PURCHASE AND SALE AGREEMENT
 
THIS PURCHASE AND SALE AGREEMENT (this “Agreement”) is made and entered into
this ____ day of October, 2006 by and between PITA GENERAL CORPORATION, an
Illinois corporation ( “PITA”) and AHC TENANT, INC a Delaware Corporation
(“Tenant”) (PITA and Tenant referred to collectively as “Seller”), each of the
entities listed in Exhibit A attached hereto (“Licensees”) and BREA EMERITUS
LLC, a Delaware limited liability company (the “Buyer”).
 
RECITALS
 
WHEREAS, PITA is the owner of fee title to the twenty five (25) healthcare
facilities identified on Exhibit B attached hereto and made a part hereof as the
“Facilities” (each being referred to herein individually as a “Facility”); and
 
WHEREAS, PITA leased the Facilities to Tenant pursuant to a Master Lease dated
July 16, 1999 (the “Master Lease”); and
 
WHEREAS, Tenant has entered into Sublease Agreements (“Regulatory Subleases”)
for each of the Facilities with the Licensees listed on Exhibit C attached
hereto and made part hereof, which entities have secured and maintained the
required licenses to operate the Facilities; and 
 
WHEREAS, the Regulatory Subleases provide that, for income tax purposes, Tenant
is the owner of all assets of the Facilities; and
 
WHEREAS, the Regulatory Subleases terminate upon the termination of the Master
Lease; and
 
WHEREAS, the Licensees have entered into Consulting and Services Agreements (the
“C&S Agreements”) with management companies (“Managers”) listed on Exhibit D for
the provision of designated services necessary for the operation of the
Facilities; and
 
WHEREAS, Seller desires to sell, transfer, convey and assign (and Licensees, by
quitclaim instrument, desire to sell, transfer, convey and assign) to Buyer, and
Buyer desires to acquire, assume and accept from Seller and Licensees (to the
extent of any interest Licensees may have therein), certain land, personal
property and other assets associated with the Facilities (the “Sale Assets,” as
further defined herein) and assume the “Assumed Obligations,” as further defined
herein, to the extent of their respective interests in the Sale Assets and
Assumed Obligations, on and subject to the terms and conditions contained in
this Agreement; and
 
WHEREAS, simultaneous with the closing of the transactions contemplated by this
Agreement, Tenant, the Licensees and the Managers shall enter into and execute
one or more Operations Transfer Agreements (each a “Transfer Agreement”) with
Buyer, in the form of Exhibit E (subject to any third party manager’s review and
comment), pursuant to which Tenant, the Licensees, and Managers shall transfer
the operations of the Facilities, and all of their respective rights, titles and
interests therein and thereto, to Buyer or Buyer’s designee, and Buyer
 

 
 

--------------------------------------------------------------------------------

 

shall accept transfer of the operations of the Facilities pursuant to the terms
of the Transfer Agreements; and
 
WHEREAS, simultaneous with the closing of the transactions contemplated by this
Agreement, Seller and Licensees shall enter into and execute an Assignment and
Assumption Agreement (the “Assignment and Assumption Agreement”), in the form of
Exhibit F, pursuant to which Seller and Licensees shall sell, transfer, convey,
and assign to Buyer and Buyer shall purchase, acquire, assume, and accept from
Seller and Licensees, all of their respective right, title and interest in and
to any assets (to the extent transferable) associated with the Facilities that
are not otherwise sold, transferred, conveyed, assumed, or assigned to Buyer and
Buyer shall assume and agree to pay the Assumed Obligations pursuant to the
terms hereof.
 
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are acknowledged hereby, the parties hereto agree to incorporate the
above recitals into this Agreement as if fully rewritten herein and further
agree as follows:
 
1.  Sale. Seller agrees to sell, convey, and assign (and Licensees, by quitclaim
instrument, agree to sell, convey and assign) to Buyer, and Buyer agrees to
purchase from Seller and Licensees, for the Purchase Price (as hereinafter
defined), and on the terms and conditions set forth in this Agreement, the Sale
Assets (and, with respect to the Licensees, any interest they may have therein).
The Licensees are conveying their interest in all of the Sale Assets, to the
extent that the Licensees have any interest in the Sale Assets, as an
accommodation to Buyer to eliminate any claim or allegation that Buyer is not
obtaining title to the Sale Assets as provided for herein.
 
