated hereby. Each party agrees to indemnify, protect,
defend, protect and hold the other party harmless from and against all claims,
losses, damages, liabilities, costs, expenses (including reasonable attorneys’
fees and disbursements) and charges resulting from such indemnifying party’s
breach of the foregoing representation. The provisions of this Section 8(e)
shall survive the Closing or earlier termination of this Agreement for a period
of twelve (12) months.

 

(f)          Leases and Contracts. Schedule 8(f) is a list of all Leases and
Contracts relating to the Facilities to which Seller is a party or by which
Seller may be bound. Seller has made or will promptly make available to Buyer
true, complete and accurate copies of all Leases and Contracts including,
without limitation, any modifications thereto. All of the Leases and Contracts
are in full force and effect without claim of material default there under, and,
except as may be set forth on Schedule 8(f).

 

(g)          Financial Statements. Schedule 8(g) contains (i) the unaudited
balance sheets of the Operating entities for the last three (3) fiscal years
ending prior to the date of this Agreement and the unaudited balance sheets of
the past three (3) fiscal quarters completed prior to the date of this Agreement
and (ii) the related consolidated statements of income, results of operations,
changes in members’ equity and changes in financial position with respect to
each such period for each operating entity as compared with the immediately
prior period (collectively, the “Financial Statements”). The Financial
Statements taken as a whole (A) fairly present the financial condition and
results of operation of the Operators for the periods indicated, (B) are true,
accurate, correct and complete in all material respects, and (C) except as
stated in Schedule 8(g) (or in the notes to the Financial Statements) have been
prepared in accordance with the Operator’s tax basis reporting, as consistently
applied. Except as disclosed in Schedule 8(g), or otherwise disclosed in writing
to Buyer, to Seller’s actual knowledge neither Seller, as to any Facility, nor
any Facility is obligated for or subject to any material liabilities, contingent
or absolute, and whether or not such liabilities would be disclosed in
accordance with tax basis reporting, and Schedule 8(g) sets forth all notes
payable, other long term indebtedness and, to Seller’s actual knowledge, all
other liabilities to which the Facilities and the Real Property are or at
Closing (and following Closing) will be subject, other than new indebtedness
obtained by Buyer in connection with its purchase of the Property. Seller has
received no notice of default under any such instrument.

 

10

 

 

(h)          Interests in Competitors, Suppliers and Customers. Other than the
Operator entities and except as set forth on Schedule 8(h), or in Schedule 1(a)
as constituting a part of the Facilities, neither Seller nor any of its members
has any interest in any property used in the operation of, or holds an interest
in, any competitor, supplier or customer of Seller or the Facilities within a
five (5) mile radius of the Seller entities as further provided in paragraph 24
of this Agreement.

 

(i)          No Foreign Persons. Neither Seller nor its members is a foreign
person within the meaning of Sections 897 or 1445 of the Code, nor is Seller a
U.S. Real Property Holding Company within the meaning of Section 897 of the
Code.

 

(j)          Licensure. As of the date hereof, except as set forth on
Schedule 8(j) attached hereto, there is no action pending or, to the actual
knowledge of Seller, recommended by the appropriate state or federal agency to
revoke, withdraw or suspend any license to operate the Facilities, or
certification of the Facilities, or any material action of any other type with
regard to licensure or certification. Each Facility is, to the actual knowledge
of Seller, operating and functioning as a skilled nursing facility without any
waivers from a governmental agency affecting each Facility except as set forth
in Schedule 8(j), and is fully licensed for a skilled nursing facility, as
applicable, by the State of Oregon for the number of beds and licensure category
set forth in Schedule 1(a) hereto. Schedule 8(j) attached hereto contains a
complete and accurate list of all life safety code waivers or other waivers
affecting each Facility. Provided, however, that it is understood that the
Sheridan Care Center LLC, dba Sheridan Care Center and Sheridan Properties LLC
is an intermediate care nursing facility.

 

(k)          Regulatory Compliance.

 

(i)          To Seller’s actual knowledge, Seller or the Operator has duly and
timely filed all reports and other items required to be filed (collectively, the
“Reports”) with respect to any cost based or other form of reimbursement program
or any other third party payor (including without limitation, Medicare,
Medicaid, medically indigent assistance, Blue Cross, Blue Shield, any health
maintenance, preferred provider, independent practice or other healthcare
related organizations, peer review organizations, or other healthcare providers
or payors) (collectively, “Payors”) and have timely paid all amounts shown to be
due thereon. At the time of filing, to Seller’s actual knowledge, each Report
was true, accurate and complete. To Seller’s actual knowledge, all rights and
obligations of the Facilities or Seller under such Reports are accurately
reflected or provided for in the Financial Statements.

 

11

 

 

(ii)         Except as set forth in Schedule 8(k) attached hereto, (a) to
Seller’s actual knowledge neither Seller nor, to Seller’s actual knowledge, the
Operator, is delinquent in the payment of any amount due under any of the
Reports for the Facilities, (b) except as to an Internal Revenue Service dispute
relating to fiscal year 2005 there are no written or threatened proposals by any
Payors for collection of amounts for which Seller or any Facility could be
liable, (c) there are no current or pending claims, assessments, notice,
proposal to assess or audits of Seller or Operator of any Facility with respect
to any of the Reports, and, to Seller’s actual knowledge, no such claims,
assessments, notices, or proposals to assess or audit are threatened, and (d)
neither Seller nor Operator has executed any presently effective waiver or
extension of the statute of limitations for the collection or assessment of any
amount due under or in connection with any of the Reports with respect to any
Facility.

 

(iii)        Except as set forth in Schedule 8(k) attached hereto, neither
Seller nor the Operator has received an unsatisfied notice of failure to comply
with all applicable Laws, settlement agreements, and other agreements with any
state or federal governmental body relating to or regarding any Facility
(including all applicable environmental, health and safety requirements), and
Seller or the Operator has and maintains all permits, licenses, authorizations,
registrations, approvals and consents of governmental authorities and all health
facility licenses, accreditations, Medicaid, Medicare and other Payor
certifications necessary for its activities and business including the operation
of each Facility as currently conducted. Provided, however, that Seller’s,
Sheridan Care Center LLC, dba Sheridan Care Center and Sheridan Properties LLC
is not yet licensed for Medicare. An amendment and modification to the Sheridan
license to include such licensure for Medicare is currently pending but has not
yet been approved. Each health facility license, Medicaid and Medicare and other
Payor certifications, Medicaid provider agreement and other agreements with any
Payors is in full force and effect without any waivers of any kind (except as
disclosed in Schedule 8(k)) and has not been amended or otherwise modified,
rescinded or revoked or assigned nor, to Seller’s actual knowledge, (a) is there
any threatened termination, modification, recession, revocation or assignment
thereof, (b) no condition exists nor has any event occurred which, in itself or
with the giving of notice, lapse of time or both would result in the suspension,
revocation, termination, impairment, forfeiture, or non-renewal of any
governmental consent applicable to Seller or to any Facility or of any
participation or eligibility to participate in any Medicare, Medicaid, or other
Payor program and (c) there is no claim that any such governmental consent,
participation or contract is not in full force and effect.

 

(l)          Regulatory Surveys. Seller has delivered to Buyer, in the manner
required pursuant to the terms of this Agreement, complete and accurate copies
of the survey or inspection reports made by any governmental authority with
respect to each Facility during the calendar years 2009, 2010, 2011 and
year-to-date 2012 which are in Seller’s possession. To the best of Seller’s
knowledge, after diligent investigation, and except as shown on Schedule 8(l),
all exceptions, deficiencies, violations, plans of correction or other
indications of lack of compliance in such reports or have been fully corrected
and there are no bans or limitations in effect, pending or threatened with
respect to admissions to any Facility nor any licensure curtailments in effect,
pending or threatened with respect to any Facility. Seller shall continue to
deliver all such surveys, inspection reports as and when same are received
and/or filed as the case may be prior to the Closing.

 

12

 

 

(m)          Licensed Bed/Current Rate Schedule. As of the Effective Date,
Schedule 8(m) sets forth (i) the number of licensed beds and the number of
operating beds in each Facility, (ii) the current standard private rates charged
by each Facility to all of its residents, and (iii) the number of beds or units
presently occupied in, and the occupancy percentage at, each Facility, including
the current rates charged by each Facility for each such occupied bed or unit.
Neither Seller nor any Operator has any life care arrangement in effect with any
current or future resident (“life care arrangement” is defined as a prepaid
obligation to care for a person for the life of the person).

 

(n)          Operations. Each Facility is reasonably and adequately equipped and
each Facility includes sufficient and adequate numbers of furniture,
furnishings, equipment, consumable inventory, and supplies to operate such
Facility as each is presently operated by Seller. Personal Property used to
operate each Facility and to be conveyed to Buyer is free and clear of liens,
security interests, encumbrances, leases and restrictions of every kind and
description, except for Permitted Encumbrances and any liens, security interests
and encumbrances to be released at Closing.

 

(o)          No Misstatements, Etc. To the best of Seller’s knowledge, neither
the representations and warranties of Seller stated in this Agreement, including
the Exhibits and the Schedules attached hereto, nor the Due Diligence Items or
any certificate or instrument furnished or to be furnished to Buyer by Seller in
connection with the transactions contemplated hereby, contains or will contain
any untrue or misleading statement of a material fact.

 

(p)          Supplementation of Schedules; Change in Representations and
Warranties. Seller shall have the continuing right and obligation to supplement
and amend the Schedules herein on a regular basis including, without limitation,
Schedule 8(g), and Seller’s warranties and representations required hereunder,
as necessary or appropriate (i) in order to make any representation or warranty
not misleading due to events, circumstances or the passage of time or (ii) with
respect to any matter hereafter arising or discovered up to and including the
Closing Date, but Buyer shall not be deemed to have approved such supplemental
Schedules unless Buyer expressly acknowledges approval of same in writing. In
the event Seller amends any such Schedules, or Buyer or Seller gains actual
knowledge prior to the Closing that any representation or warranty made by the
other party contained in this Section 8 is otherwise untrue or inaccurate, such
party shall, within five (5) days after gaining such actual knowledge but in any
event prior to the Closing, provide the other party with written notice of such
inaccuracy, whereupon the noticed party shall promptly commence, and use its
best efforts to prosecute to completion, the cure of such matter, to the extent
any such matter is curable. If any such matter is not curable within reason and
is material, in Buyer’s reasonable business judgment, Buyer shall have the right
to terminate this Agreement upon written notice to Seller within five (5)
business days of receipt or delivery of such notice, as applicable, on the same
basis as set forth in Section 13(a) if during the Due Diligence Period and in
Section 13(b)(i)(i) herein if after expiration of the Due Diligence Period.

 

(q)          Survival of Representations and Warranties; Updates. The
representations and warranties of Seller in this Agreement shall not be merged
with the Deeds at the Closing and shall survive the Closing for the period of
two (2) years (see paragraph 16(a) of this Agreement); provided, Seller
understands and agrees that the Post Closing Lease, shall provide for a
lengthier period of survival with respect to certain matters referenced therein.

 

13

 

 

For purposes of this Agreement, the phrase “to Seller’s actual knowledge” or
words of similar import shall mean the actual knowledge of Don R. Bybee, Kent
Emry and the general partner or President, as applicable, of each entity
comprising Seller, and any written notice received by Seller relating to the
matters set forth in the applicable representations and warranties.

 

9.           Representations and Warranties of Buyer.

 

(a)          Buyer hereby warrants and represents to Seller that:

 

(i)          Organization, Corporate Powers, Etc. Buyer is a limited liability
company, validly existing and in good standing under the laws of the State of
Delaware and in each other state or jurisdiction in which the nature of its
business requires the same except where a failure to be so qualified does not
have a material adverse effect on the business, properties, condition (financial
or otherwise) or operations of that person. Buyer has full power, authority and
legal right (a) to execute and deliver, and perform and observe the provisions
of this Agreement and each Transaction Document to which it is a party, and (b)
to carry out the transactions contemplated hereby and by such other instruments
to be carried out by Buyer pursuant to the Transaction Documents.

 

(ii)         Due Authorization, Etc. The Transaction Documents have been, and
each instrument provided for herein or therein to which Buyer is a party will
be, when executed and delivered as contemplated hereby, duly authorized,
executed and delivered by Buyer and the Transaction Documents constitute, and
each such instrument will constitute, when executed and delivered as
contemplated hereby, legal, valid and binding obligations of the Buyer
enforceable in accordance with their terms.

 

(iii)        Governmental Approvals. To Buyer’s actual knowledge, no consent,
approval or other authorization (other than corporate or other organizational
consents which have been obtained), or registration, declaration or filing with,
any court or governmental agency or commission is required for the due execution
and delivery of any of the Transaction Documents to which Buyer is a party or
for the validity or enforceability thereof against such party.

 

(iv)        No Litigation. Neither Buyer nor its registered agent for service of
process has been served with summons with respect to any actions or proceedings
pending or, to Buyer’s actual knowledge, no such actions or proceedings are
threatened, against Buyer before or by any court, arbitrator, administrative
agency or other governmental authority, which individually or in the aggregate,
are expected, in the reasonable judgment of Buyer, to materially and adversely
affect Buyer’s ability to carry out any of the transactions contemplated by any
of the Transaction Documents.

 

14

 

 

(v)         No Conflicts. Neither the execution and delivery of the Transaction
Documents to which Buyer is a party, compliance with the provisions thereof, nor
the carrying out of the transactions contemplated thereby to be carried out by
such party will result in (a) a breach or violation of (1) any material law or
governmental rule or regulation applicable to Buyer now in effect, (2) any
provision of any Buyer’s organizational documents, (3) any material judgment,
settlement agreement, order or decree of any court, arbitrator, administrative
agency or other governmental authority binding upon Buyer, or (4) any material
agreement or instrument to which Buyer is a party or by which Buyer or its
respective properties are bound; (b) the acceleration of any obligations of
Buyer; or (c) the creation of any lien, claim or encumbrance upon any properties
or assets of Buyer.

 

(vi)        No Misstatements, Etc. To the best of Buyer’s knowledge, neither the
representations and warranties of Buyer stated in this Agreement, including the
Exhibits and the Schedules attached hereto, nor any certificate or instrument
furnished or to be furnished to Seller by Buyer in connection with the
transactions contemplated hereby, contains or will contain any untrue or
misleading statement of a material fact.

 

(vii)       Survival of Representations and Warranties; Updates. The
representations and warranties of Buyer in this Agreement shall not be merged
with the Deeds at the Closing and shall survive the Closing for the period of
one (1) year.

 

(b)          No Knowledge of Misrepresentation or Breach. Based upon Buyer’s due
diligence review, Buyer has no actual knowledge of any misrepresentation or
breach of warranty by Seller, other than as set forth in writing by Buyer to
Seller on or before the Closing Date.

 

10.          Covenants of Seller. Seller covenants with respect to the
Facilities as follows:

 

(a)          Pre-Closing. Between the date of this Agreement and the Closing
Date, except as contemplated by this Agreement or with the prior written consent
of Buyer, which shall not be unreasonably withheld, conditioned or delayed:

 

(i)          Seller shall use its best efforts to cause the Operator to operate
the Facilities diligently, in accordance with the Operator’s obligations under
its lease or other arrangement with Seller, and only in the ordinary course of
business.

 

(ii)         Seller shall use its best efforts to prevent the Operator from
making any material change in the operation of any Facility, and shall prevent
the Operator from selling or agreeing to sell any items of machinery, equipment
or other assets of any Facility, or otherwise entering into any agreement
affecting any Facility, except in the ordinary course of business;

 

(iii)        Seller shall use its best efforts to prevent the Operator from
entering into any Lease or Contract or commitment affecting any Facility, except
for Leases or Contracts entered into in the ordinary course of business;

 

(iv)        During normal business hours and consistent with Section 6(b)
herein, Seller shall provide Buyer or its designated representative with access
to the Facilities upon prior notification and coordination with Seller and the
Operator; provided, Buyer shall not materially interfere with the operation of
any Facility. At such times Seller and the Operator shall permit Buyer to
inspect the books and records of each Facility;

 

15

 

 

(v)         Within five (5) business days following the execution of this
Agreement by the parties, Seller has delivered to Buyer all of the due diligence
items described on the Due Diligence List attached hereto as Schedule 6(a)(vii)
(the “Due Diligence Items”) which are in Seller’s possession or control. All Due
Diligence Items which have not previously been delivered are identified as the
Unavailable Items (“Unavailable Items”). If any of the Unavailable Items become
available to Seller, Seller shall within five (5) days of receiving such items,
deliver such items to Buyer. If Buyer requests additional items not included on
Schedule 6(a)(vii), in writing delivered by Buyer to Seller, Seller shall use
its best efforts to provide such information within five (5) days of receipt of
the request; and provided further, Seller shall continue to cause Operator to
deliver to Buyer following the expiration of the Due Diligence Period, financial
reports showing among other things information necessary to determine EBITDAR
(defined below) for each of the facilities for the trailing twelve (12) month
annualized operations for the period ending February 28, 2012. The term
“EBITDAR” means “earnings before interest, taxes, depreciation, amortization and
rent and reserves (reserves meaning additions to capital reserves).”