1.1.  For purposes of this Agreement, the term “Sale Assets” shall be deemed to
mean on a collective basis:
 
(a)  The Land. The parcels of land legally described on Exhibit G attached
hereto and made a part hereof, together with all rights, easements and interests
appurtenant thereto of Seller that run with the land including, but not limited
to, any streets or other public ways adjacent to the Land and any water or
mineral rights owned by Seller or Licensees (collectively, the “Land”) subject
to the Permitted Encumbrances set forth in Schedule 1.
 
(b)  The Improvements. All improvements located on the Land, including, but not
limited to, the Facilities, and all other structures, systems, fixtures and
utilities associated with, and utilized in, the ownership and operation of the
Facilities (all such improvements being collectively referred to as the
“Improvements” and, together with the Land, collectively referred to herein as
the “Real Property”).
 
(c)  Personal Property. All tangible personal property of Seller and Licensees
(i) located on or in the Real Property or (ii) used in connection with the
ownership, operation and maintenance of the Facilities (the “Personal
Property”), including, but not limited, to, all, if any, building materials,
supplies, hardware, and carpeting owned by Seller or Licensees and Seller’s and
Licensees’ right, title and interest in and to any “Consumables”, which are
hereby defined to be the inventory of
 

 
2

--------------------------------------------------------------------------------

 

food, dietary supplies, medical supplies, floor stock, maintenance supplies,
paper goods, linens, laundry supplies and all other consumables, disposable
items used in the operation of the Facilities as of the Closing (as defined
herein), and other inventory maintained in connection with Seller’s and
Licensees’ ownership and operation of the Facilities as of the Closing (the
“Inventory”).
 
(d)  Intangible Personal Property. Each and all of the following items of
intangible property owned by Seller or Licensees and utilized in connection with
the ownership and operation of the Facilities (collectively, the “Intangibles”):
(i) to the extent assignable or transferable, all right, title and interest of
Seller and Licensees in and to each and every guaranty and warranty concerning
the Improvements and the Personal Property, including, without limitation, any
roofing, air conditioning, heating, elevator or other guaranty or warranty
relating to the construction, maintenance or replacement of the Improvements or
any portion thereof; (ii) all right, title and interest in and to all guaranties
and warranties given to Seller or Licensees that have not expired (either on a
“claims made” or occurrence basis) in connection with the operation,
construction, improvement, alteration or repair of the Improvements; (iii) to
the extent assignable or transferable, all right, title and the interest of
Seller or Licensees in, to and under all governmental permits, licenses,
authorizations, operating rights and approvals associated with the physical
construction of the Improvements (not including any permits, licenses,
authorizations or approvals associated with the operation of the Facilities as
health care facilities or otherwise); (iv) to the extent assignable, the
telephone numbers of each of the Facilities; and (v) to the extent assignable or
transferable, all right, title and interest of Seller and Licensees in, to and
under any certificate of need, operating rights from a governmental authority
related to the construction and/or operation of any Facility for the use of a
specified number of beds in a skilled nursing facility and/or assisted living
facility, and any other activities carried on by Seller or Licensees in the
Facilities, or alteration of any such Facility or modification of services
provided at such Facility. Provided, however, the trade names and logos under
which the Facilities have been operated or used by Seller and Licensees in
connection with the operation of the Facilities are not part of the Sale Assets
and all uses of them at the Facilities shall cease upon the Closing.
 
(e)  Business Records. To the extent that Seller and Licensees have ownership,
control or the right to obtain copies thereof, all of the following maintained
by, issued to or held by Seller or Licensees or used in connection with the
operation, maintenance and use of the Facilities: books and records relating to
the Facilities or the operation thereof, including, without limitation, files,
invoices, forms, accounts, correspondence, patient records, technical,
accounting and procedural manuals, employment records, actuarial studies,
studies, reports or summaries relating to any environmental matters, and other
books and records relating to the ownership, maintenance or operation of any of
the Facilities or any of the Sale Assets, surveys, engineering or environmental
reports and other studies, investigations or depictions of the Facilities or the
Sale Assets (collectively, the “Business Records”) to the extent Seller or
Licensees have the right under applicable law to convey or transfer them.
 