 

(vi)        Seller shall use its best efforts to prevent the Operator from
moving residents from any Facility, except (a) to any other Facility which is
owned by Seller and constitutes part of the Property as defined herein, (b) for
health treatment purposes or otherwise at the request of the resident, family
member or other guardian or (c) upon court order or the request of any
governmental authority having jurisdiction over such Facility;

 

(vii)       Seller shall use commercially reasonable efforts to cause the
Operator to retain the services and goodwill of the employees of the Operator
until the Closing;

 

(viii)      Seller shall maintain in force, or shall cause the Operator to
maintain in force, the existing hazard and liability insurance policies, or
comparable coverage, for each Facility as are in effect as of the date of this
Agreement;

 

(ix)         Seller shall, and shall cause the Operator, to file all returns,
reports and filings of any kind or nature, including but not limited to, cost
reports referred to in this Agreement, required to be filed by Seller or the
Operator on a timely basis and shall timely pay all taxes or other obligations
and liabilities or recoupments which are due and payable with respect to each
Facility in the ordinary course of business with respect to the periods Seller
or Operator operated each Facility;

 

(x)          Seller shall cause the Operator (a) to maintain all required
operating licenses in good standing, (b) to operate each Facility in accordance
with its current business practices and (c) to promptly notify Buyer in writing
of any notices of material violations or investigations received from any
applicable governmental authority;

 

(xi)         Seller shall use commercially reasonable efforts to cause the
Operator to make all customary repairs, maintenance and replacements required to
maintain each Facility in substantially the same condition as on the date of
Buyer’s inspection thereof, ordinary wear and tear excepted;

 

16

 

 

(xii)        Seller shall promptly notify Buyer in writing of any Material
Adverse Change, as defined herein, of which Seller becomes aware in the
condition or prospects of the Facilities including, without limitation, sending
Buyer copies of all surveys and inspection reports of all governmental agencies
received after the date hereof and prior to Closing, promptly following receipt
thereof by the Operator. For purposes of this Agreement, a “Material Adverse
Change” shall mean: (a) a decrease in the consolidated adjusted rolling twelve
(12) month EBITDAR of the facilities to less than Two Million One Hundred
Ninety-Seven Thousand Dollars ($2,197,000) or (b) loss of licensure, or (c) loss
of Medicaid or Medicare (except Sheridan) participation, or (d) any adverse
action by a governmental agency which, with the passage of time, would
reasonably be expected to materially affect in a negative manner licensure at
any Facility, or any adverse action in any Facility which would reasonably be
expected to materially affect in a negative manner such Facility’s participation
or eligibility to participate in any Medicare, Medicaid, or other Payor program,
unless appropriate corrective action has been taken by the Operator, in the
ordinary course of business, or (e) failure to settle with the appropriate
governmental authority, or to satisfy on or before the Closing (either directly
with such governmental authority or by funds escrowed by Seller for such
purposes) all claims for reimbursements, recoupments, taxes, fines or penalties
which may be due to any governmental authority having jurisdiction over any
Facility, or (f) the occurrence of a title or survey defect occurring after the
date of this Agreement which would reasonably be expected to adversely affect
the ability of Buyer to operate the skilled nursing home/assisted living
facility at its respective Facility or to obtain financing for such Facility, or
(g) the commencement of any third party litigation which interferes with
Seller’s ability to close the transactions contemplated by this Agreement, or
(viii) any damage, destruction or condemnation affecting any Facility in which
the estimate of damage exceeds $100,000 per Facility and such damage or
destruction has not been repaired, or Buyer as not otherwise waived such
condition prior to Closing. In the event of any occurrence described in clause
(d) above, Operator shall deliver a copy of the Plan of Correction or otherwise
notify Buyer in writing of the planned action, and such Plan of Correction or
other corrective action which has been approved by the applicable regulatory
agency or agencies.

 

(xiii)       Seller agrees to cause the Operator to remedy any compliance
deficiency cited in any written notice from, or in any settlement agreement or
other Plan of Correction or other agreement with, any state or federal
governmental body, or in the event of state or federal proceedings against
Operator or any Facility, or receipt by the Operator of such notice prior to the
Closing Date, of any condition which would affect the truth or accuracy of any
representations or warranties set forth in this Agreement by Seller; provided,
however, in the event a physical plant deficiency is cited which Seller has
insufficient time to remedy before the Closing Date, in accordance with the
approval of the appropriate state or federal agency, then the same shall be
deemed remedied when the costs of correcting said Seller identified deficiency
(based upon reasonable estimates from established vendors selected by Seller and
Buyer and approved by Seller and by Buyer, in its sole and absolute discretion)
shall be held back in the Escrow at the Closing and not released to Seller until
either the obligation to remedy the plan deficiency has been assumed by Seller
as Lessee under the leaseback agreement between Seller as Lessee and Buyer as
Lessor or such deficiency has been corrected by Seller; and, provided further, a
non-physical plant deficiency which cannot be remedied prior to the Closing, in
accordance with the approval of the appropriate state or federal agency, will be
deemed to be remedied for purposes of this Section if Operator develops a Plan
of Correction addressing the deficiency(ies) and such Plan of Correction is
approved by the applicable State agency. Seller shall use its best efforts to
remedy any such deficiency subsequent to the Closing which is to be remedied as
a result of a Plan of Correction filed by Seller or Operator prior to the
Closing or assumed by Seller as Lessee after Closing, and Buyer shall cooperate
with such efforts by Seller; provided, Seller shall bear all costs associated
with such remedy. In the event any such Plan of Correction agreed to by Seller
and Operator prior to the Closing is not approved by the applicable State agency
subsequent to Closing, Seller shall promptly use its best efforts, and shall
cause Operator to use its best efforts, to amend the Plan of Correction in such
a manner that is necessary to obtain acceptance by the State of the amended Plan
of Correction as soon as practicable after submittal. Notwithstanding any other
provision of this Agreement, the obligation of Seller pursuant to this
Subsection 10(a)(xiii) shall survive the Closing for such period of time as is
necessary to remedy such deficiency.

 

17

 

 

(xiv)      Seller shall, at its cost and on or before Closing, obtain releases
of financing statements and tax and judgment liens affecting or relating to each
Facility which have been filed or recorded with the Office of the Oregon
Secretary of State and the appropriate County Recorder’s Office.

 

(xv)       Seller shall promptly comply with any notices of violations received
relating to each Facility and shall deliver to Buyer a copy of any such notice
received and evidence of compliance with such notice.

 

(b)          Closing. On or before the Closing Date, Seller shall deliver the
following documents to Escrow Agent relating to the Facilities (“Closing
Documents”):

 

(i)          One (1) original executed Warranty Deed in substantially the same
form as Exhibit 4 for each Facility, in recordable form;

 

(ii)         Two (2) original executed counterparts of the Post Closing Lease;

 

(iii)        Two (2) original executed counterparts of the bill of sale for the
Personal Property (“Bill of Sale”), an assignment of Seller’s interest in the
Contracts and Leases (“Assignment of Contracts and Leases”), and other
instruments of transfer and conveyance in form and substance to be agreed upon
prior to the expiration of the Due Diligence Period transferring and assigning
to Buyer the Real Property, Personal Property and the Intangibles to be
transferred as provided herein with respect to the Facilities (“Instruments of
Assignment”);

 

(iv)        One (1) original executed certificate executed by Seller confirming
that to Seller’s actual knowledge on the Closing Date Seller’s representations
and warranties continue to be true and correct in all material respects, or
stating how such representations and warranties are no longer true and correct
(“Seller’s Confirmation”);

 

(v)         All contractor’s and manufacturer’s guaranties and warranties, if
any, in Seller’s possession relating to each Facility (collectively, the
“Warranties”), which delivery will be made by leaving such materials at such
Facility; and

 

(vi)        Two (2) original executed counterparts of each of the FIRPTA
Certificate, escrow agreements and other documents required by the Title Company
in connection with the transactions contemplated by this Agreement
(collectively, the “Title Company Documents”).

 

18

 

 

(c)          Pacific Gardens Option. Seller and Buyer shall cooperate in good
faith and use commercially reasonable efforts to cause the following events to
occur concurrently with the Closing: (i) the assignment of the Tigard Option to
Buyer; (ii) the Tigard Owner’s consent to such assignment of the Tigard Option;
(iii) Buyer’s exercise of the Tigard Option, and (iv) the closing on the Tigard
Facility resulting in Buyer obtaining fee title to the Tigard Facility.

 

(i)          Seller shall be responsible for obtaining all consents required
from Tigard Owner in order to accomplish all of the events set forth in
Section 10(c).

 

(ii)         Except for Buyer’s obligations under this Section 10(c), Seller
hereby agrees to indemnify, protect, defend and hold harmless Buyer and its
officers, directors, members, shareholders and tenants harmless from and against
any and all claims, demands, obligations, losses, liabilities, damages,
recoveries and deficiencies (including interest, penalties and reasonable
attorneys’ fees, costs and expenses) which any of them may suffer as a result of
Buyer’s failure to perform any obligation under the Tigard Option Agreement,
Buyer’s default on any obligation under the Tigard Option Agreement or the
assignment of the Tigard Option to Buyer.

 

(iii)        At the Closing, Seller and Buyer shall enter into an assignment of
the Tigard Closing, including, but not limited to, the consent for such
assignment from the Tigard Owner, in such form reasonably approved by Seller,
Buyer and Tigard Owner during the Due Diligence Period.

 

(iv)        Buyer shall exercise the Tigard Option concurrently with the Closing
under this Agreement in order to facilitate the concurrent closing under the
Tigard Option Agreement in which the Tigard Owner shall deed fee title to the
Tigard Property to Buyer.

 

(v)         Seller and Buyer agree that all amounts that Buyer will be required
to pay for the Tigard Property and other costs associated with the closing on
the Tigard Property (except for Buyer’s attorneys’ fees) pursuant to the Tigard
Option Agreement will come from the Purchase Price that Buyer pays pursuant to
this Agreement and the parties agree to instruct Escrow Agent to transfer such
amount to the escrow for the closing under the Tigard Option Agreement.

 

(vi)        The parties intend for Buyer to obtain fee title to the Tigard
Property at the Closing under this Agreement without Buyer having to pay any
additional amount over and above what Buyer is required to pay under this
Agreement for the Property. The parties acknowledge that the difference between
the appraised value for the Tigard Facility and the price Buyer has to pay for
the Tigard Facility pursuant to the terms of the Tigard Option Agreement shall
be deemed consideration paid to Seller for the Tigard Option.

 

19

 

 

11.          Covenants of Buyer. Buyer hereby covenants as follows:

 

(a)          Pre-Closing. Between the date hereof and the Closing Date, except
as contemplated by this Agreement or with the consent of Seller, Buyer agrees
that Buyer shall not take any action inconsistent with its obligations under
this Agreement or which could hinder or delay the consummation of the
transaction contemplated by this Agreement. Between the date hereof and the
Closing Date, Buyer agrees that Buyer shall not (i) make any commitments to any
governmental authority, (ii) enter into any agreement or contract with any
governmental authority or third parties, or (iii) alter, amend, terminate or
purport to terminate in any way any governmental approval or permit affecting
the Real Property, Personal Property or any Facility, which would be binding
upon Seller, any Real Property Owner, any Facility or Personal Property after
any termination of this Agreement.

 

(b)          Closing. On or before the Closing Date, Buyer shall deposit the
following with Escrow Agent:

 

(i)          The Purchase Price in accordance with the requirements of this
Agreement;

 

(ii)         Two (2) original executed counterparts of the Post Closing Lease;

 

(iii)        Two (2) original executed counterparts of each of the Instruments
of Assignment requiring Buyer’s signature;

 

(iv)        One (1) original executed certificate executed by Buyer confirming
that Buyer’s representations and warranties continue to be true and correct in
all material respects, or stating how such representations and warranties are no
longer true and correct (“Buyer’s Confirmation”); and

 

(v)         Two (2) original executed counterparts of each of the Title Company
Documents requiring Buyer’s signature.

 

12.          Conditions to Closing.

 

(a)          Conditions to Buyer’s Obligations. All obligations of Buyer under
this Agreement are subject to the reasonable satisfaction and fulfillment, prior
to the Closing Date, of each of the following conditions. Anyone or more of such
conditions may be waived in writing by Buyer.

 

(i)          Seller’s Representations, Warranties and Covenants. Seller’s
representations, warranties and covenants contained in this Agreement or in any
certificate or document delivered in connection with this Agreement or the
transactions contemplated herein, shall be true at the date hereof and as of the
Closing Date as though such representations, warranties and covenants were then
again made, except to the extent that (a) Seller has provided to Buyer, prior to
the Closing, with supplemental Schedules in accordance with Section 8(q) herein
or (b) Buyer has discovered, or has been provided with written notice from
Seller, that a representation is untrue or inaccurate, and Buyer nevertheless
elects to close the transaction in the manner provided in Section 8(q) herein
despite such inaccuracy, whereupon it will have waived any right of recourse or
damages against Seller resulting from such inaccuracy.

 

20

 

 

(ii)         Seller’s Performance. Seller shall have performed all of its
obligations and covenants under this Agreement that are to be performed prior to
or at Closing.

 

(iii)        Damage and Condemnation. Prior to the Closing Date, no portion of
any Facility shall have been damaged or destroyed by fire or other casualty
where the estimate of damage to such Facility exceeds 20% of the Purchase Price
allocated to such Facility, or proceedings be commenced or threatened to take or
condemn any material part of the Real Property or improvements comprising a
Facility by any public or quasi-public authority under the power of eminent
domain. A proceeding shall be deemed to be “material” if such condemnation or
taking (a) relates to the material taking or closing of any right of access to
any Real Property or Facility, (b) cause the Real Property or Facility to become
non-conforming with then current legal requirements governing such Real Property
or Facility, (c) results in the loss of parking that is material to the
operation of such Facility, or (d) result in the loss of value in excess of 20%
of the Purchase Price allocated to such Facility, in Buyer’s reasonable
judgment. If such Facility shall have been so damaged or destroyed, Seller shall
deliver prompt written notice of such condemnation, damage or destruction to
Buyer. In the event Buyer waives this condition, by written notice to Seller
within fifteen (15) business days of receipt of notice of such proceeding, and
the Closing occurs, Seller shall assign to Buyer all its right to any insurance
proceeds in connection therewith. If proceedings shall be so commenced or
threatened to take or condemn the Real Property or any Facility or portion
thereof prior to Closing, and if Buyer waives this condition and the Closing
occurs, Seller shall pay or assign to Buyer all Seller’s right to the proceeds
of any condemnation award in connection thereof.

 

(iv)        Absence of Litigation. No action or proceeding shall have been
instituted, threatened or, in the reasonable opinion of Buyer, is likely to be
instituted before any court or governmental body or authority the result of
which could prevent or make illegal the acquisition by Buyer of any Facility, or
the consummation of the transaction contemplated hereby, or which could
materially and adversely affect any Facility or the business or prospects of any
Facility.

 

(v)         Form of Post Closing Lease. Prior to the expiration of the Due
Diligence Period, Seller and Buyer shall have agreed upon the form of the post
closing lease (the “Post Closing Lease”) between Buyer, as landlord, and Seller,
as tenant, incorporating in the business terms set forth in Exhibit D attached
hereto.

 

(vi)        No Material Adverse Change. No Material Adverse Change shall have
occurred in any Facility.

 

(vii)       Removal of Personal Property Liens. Seller shall have removed (or
shall have sufficient payoff or other documents to remove such liens at Closing)
all personal property liens which are related to the Facilities and the
Facilities at Closing shall be free and clear of all liens, claims and
encumbrances other than Permitted Exceptions.

 

21

 

 

(viii)      Title Insurance Policies. Title Company shall be prepared to issue
the (a) Owners Title Insurance Policy for each Facility as of the Closing Date,
with coverage in the amount of the allocable portion of the Purchase Price for
such Facility, insuring Buyer as owner of such Facility subject only to the
Permitted Exceptions, and (b) ALTA Title Insurance Policy for each Facility as
of the Closing Date, with coverage in the amount of the allocable portion of
Buyer’s loan from Buyer’s lender (“Lender”), insuring Lender’s lien against each
Facility subject only to such exceptions as may be approved by Lender, and with
such endorsements as may be required by Lender.

 

(b)          Conditions to Seller’s Obligations. All obligations of Seller under
this Agreement are subject to the fulfillment, prior to the Closing Date, of
each of the following conditions. Anyone or more of such conditions may be
waived by Seller in writing.

 

(i)          Buyer’s Representations, Warranties and Covenants. Buyer’s
representations, warranties and covenants contained in this Agreement or in any
certificate or document delivered in connection with this Agreement or the
transactions contemplated herein shall be true at the date hereof and as of the
Closing Date as though such representations, warranties and covenants were then
again made.

 

(ii)         Buyer’s Performance. Buyer shall have performed its obligations and
covenants under this Agreement that are to be performed prior to or at Closing.

 

(iii)        Absence of Litigation. No action or proceeding shall have been
instituted, threatened or, in the reasonable opinion of Seller, is likely to be
instituted before any court or governmental body or authority the result of
which could prevent or make illegal the acquisition by Buyer of any Facility, or
the consummation of the transaction contemplated hereby, or which could
materially and adversely affect any Facility or the business or prospects of any
Facility.

 

(iv)        No Actions. There shall be no action pending or recommended by the
appropriate state or federal agency to revoke, withdraw or suspend any license
to operate any Facility or the certification of any Facility, or any action of
any other type with regard to licensure or certification or with respect to
Medicare and Medicaid provider billing agreements necessary to operate any
Facility.

 

(v)         Form of Post Closing Lease. Prior to the expiration of the Due
Diligence Period, Seller and Buyer shall have agreed upon the form of the Post
Closing Lease.