 
3

--------------------------------------------------------------------------------

 

 
(f)  Provider Agreements. All Provider Agreements and for purposes of this
Agreement, the term “Provider Agreements” shall mean, to the extent they are
assignable, any provider agreements held by or issued to Seller or Licensees or
any Facility under which the Facilities are eligible to receive payment under
(i) Title XVIII (“Medicare”), Title XIX (“Medicaid”) or any other governmental
or quasi-governmental third party payor programs, (ii) any private or
quasi-private healthcare reimbursement or private payor programs (including
so-called “HMO” and “PPO” programs) (herein, “Third Party Payor Programs”), and
(iii) any other agreement, arrangement, program or understanding with any
federal, state or local governmental agency or organization or private
organization pursuant to which the Facilities qualify for payment or
reimbursement for medical or therapeutic care or other goods or services
rendered or supplied to any resident. Notwithstanding the above, the parties
hereby acknowledge that Buyer intends to apply for its own Medicare and Medicaid
provider numbers and, unless it notifies Seller and Licensees at least thirty
(30) days prior to the Closing Date, the Buyer will not assume any of the
Seller’s and Licensees’ Medicare and Medicaid Provider Agreements.
 
(g)  Facility and Admission Agreements. All rights of Seller or Licensees in, to
and under all contracts, leases, agreements, vehicle leases, commitments and
other arrangements, and any amendments or modifications, used or useful in the
operation of the Facilities as of the date hereof or made or entered into by
Seller or Licensees between the date hereof and the Closing Date in compliance
with this Agreement (the “Facility Agreements”), including but not limited to
occupancy, residency, lease, tenancy and similar written agreements entered into
in the ordinary course of the Business with residents of the Facilities
(“Admission Agreements”).
 
1.2.  Excluded Sale Assets. Notwithstanding any provision of this Agreement to
the contrary, the Sale Assets shall not include the following (collectively, the
“Excluded Assets”), and any such Excluded Assets or proceeds therefrom that
Buyer may have or obtain post-Closing shall be delivered promptly to Seller and
Licensees:
 
(a)  Any and all rights in and to claims or causes of action of Seller and
Licensees against third parties (including, without limitation, for
indemnification) with respect to, or which are made under or pursuant to, other
Excluded Assets;
 
(b)  Any and all accounts receivable arising or accruing in connection with the
operation of the Facilities on or prior to the Closing Date and to the extent
related to the period prior to the Closing Date (the “Retained Receivables”);
 
(c)  Subject to Article 11, any and all rights of Seller or Licensees to
coverage or benefits under any insurance policies in force as of the Closing
Date with respect to any liabilities that may have arisen or accrued through the
Closing Date;
 
(d)  Any Inventory disposed of or consumed between the date hereof and the
Closing Date in accordance with the terms and provisions of this Agreement;
 
 
4

--------------------------------------------------------------------------------

 
(e)  Any records relating to Excluded Assets and to liabilities other than the
Assumed Obligations;
 
(f)  Any and all cash, bank deposits and other cash equivalents, certificates of
deposit, marketable securities and cash deposits made by Seller or Licensees to
secure contract obligations accrued through the Closing Date;
 
(g)  Personal property of Seller’s, the Licensees’ or the Managers’ officers or
employees located in their respective personal offices at the Facilities;
 
(h)  Originals of all financial and other records of Seller and Licensees
(except records related to operation of the Facilities or to residents of the
Facilities);
 
(i)  All other assets of Seller and Licensees not located on or used in
connection with the operation of the Facilities;
 
(j)  All trade names, assumed names and logos under which any of the Facilities
has been operated or used by Seller or Licensees in connection with the
operation of any of the Facilities; and
 
(k)  All operating procedure manuals, training manuals and proprietary business
forms of Seller and Licensees.
 
1.3.  Assumption of Obligations. Buyer shall, at Closing, assume any and all
responsibilities, liabilities and obligations of Seller and Licensees to pay,
discharge and perform when due all liabilities and obligations of Seller or
Licensees or Managers arising under the Facility Agreements that accrue or arise
after Closing (collectively, the “Assumed Obligations”). The Assumed Obligations
shall be prorated as of the Closing Date in accordance with Article 10. The
parties hereby acknowledge that Buyer is not assuming any obligations or
liabilities of Seller, Licensees or Managers that arose or accrued prior to the
Closing Date except as specifically set forth herein.
 
2.  Purchase Price.
 
2.1.  Payment of Purchase Price. 
 
(a)  The total purchase price for the Sale Assets (the “Purchase Price”) to be
paid to Seller by Buyer shall be equal to the sum of One Hundred Ninety Million
and no/100 Dollars ($190,000,000). It is expressly agreed and acknowledged that
no portion of the Purchase Price shall be paid or payable to the Licensees or
Managers.
 