 

13.          Termination; Defaults.

 

(a)          Termination For Failure of Condition. Either party may terminate
this Agreement for non-satisfaction or failure of a condition to the obligation
of either party to consummate the transaction contemplated by this Agreement
(including, without limitation, Buyer’s election to disapprove the condition of
the title or Surveys pursuant to Section 14 herein), unless such matter has been
satisfied or waived by the date specified in this Agreement or by the Closing
Date (as same may be extended by the parties to allow the parties to satisfy or
waive conditions to close in the manner provided in this Agreement). In the
event of such a termination, Escrow Agent shall promptly return (i) to Buyer,
all funds of Buyer in its possession (and Seller shall return to Buyer any
portion of the Extension Deposit that may have been released to Seller),
including the Deposit and all interest accrued thereon, and (ii) to Seller and
Buyer, all documents deposited by them respectively, which are then held by
Escrow Agent. Thereafter, neither party shall have any continuing obligation or
liability to the other party except for any such matters that expressly survive
the Closing or termination of this Agreement, as provided herein. The provisions
of this Section 13(a) are intended to apply only in the event of a failure of
condition, as set forth herein, which is not the result of a default by either
party, but which shall not apply in the event the non-terminating party is in
default of its obligations under this Agreement.

 

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(b)          Termination For Cause.

 

(i)          If the Agreement is terminated by Seller because Buyer fails to
consummate the Closing as a result of a default by Buyer under this Agreement,
Seller’s sole and exclusive remedy prior to the Closing Date shall be to
terminate this Agreement by giving written notice of termination to Buyer and
Escrow Agent, whereupon (a) Escrow Agent shall promptly release to Seller the
Deposit, and all interest accrued thereon, (b) Escrow Agent shall return to
Buyer and Seller all documents deposited by them respectively, which are then
held by Escrow Agent, (c) the parties shall be released and relieved of all
obligations to each other under this Agreement, except for provisions that
expressly survive termination as provided herein, (d) Buyer shall return to
Seller all documents received by it during the course of its Due Diligence and
(e) Buyer shall have no further right to purchase the Property or legal or
equitable claims against Seller (except for any breach by Seller of provisions
that survive termination) and/or the Property. Buyer shall have no liability to
Seller under any circumstances for any speculative, consequential or punitive
damages. Without limiting the other provisions of this Agreement, Buyer
acknowledges that the provisions of this Subsection are a material part of the
consideration being given to Seller for entering into this Agreement and that
Seller would be unwilling to enter into this Agreement in the absence of the
provisions of this Subsection. The provisions of this Subsection shall survive
any termination of this Agreement. With respect to any action by Seller against
Buyer or by Buyer against Seller commenced after the Closing Date, Seller and
Buyer expressly waive any right to any speculative, consequential, punitive or
special damages including, without limitation, lost profits. The parties
acknowledge and agree that Seller’s actual damages as a result of Buyer’s
default would be difficult or impossible to ascertain and that the deliveries
and payments provided for in clause (a) herein constitute reasonable
compensation for its actual damages. Promptly following Escrow Agent’s receipt
of written notice from Seller that this Agreement has been terminated because of
a default by Buyer, Escrow Agent shall cancel the Escrow created for this
transaction. Seller and Buyer acknowledge that they have read and understand the
provisions of this Section 13(b)(i) and by their initials below agree to be
bound by its terms.

 

Seller’s Initials   Buyer’s Initials

 

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(ii)         If this Agreement is terminated by Buyer because (i) Seller has
defaulted in the performance of its obligations under this Agreement or (ii)
Seller otherwise refuses to consummate the Closing, after Buyer has (A) timely
met, and continues to meet, all of Buyer’s obligations under this Agreement and
(B) waived or accepted all conditions of Buyer to the Closing, then unless Buyer
has defaulted in its obligations under this Agreement, Buyer’s sole and
exclusive remedies prior to the Closing Date shall be either: (1) to terminate
this Agreement by giving written notice of termination to Seller and Escrow
Agent and pursue any and all remedies for Buyer’s out-of-pocket costs (including
attorneys’ fees and court costs), attributable to the termination of this
Agreement, provided however, that Seller shall have no liability to Buyer under
any circumstances for any speculative, consequential or punitive damages,
whereupon (a) Escrow Agent shall promptly return to Buyer the Deposit, and all
interest accrued thereon, (b) Escrow Agent shall return to Seller and Buyer all
documents deposited by them respectively, which are then held by Escrow Agent,
(c) Buyer shall have no further right to purchase the Property or legal or
equitable claims against Seller (except for any breach by Seller of provisions
that survive termination) and/or the Property; and (d) Buyer shall return to
Seller all documents received by it during the course of its Due Diligence, or
(2) to pursue the remedy of specific performance of Seller’s obligation to
perform its obligations under this Agreement, provided, (a) any such suit for
specific performance is filed within forty-five (45) days after the then
scheduled Closing Date, and (b) Buyer is ready, willing and able to consummate
the Closing as required herein. Seller shall have no liability to Buyer under
any circumstances for any speculative, consequential or punitive damages.
Without limiting the other provisions of this Agreement, Seller acknowledges
that the provisions of this Subsection are a material part of the consideration
being given to Buyer for entering into this Agreement and that Buyer would be
unwilling to enter into this Agreement in the absence of the provisions of this
Subsection. The provisions of this Subsection shall survive any termination of
this Agreement. With respect to any action by Buyer against Seller or by Seller
against Buyer commenced after the Closing Date, Buyer and Seller expressly waive
any right to any speculative, consequential, punitive or special damages
including, without limitation, lost profits. Seller and Buyer acknowledge that
they have read and understand the provisions of this Section 13.2(b) and by
their initials below agree to be bound by its terms.

 

Seller’s Initials   Buyer’s Initials

 

(c)          General.

 

(i)          Upon any termination of this Agreement, Buyer shall return to
Seller all of the Due Diligence Items received by Buyer from Seller including
all copies thereof prepared by Seller or Buyer; and

 

(ii)         In the event a party elects to terminate this Agreement such party
shall deliver a notice of termination to the other party.

 

14.         Surveys and Title Commitments.

 

(a)          Seller has previously ordered separate title commitments (“Title
Commitments”) covering the Real Property and each Facility dated prior to the
date of this Agreement, together with legible copies of any and all instruments
referred to in the Title Commitments as constituting exceptions to title of the
Real Property. Immediately upon execution and delivery of this Agreement, Seller
shall order updates of the Title Commitments, together with legible copies of
any and all instruments (“Title Documents”) referred to in the Title Commitments
as constituting exceptions to title and shall deliver all such documents to
Buyer along with all other Due Diligence Items.

 

24

 

 

(b)          Seller shall have delivered to Buyer a copy of the existing
boundary line and/or as built surveys, if any, in Seller’s possession for each
Facility (“Surveys”) in accordance with Section 10(a)(v) herein. Buyer shall be
responsible for obtaining an update of the Surveys or new Surveys, at Buyer’s
sole cost (“New Surveys”). On or before ten (10) business days following receipt
of the updated Title Commitments, Title Documents and Surveys, Buyer shall
notify Seller and the Title Company (“Buyer’s Title Notice”) of any objections
which Buyer may have to the Title Commitments and/or Surveys. If Buyer objects
to any matters (other than the Permitted Exceptions, as defined herein) which,
in Buyer’s determination, might adversely affect the ability of Buyer to operate
any of the Facilities, Seller shall use its reasonable business efforts to cure
same, but shall not be obligated to cure matters other than to obtain the
release (at Closing) of the existing mortgage and other monetary liens caused by
Seller which may be released by payment of the mortgage payoff or lien amount
from Seller’s Closing proceeds (collectively, “Monetary Liens”). If Seller
delivers written notice to Buyer (“Seller’s Title Notice”), on or before ten
(10) business days following receipt of the Buyer’s Title Notice, that Seller is
unable or unwilling to cure such objections, or if, for any reason, Seller is
unable to convey title in accordance with the requirements of this Agreement,
Buyer shall have an additional period of three (3) business days following its
receipt of Seller’s Title Notice in which to deliver written notice to Seller
(“Buyer’s Second Title Notice”) either (i) to waive such objections (in which
event the items objected to and uncured shall be deemed Permitted Exceptions)
and to accept such title in the condition that Seller is able to convey, or (ii)
terminate this Agreement by written notice to Seller. Failure of Buyer to
deliver Buyer’s Second Title Notice shall be deemed to constitute Buyer’s
disapproval of the state of title hereunder, whereupon Escrow Agent shall
promptly return (i) to Buyer, all funds of Buyer in its possession (and Seller
shall return to Buyer any portion of the Extension Deposit that may have been
released to Seller), including the Deposit and all interest accrued thereon, and
(ii) to Seller and Buyer, all documents deposited by them, respectively, which
are then held by Escrow Agent. Thereafter, neither party shall have any
continuing obligation nor liability to the other party except for any such
matters that expressly survive the Closing or termination of this Agreement, as
provided herein. Buyer shall, promptly following the execution of this
Agreement, commence to use its best efforts to obtain the New Surveys as soon as
practicable. Notwithstanding the foregoing provisions of this Subsection (b),
Buyer shall have the right to object, promptly upon learning of any such new
matters during the Due Diligence Period, to any matters raised in the New
Surveys which were not addressed in the Surveys, and the parties shall cooperate
with the Title Company, during the Due Diligence Period and as promptly as
possible following the delivery of Buyer’s objections to such new matters in the
New Surveys, to resolve any such matters to Buyer’s satisfaction. The Due
Diligence Period shall not be extended for resolution of any such matters in the
New Surveys.

 

15.         Cooperation. Following the execution of this Agreement, Buyer and
Seller agree that if any event should occur, either within or without the
knowledge or control of Buyer or Seller, which would prevent fulfillment of the
conditions to the obligations of any party hereto to consummate the transaction
contemplated by this Agreement, each such party shall use reasonably commercial
efforts to cure or to cause the cure of the same as expeditiously as possible.
In addition, each party shall cooperate fully with each other in preparing,
filing, prosecuting, and taking any other actions with respect to, any
applications, requests, or actions which are or may be reasonable and necessary
to obtain the consent of any governmental instrumentality or any third party or
to accomplish the transaction contemplated by this Agreement.

 

25

 

 

16.          Indemnification.

 

(a)          Indemnification Provisions.

 

(i)          Subject to the limitation on damages contained in Section 13.2(b)
hereof, Seller hereby agrees to indemnify, protect, defend and hold harmless
Buyer and its officers, directors, members, shareholders, tenants, successors
and assigns, harmless from and against any and all claims, demands, obligations,
losses, liabilities, damages, recoveries and deficiencies (including interest,
penalties and reasonable attorneys’ fees, costs and expenses) which any of them
may suffer as a result of: (A) any breach of or inaccuracy in the
representations and warranties, or breach, non-fulfillment or default in the
performance of any of the conditions, covenants and agreements, of Seller
contained in this Agreement or in any certificate or document delivered by
Seller pursuant to any of the provisions of this Agreement, unless Seller cures
such matter in the manner provided in Section 8(p) herein or (B) the failure to
discharge any federal, state or local tax liability, or to pay any other
assessments, recoupments, claims, fines, penalties or other amounts or
liabilities accrued or payable with respect to any activities of Seller prior to
the Closing Date (whether brought before or after the Closing Date), or (C) any
obligation which is expressly the responsibility of Seller under this Agreement,
or (D) any amounts required to cure citation violations issued by any state or
federal health or human services authority on any Facility relating to any
period prior to the Closing Date (whether brought before or after the Closing
Dates), or (E) any claim by any employee of Seller (whether brought before or
after the Closing Date), or (F) the existence against the Real Property of any
mechanic’s or materialmen’s claims resulting from the action or inaction of
Seller or anyone acting under authority of Seller, or (G) any other cost, claim
or liability arising out of or relating to events (other than as a result of the
actions of Buyer or Buyer’s Consultants) or Seller’s ownership, operation or use
of any Facility. Any amount due under the aforesaid indemnity shall be due and
payable by Seller within 30 days after demand thereof. Seller shall have the
right to contest any such claims, liabilities or obligations as provided herein.

 

(ii)         Subject to the limitation on damages contained in Section 13(b)(1)
hereof, Buyer hereby agrees to indemnify, protect, defend and hold harmless
Seller and its officers, directors, members, shareholders and tenants harmless
from and against any and all claims, demands, obligations, losses, liabilities,
damages, recoveries and deficiencies (including interest, penalties and
reasonable attorneys’ fees, costs and expenses) which any of them may suffer as
a result of: (A) any breach of or inaccuracy in the representations and
warranties, or breach, non-fulfillment or default in the performance of any of
the conditions, covenants and agreements, of Buyer contained in this Agreement
or in any certificate or document delivered by Buyer pursuant to any of the
provisions of this Agreement, unless Buyer cures such matter in the manner
provided in Section 8(p) herein, (B) the failure to discharge any federal,
state, or local tax liability, or to pay monetary liens or other assessments,
recoupments, claims, fines, penalties, or other amounts or liabilities accrued
or payable with respect to any activities of Buyer following the Closing Date,
or (C) the existence against the Real Property of any mechanic’s or
materialmen’s claims arising from actions of Buyer or Buyer’s Consultants, or
(D) any obligation which is expressly the responsibility of Buyer under this
Agreement. Any amount due under the aforesaid indemnity shall be due and payable
by Buyer within thirty (30) days after demand therefor. Buyer shall have the
right to contest any such claims, liabilities or obligations as provided herein.

 

26

 

 

(iii)        The parties intend that all indemnification claims be made as
promptly as practicable by the party seeking indemnification (the “Indemnified
Party”). Whenever any claim shall arise for indemnification hereunder, the
Indemnifying Party shall promptly notify the party from whom indemnification is
sought (the “Indemnitor”) of the claim, and the facts constituting the basis for
such claim (the “Indemnification Claim”). Failure to notify the Indemnitor will
not relieve the Indemnitor of any liability that it may have to the Indemnified
Party, except to the extent the defense of such action is materially and
irrevocably prejudiced by the Indemnified Party’s failure to give such notice.

 

(iv)        An Indemnitor shall have the right to defend against an
Indemnification Claim, with counsel of its choice reasonably satisfactory to the
Indemnified Party, if (a) within fifteen (15) days following the receipt of
notice of the Indemnification Claim the Indemnitor notifies the Indemnified
Party in writing that the Indemnitor will indemnify the Indemnified Party from
and against the entirety of any damages the Indemnified Party may suffer
resulting from, relating to, arising out of, or attributable to the
Indemnification Claim, (b) the Indemnitor provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the Indemnitor will
have the financial resources to defend against the Indemnification Claim and
pay, in cash, all damages the Indemnified Party may suffer resulting from,
relating to, arising out of, or attributable to the Indemnification Claim, (c)
the Indemnification Claim involves only money damages and does not seek an
injunction or other equitable relief, (d) settlement of, or an adverse judgment
with respect to, the Indemnification Claim is not in the good faith judgment of
the Indemnified Party likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, and (e) the Indemnitor continuously conducts the defense of the
Indemnification Claim actively and diligently.

 

(v)         So long as the Indemnitor is conducting the defense of the
Indemnification Claim in accordance with Section 16(a)(iv), then (a) the
Indemnified Party may retain separate co-counsel at its sole cost and expense
and participate in the defense of the Indemnification Claim, (b) the Indemnified
Party shall not consent to the entry of any order or finalization of any
tentative settlement, the only condition of which is the consent of the
Indemnified Party thereto, with respect to the Indemnification Claim without the
prior written consent of the Indemnitor (not to be withheld unreasonably), and
(c) the Indemnitor will not consent to the entry of any order or finalization of
any tentative settlement, the only condition of which is the consent of the
Indemnified Party thereto, with respect to the Indemnification Claim without the
prior written consent of the Indemnified Party (not to be unreasonably withheld
or delayed, provided that it will not be deemed to be unreasonable for an
Indemnified Party to withhold its consent with respect to (1) any breach of any
law, order or permit, (2) any violation of the rights of any person, or (3) any
matter which Indemnified Party believes could have a material adverse effect on
any other actions to which the Indemnified Party or its Affiliates are party or
to which Indemnified Party has a good faith belief it may become party.
Notwithstanding the foregoing provisions of this Subsection (v), if Indemnified
Party refuses its consent to any of the matters set forth in clauses (1) through
(3) above, the indemnity amount shall be determined as if such consent had been
given and Indemnitor shall pay over to the Indemnified Party such amount and be
absolved from any further obligation as to that particular claim; Indemnified
Party may then resolve the claim in the manner it sees fit without further
recourse against Indemnitor.

 

27

 

 

(vi)        Each party hereby consents to the non-exclusive jurisdiction of any
governmental body, arbitrator, or mediator in which an action is brought against
any Indemnified Party for purposes of any Indemnification Claim that an
Indemnified Party may have under this Agreement with respect to such action or
the matters alleged therein, and agrees that process may be served on such party
with respect to such claim anywhere in the world, provided however, that any
venue relating to any claim or proceeding arising out of this Agreement or any
other agreement between Sellers and Buyer shall be the State of Oregon and the
laws of the State of Oregon shall apply.

 

(b)          Insurance Proceeds. In determining the amount of damages for which
either party is entitled to assert an Indemnification Claim, the amount of any
such claims or damages shall be determined after deducting therefrom the amount
of any insurance coverage or proceeds or other third party recoveries received
by such other party in respect of such damages. If an indemnification payment is
received by the Indemnified Party in respect of any damages and the Indemnified
Party later receives insurance proceeds or other third party recoveries in
respect of such damages, the Indemnified Party shall immediately pay to the
Indemnifying Party a sum equal to the lesser of the actual amount of net
insurance proceeds or other third party recoveries (remaining after recovery
costs and expenses) or the actual amount of the indemnification payment
previously paid by or on behalf of the Indemnified Party.

 

(c)          No Incidental, Consequential and Certain Other Damages. An
Indemnitor shall not be liable to an Indemnified Party for incidental,
consequential, enhanced, punitive or special damages unless such damages are
included in a third-party claim and such Indemnified Party is liable to the
third party claimant for such damages.

 

(d)          Indemnification if Negligence of Indemnity; No Waiver of Rights or
Remedies.