(b)  Buyer will pay the Purchase Price by (a) depositing, within one (1)
business day of Buyer’s receipt of a fully executed copy of this Agreement,
Fifteen Million and no/100 Dollars ($15,000,000) (together with any accrued
interest thereon, the “Deposit”) with Chicago Title Insurance Company (the
“Escrow Agent”) pursuant to the terms of the escrow agreement dated the date
hereof between the Escrow Agent, Buyer and Seller and Licensees (the “Escrow
Agreement”) and (b) paying the balance of the
 

 
5

--------------------------------------------------------------------------------

 

Purchase Price at Closing by electronic wire transfer of immediately available
funds to the Escrow Agent for disbursement to Seller in accordance with this
Agreement.
 
(c)  Subject to Article 7, the entire Deposit is non-refundable and will be
released from escrow and disbursed by the Escrow Agent to Seller either (i) at
Closing as payment of a portion of the Purchase Price or (ii) upon termination
of this Agreement.
 
2.2.  Allocation of the Purchase Price. The Purchase Price shall be allocated
among each of the Facilities in accordance with Schedule 2. Seller and Buyer
agree that the form of the transactions and the consideration provided for in
this Agreement were arrived at on the basis of arm’s length negotiation between
Seller and Licensees and Buyer, and shall be respected by each of them for
federal, state, local and other tax reporting purposes, including filings on
Internal Revenue Service Form 8594, and that neither of them will assert or
maintain a position inconsistent with the forgoing. The Buyer and Seller and
Licensees hereby agree and acknowledge that no portion of the Purchase Price is
allocable to the Licensees or the Manager.
 
3.  Closing. The consummation of the purchase and sale of the Sale Assets
contemplated herein (“Closing”) shall occur at 3:00 p.m. Central time on
December 1, 2006 (or December 15, 2006, if Buyer elects to change the Closing
Date in accordance with Section 3.3), at the offices of the Escrow Agent, or at
such other time or place or on such other date as is mutually agreed to by the
parties (the “Closing Date”). 
 
3.1.  BUYER ACKNOWLEDGEMENT. BUYER ACKNOWLEDGES AND AGREES THAT BUYER IS
ACQUIRING THE SALE ASSETS ON AN “AS-IS WHERE-IS” BASIS AND ASSUMING THE ASSUMED
OBLIGATIONS, WITHOUT REPRESENTATION, WARRANTY OR COVENANT (EXPRESS OR IMPLIED
OTHER THAN THE EXPRESS REPRESENTATIONS CONTAINED IN THIS AGREEMENT) BY SELLER OR
LICENSEE AND IN EACH CASE SUBJECT ONLY TO PERMITTED ENCUMBRANCES. SELLER AND
LICENSEE HAVE NOT MADE NOR SHALL BE DEEMED TO HAVE MADE ANY REPRESENTATION,
WARRANTY OR COVENANT (EXPRESS OR IMPLIED OTHER THAN THE EXPRESS REPRESENTATIONS
CONTAINED IN THIS AGREEMENT) OR SHALL BE DEEMED TO HAVE ANY LIABILITY WHATSOEVER
AS TO THE VALUE, HABITABILITY, USE, CONDITION, DESIGN, OPERATION,
MERCHANTABILITY OR FITNESS FOR USE OF THE SALE ASSETS (OR ANY PART THEREOF), THE
ASSUMED OBLIGATIONS, OR ANY OTHER REPRESENTATION, WARRANTY OR COVENANT
WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE SALE ASSETS (OR ANY PART
THEREOF), OTHER THAN THE EXPRESS REPRESENTATIONS CONTAINED IN THIS AGREEMENT,
ANY USE OF THE SALE ASSETS, ANY BUSINESS OR BUSINESSES CONDUCTED THEREIN, THE
VALUE OR FINANCIAL STATUS OF THE SALE ASSETS OR THE FACILITIES, AND SELLER AND
LICENSEE SHALL NOT BE LIABLE FOR ANY LATENT, HIDDEN, OR PATENT DEFECT THEREON OR
THE FAILURE OF THE SALE ASSETS, OR ANY PART THEREOF, TO COMPLY WITH ANY LEGAL
REQUIREMENT FROM AND AFTER THE CLOSING DATE. BUYER HAS OR PRIOR TO THE DATE
HEREOF WILL HAVE BEEN AFFORDED FULL OPPORTUNITY TO INSPECT THE SALE ASSETS,
ASSUMED OBLIGATIONS, AND ANY AND ALL BUSINESSES OR OPERATIONS CONDUCTED THEREIN.
IT IS UNDERSTOOD AND AGREED THAT BUYER IS PURCHASING THE SALE ASSETS AND
ASSUMING THE
 