 

UNLESS OTHERWISE PROVIDED HEREIN, THE INDEMNIFICATION PROVIDED IN THIS
SECTION 16 WILL BE APPLICABLE WHETHER OR NOT THE SOLE, JOINT, OR CONTRIBUTORY
NEGLIGENCE OF THE INDEMNIFIED PARTY IS ALLEGED OR PROVEN. THE PARTIES AGREE THE
PRECEDING SENTENCE IS COMMERCIALLY CONSPICUOUS. Each Indemnified Party’s rights
and remedies set forth in this Agreement shall survive the Closing or other
termination of this Agreement, shall not be deemed waived by such Indemnified
Party’s consummation of the Closing of the sale transactions (unless the
Indemnified Party has knowledge of the existence of an Indemnification Claim at
Closing and decides to proceed with Closing) and will be effective regardless of
any inspection or investigation conducted by or on behalf of such Indemnified
Party or by its directors, officers, employees, or representatives or at any
time (unless such inspection or investigation reveals the existence of an
Indemnified Claim and such party proceeds with Closing), whether before or after
the Closing Date.

 

28

 

 

(e)          Other Indemnification Provisions. A claim for any matter not
involving a third party may be asserted by notice to the Party from whom
indemnification is sought.

 

17.          Dispute Resolution. In any dispute arising out of this Agreement
the parties shall proceed as follows:

 

(a)          Mandatory Mediation. In the event there is any dispute between the
parties to this Agreement relating in any way to this Agreement, the parties
must mediate such dispute before commencement of any legal action. No party to
this Agreement can bring legal action against another party to this Agreement
without first participating in mediation, unless one party refuses to submit to
mediation and legal action is brought to specifically enforce this mandatory
mediation provision of this Agreement. If the parties cannot agree upon the
person to act as the mediator, then the U.S. Arbitration and Mediation Service
of Portland, Oregon shall select a person to act as the mediator. The mediator’s
charges and expenses shall be split by the parties on a 50/50 basis. The
mediation fees and costs do not include each party’s attorney fees and costs.
Each party shall be responsible for his or her own attorney fees and costs at
mediation. Those costs may not be assessed against the other party if the other
party is the prevailing party. If the dispute cannot be resolved at mediation
either party may then proceed to arbitration as provided in Section 17(b) of
this Agreement.

 

(b)          Arbitration. In the event any disagreement, difference or
controversy shall arise between or among the parties relating to or arising out
of or under this Agreement, including any tort claims, and the parties to the
controversy cannot mutually agree upon the resolution thereof, and the mediation
provided for herein does not provide a resolution, then such disagreement,
difference or controversy shall be determined by arbitration under the rules of
the U.S. Arbitration and Mediation Service of Portland, Oregon. Any award made
by the arbitrator shall be final, binding and conclusive upon the parties to the
arbitration and those claiming under them. The arbitrator shall have no power to
make any award inconsistent with or contrary to the terms and provisions of this
Agreement. The cost and expenses of any arbitration shall be paid by the parties
on a 50/50 basis. Any party to the arbitration may file any final arbitrator
award as a judgment in the Circuit Court of the State of Oregon for Marion
County and in the appropriate court in any other county of the State of Oregon
or any other state where any party to the arbitration maintains such party’s
residence, principal place of business or real property.

 

18.          Notices. Any notice, request for consent or approval, election or
other communication provided for or required by this Agreement shall be in
writing and shall be delivered by hand, by air courier service, postage prepaid
(certified with return receipt requested), fax transmission or electronic
transmission followed by delivery of the hard copy of such communication by air
courier service or mail as aforesaid, addressed to the person to whom such
notice is intended to be given at such address as such person may have
previously furnished in writing to the such party’s last known address. Until
receipt of written notice to the contrary, the parties’ addresses for notices
shall be:

 

29

 

 

To Buyer:     Cornerstone Healthcare Real Estate Fund, Inc.   1920 Main Street,
Suite 400   Irvine, CA  92614   Attention:  Kent Eikanas   Phone:  949-812-4335
  Email:  KEikanas@crefunds.com     With a Copy to:     DLA Piper LLP (US)  
2000 University Avenue   East Palo Alto, CA  94303   Attention:  James E.
Anderson, Esq.   Phone:  650-833-2078   Email:  Jim.Anderson@dlapiper.com     To
Sellers:     Sheridan Care Center LLC, dba Sheridan Care Center,
or Sheridan Properties LLC, or Fernhill Estates LLC,
dba Fernhill Estates, or Fernhill Properties LLC, or
Pacific Gardens Estates LLC,   dba Pacific Health and Rehabilitation   c/o Dover
Management, Inc.   850 Promontory Place SE   Salem OR  97302   Attention: Don
Bybee and Kent Emry   Phone: 503-585-0200   Email: donbybee@gmail.com  
            kent@dovermgmt.com     With a Copy to: Dakavia Management
Corporation   c/o Kent Emry   4676 Commercial Street SE, #358   Salem OR 
97302-1902   Phone:                                               E-mail:
kent@dovermgmt.com     With a Copy to Garrett Hemann Robertson P.C. Seller’s
Counsel: PO Box 749   Salem OR  97308   Phone: 503-581-1501   Email:
ejamieson@ghrlawyers.com

 

19.         Sole Agreement. This Agreement constitutes the entire understanding
between the parties with respect to the transactions contemplated herein, and
all prior or contemporaneous oral agreements, understandings representations and
statement, and all prior written agreements, understandings, letters of intent
and proposals are merged into this Agreement. Neither this Agreement nor any
provisions hereof may be waived, modified, amended, discharged or terminated
except by an instrument in writing signed by the party against which the
enforcement of such waiver, modification, amendment, discharge or termination is
sought, and then only to the extent set forth in such instrument.

 

30

 

 

20.         Assignment; Successors. Neither party shall assign this Agreement
without the prior written consent of the other; provided, however, Buyer may
assign all of its rights, title, liability, interest and obligation pursuant to
this Agreement to one or more entities owned, controlled by or under common
control with Buyer. Subject to the limitations on assignment set forth above,
all the terms of this Agreement shall be binding upon and inure to the benefit
of and be enforceable by and against the heirs, successors and assigns of the
parties hereto.

 

21.         Severability. Should any one or more of the provisions of this
Agreement be determined to be invalid, unlawful or unenforceable in any respect,
the validity, legality and enforceability of the remaining provisions hereof
shall not in any way be affected or impaired thereby and each such provision
shall be valid and remain in full force and effect.

 

22.         Risk of Loss. Until the Closing Date, Seller shall bear the risk of
loss for the Facilities. From and after the Closing Date, the risk of loss of
the Facilities shall be governed by the Post Closing Lease.

 

23.         Holidays. If any date herein set forth for the performance of any
obligations by Seller or Buyer or for the delivery of any instrument or notice
as herein provided should be on a Saturday, Sunday or legal holiday, the
compliance with such obligations or delivery shall be deemed acceptable on the
next business day following such Saturday, Sunday or legal holiday. As used
herein, the term “legal holiday” means any state or federal holiday for which
financial institutions or post offices are generally closed in the State of
Oregon for observance thereof.

 

24.         Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which together
shall be deemed to constitute one and the same instrument. Facsimile signature
pages or electronically transmitted signature pages shall constitute original
counterparts for all purposes.

 

25.         Covenant Not to Compete; Non-Solicitation of Employees. For a period
of three (3) years following the Closing Date, Seller, Don Bybee, individually,
and Kent Emry, individually, agree (a) not to own, manage, lease or operate a
long term skilled nursing home facility which is located within a five (5) mile
radius of any Facility and (b) not to solicit the transfer of patients or
residents of any Facility to any long term care skilled nursing home facility or
assisted living facility which is managed, leased or operated by any entity
owned and/or controlled by any of Seller or such individual within a five (5)
mile radius of any Facility.

 

26.         Confidentiality. The provisions of the Confidentiality Agreement
attached hereto as Exhibit C and executed by the parties either prior to the
date of this Agreement are hereby incorporated by this reference and the parties
hereto agree to comply with the terms thereof.

 

27.         Exhibits and Schedules. To the extent that one or more Exhibits or
Schedules are not attached to this Agreement at the time this Agreement is
executed, Seller and Buyer agree that this Agreement is not rendered
unenforceable by reason of such fact. Seller shall provide such exhibits to
Buyer during the Due Diligence Period as promptly as possible in order to allow
the parties to agree upon such Exhibits and Schedules and to afford Buyer
adequate time in which to complete its due diligence review prior to the
expiration of the Due Diligence Period.

 

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28.         Prevailing Party. Subject to the limitations as otherwise set forth
in this Agreement, if an action shall be brought on account of any breach of or
to enforce or interpret any of the terms, covenants or conditions of this
Agreement, the prevailing party shall be entitled to recover from the other
party, as part of the prevailing party’s costs, reasonable attorney’s fees, the
amount of which shall be fixed by the court and shall be made a part of any
judgment rendered.

 

29.         Time is of the Essence. Time is of the essence of this Agreement.

 

30.         Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Oregon.

 

31.         Seller’s Tax Deferred Exchange. Seller may desire to effect a
tax-deferred exchange with respect to its disposition of all or a portion of the
Property (“Seller’s Exchange”) pursuant to Section 1031 of the Internal Revenue
Code. Seller’s Exchange will be structured by Seller at its sole cost and
expense and Buyer will have no obligation to acquire or enter into the chain of
title to any property other than the Property. Buyer’s sole obligation in
connection with Seller’s Exchange shall be to review and execute certain
documentation necessary in order to effectuate Seller’s Exchange in accordance
with the foregoing and the applicable rules governing such exchanges. Buyer’s
cooperation with Seller’s Exchange shall not affect or diminish Buyer’s rights
under this Agreement, delay the closing of this Agreement or be construed as
Buyer’s warranty that Seller’s Exchange in fact complies with Section 1031 of
the Internal Revenue Code. Buyer shall have the right to review and reasonably
approve any documents to be executed by Buyer in connection with Seller’s
Exchange. Acceptance of title to the Property from Seller’s designated
intermediary shall not modify Seller’s representations, warranties and covenants
to Buyer under this Agreement or the survival thereof pursuant to this
Agreement. The Warranty Deed and all closing documents shall run directly
between Seller and Buyer. Seller shall indemnify and hold Buyer harmless from
and against any and all claims, liabilities, losses, damages, costs and expenses
(including reasonable attorneys’ fees but excluding costs incurred to review the
exchange documents) arising from Seller’s Exchange (other than what would have
been applicable under this Agreement without Seller’s Exchange) which
indemnification obligation shall survive the Close of Escrow. Seller is relying
solely upon the advice and counsel of professionals of Seller’s choice in
structuring, executing and consummating Seller’s Exchange.

 

[Signatures on Following Pages]

 

32

 

 

IN WITNESS WHEREOF, the undersigned have duly executed this Agreement by parties
legally entitled to do so as of the day and year first set forth above.

 

  “SELLER”:       SHERIDAN CARE CENTER LLC, dba   SHERIDAN CARE CENTER       By:
/s/ Don Bybee         Don Bybee, Member Manager (date)       By:   /s/ Kent Emry
        Kent Emry, Member Manager (date)       SHERIDAN PROPERTIES LLC       By:
  /s/ Don Bybee         Don Bybee, Member Manager (date)       By:   /s/ Kent
Embry         Kent Emry, Member Manager (date)       FERNHILL ESTATES LLC, dba  
FERNHILL ESTATES       By:   /s/ Don Bybee         Don Bybee, Member Manager
(date)       By:   /s/ Kent Emry         Kent Emry, Member Manager (date)      
FERNHILL PROPERTIES LLC       By:   /s/ Don Bybee         Don Bybee, Member
Manager (date)       By:   /s/ Kent Emry         Kent Emry, Member Manager
(date)       PACIFIC GARDENS ESTATES LLC,   dba PACIFIC HEALTH AND
REHABILITATION       By:   /s/ Don Bybee         Don Bybee, Member Manager
(date)

 

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  By:   /s/ Kent Emry         Kent Emry, Member Manager (date)

 

  “BUYER”:           Cornerstone Healthcare Real Estate Fund, Inc., a Maryland
corporation         By:   Terry G. Roussel     Its:   Manager        

 

34

 

 

LIST OF EXHIBITS

 

A. Legal Descriptions of Real Property     B. Permitted Exceptions     C.
Confidentiality Agreement     D. Lease Terms

 

 

 

 

LIST OF SCHEDULES

 

Schedule l(a) List of Facility, Operator(s)     Schedule 1(c) Personal Property
    Schedule 1(g) Capital Improvements     Schedule 3 Allocation of Purchase
Price     Schedule 8(a)(v) Claims, Litigation     Schedule 8(b) Violations    
Schedule 8(d) Hazardous Substances     Schedule 8(f) Leases and Contracts    
Schedule 8(g) Financial Reports     Schedule 8(h) Interests in Suppliers, etc.  
  Schedule 8(j) Matters relating to Licensure     Schedule 8(k) Matters relating
to Reports and Reimbursements     Schedule 8(l) Surveys, Cost Reports, Private
Rates, Census and Licensed Beds     Schedule 8(m) Occupied Beds; Rates    
Schedule 10(a)(v) Due Diligence Items

 

 

 

 

EXHIBIT A

 

LEGAL DESCRIPTION

 

[To be Provided by Title Company]

 

 

 

 

EXHIBIT B

 

PERMITTED EXCEPTIONS

 

[To be Determined]

 

 

 

 

EXHIBIT C

 

CONFIDENTIALITY AGREEMENT

 

[To be Supplied by Parties]

 

 

 

 

EXHIBIT D

 

LEASE TERMS

 

[To be Supplied by Parties]

 

 

 

 

SCHEDULE 1 (a)

 

FACILITY; LICENSED BEDS

 

Facility   Licensed Nursing Beds

 

 

 

 

SCHEDULE 10(a)(v)

 

DUE DILIGENCE MATERIALS

 

S-1

 

 

EXHIBIT 4

 

After recording, return to       Grantee   c/o James E. Anderson   DLA Piper LLP
  2000 University Avenue   East Palo Alto CA  94303       Until a change is
requested, all tax statements shall be sent to the following address:  
____________________   ____________________   ________________  

 

STATUTORY WARRANTY DEED

(ORS 93.850)

 

______________________________, whose address is 850 Promontory Place SE, Salem,
Oregon 97302, Grantor, conveys and warrants to _____________________________,
whose address is _______________________________, Grantee, the following
described real property situated in _______________ County, State of Oregon,
free of encumbrances except as specifically set forth herein:

 

See Exhibit A attached hereto and made a part hereof by this reference:

 

The true consideration for this conveyance is $_________________.

 

SUBJECT TO:

 

1.           Proceedings by a public agency which may result in taxes or
assessments or notices of such proceedings, whether or not shown by the records
of such agency or by the public records.

 

2.          Easements, liens, encumbrances, interests, or claims thereof which
are not shown by the public records; any facts, rights, interest, or claims
which are not shown by the public records but which could be ascertained by an
inspection of the land or by making inquiry of persons in possession thereof.

 

3.          Discrepancies, conflicts in boundary lines, shortage in area,
encroachments, or any other facts which a correct survey would disclose and
which are not shown by the public records.

 

4.          The rights of the public in and to that portion of the herein
described property lying within the limits of public roads, streets, highways,
or right-of ways.

 

S-2

 

 

5.          Unpatented mining claims; reservations or exceptions in patents or
in acts authorizing the issuance thereof; water rights, claims or title to
water, whether or not shown by the public records.

 

BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON TRANSFERRING FEE TITLE
SHOULD INQUIRE ABOUT THE PERSON’S RIGHTS, IF ANY, UNDER ORS 195.300, 195.301 AND
195.305 TO 195.336 AND SECTIONS 5 TO 11, CHAPTER 424, OREGON LAWS 2007, SECTIONS
2 TO 9 AND 17, CHAPTER 855, OREGON LAWS 2009, AND SECTIONS 2 TO 7, CHAPTER 8,
OREGON LAWS 2010. THIS INSTRUMENT DOES NOT ALLOW USE OF THE PROPERTY DESCRIBED
IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND REGULATIONS.
BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO
THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING
DEPARTMENT TO VERIFY THAT THE UNIT OF LAND BEING TRANSFERRED IS A LAWFULLY
ESTABLISHED LOT OR PARCEL, AS DEFINED IN ORS 92.010 OR 215.010, TO VERIFY THE
APPROVED USES OF THE LOT OR PARCEL, TO DETERMINE ANY LIMITS ON LAWSUITS AGAINST
FARMING OR FOREST PRACTICES, AS DEFINED IN ORS 30.930, AND TO INQUIRE ABOUT THE
RIGHTS OF NEIGHBORING PROPERTY OWNERS, IF ANY, UNDER ORS 195.300, 195.301 AND
195.305 TO 195.336 AND SECTIONS 5 TO 11, CHAPTER 424, OREGON LAWS 2007, SECTIONS
2 TO 9 AND 17, CHAPTER 855, OREGON LAWS 2009, AND SECTIONS 2 TO 7, CHAPTER 8,
OREGON LAWS 2010.

 

DATED this ____ day of _____________________, 2012.

 

  GRANTOR:               By:       Don Bybee, Member Manager         By:      
Kent Emry, Member Manager

 

S-3

 

 

STATE OF OREGON )     ) ss.   County of Marion )  

 

This instrument was acknowledged before me on the           day of
                                          , 2012, by Donald Bybee as Member
Manager of
                                                                                      ,
on behalf of which this instrument was executed.

 

      NOTARY PUBLIC FOR OREGON   My Commission Expires:  

 

STATE OF OREGON )     ) ss.   County of Marion )  

 

This instrument was acknowledged before me on the           day of
                                          , 2012, by Kent Emry as Member Manager
of
                                                                                      ,
on behalf of which this instrument was executed.

 

      NOTARY PUBLIC FOR OREGON   My Commission Expires:  

 

S-4