 
6

--------------------------------------------------------------------------------

 

ASSUMED OBLIGATIONS AS SPECIFICALLY SET FORTH IN THIS AGREEMENT. SELLER AND
LICENSEES HAVE MADE NO REPRESENTATIONS AND WARRANTIES AND SHALL MAKE NO
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO ANY OF THE BUSINESSES OR
OPERATIONS CONDUCTED IN THE SALE ASSETS, OTHER THAN THE EXPRESS REPRESENTATIONS
CONTAINED IN THIS AGREEMENT. BUYER REPRESENTS AND WARRANTS TO SELLER AND
LICENSEES, WITHOUT ANY LIMITATION WHATSOEVER, THAT IT IS ENTERING INTO THIS
AGREEMENT SOLELY ON THE BASIS OF THE RESULTS OF BUYER’S OWN INSPECTIONS, AND ALL
RISKS INCIDENT TO THE MATTERS DESCRIBED IN THIS SECTION 3.1, AS BETWEEN SELLER
AND LICENSEES ON THE ONE HAND, AND BUYER, ON THE OTHER HAND, ARE TO BE BORNE BY
BUYER. 
 
3.2.  Consent Condition. Seller and Licensees acknowledge and agree that Buyer’s
obligation to purchase the Sale Assets in accordance with the terms specified in
this Agreement is subject to obtaining the consent of ZC Specialty Insurance
Company (the “Surety”), which has issued a financial surety bond with respect to
certain secured indebtedness that encumbers the Sale Assets (the “Secured
Debt”), which consent Seller and Licensees represent and warrant, has been
obtained on or before the date of this Agreement.
 
3.3.  Licensure. Buyer shall be responsible for filing and obtaining all
requisite Operator Licenses (as hereinafter defined) attributable to the change
of ownership and operation of the Facilities and Buyer shall file, on or before
October 16, 2006, all applications that Buyer reasonably believes are required
to obtain the Operator Licenses. Obtaining all Operator Licenses necessary in
Buyer’s reasonable opinion to operate the Facilities as of the Closing Date
shall not be a condition precedent to the sale and assumption as set out herein.
Buyer hereby agrees to use commercially reasonable efforts to obtain such
Operator Licenses in an expeditious manner. However, if Buyer is unable, despite
commercially reasonable efforts to comply with applicable agency requirements
that may be completed pre-Closing, so as to assure Buyer that its license will
be issued promptly after Closing, then the applicable Licensee and Buyer shall
enter into a (i) Sale and Leaseback Agreement or (ii) Transition Services
Agreement, as appropriate to facilitate any necessary regulatory approvals, for
each Facility located in a state where licensing may not occur promptly after
Closing. Subject to such minor and non-material economic changes as may be
appropriate for each particular circumstance and as may be required by
applicable regulatory authorities, the (i) Transition Services Agreement and
(ii) Sale and Leaseback Agreement shall be substantially in the forms attached
hereto as Exhibit U (“Sale and Leaseback Agreement”) and Exhibit V (“Transition
Services Agreement”) respectively. Notwithstanding anything contained herein to
the contrary, in the event that Buyer, despite using commercially reasonable
efforts, has not, on or before November 27, 2006, obtained Operator Licenses or
satisfied all conditions necessary to obtain reasonable assurances from the
applicable regulatory authorities that it will obtain Operator Licenses promptly
after Closing and satisfaction or completion of customary post closing matters
associated with obtaining such Operator Licenses as reasonably determined by
Buyer, for at least sixteen (16) of the Facilities, then Buyer, in its sole
discretion, may elect to change the Closing Date to December 15, 2006. For the
avoidance of doubt, delivering a copy of the executed deed to the appropriate
regulatory authority and/or a survey of a Facility by the requisite regulatory
authority are examples of customary post closing matters. Buyer shall provide
Seller and Licensees with notice that it is exercising its option to change the
Closing Date on or before 11:59 p.m. Central time, November 27, 2006. The
immediately preceding sentence
 

 
7

--------------------------------------------------------------------------------

 

and the making of such election does not relieve Buyer of its obligation to
close or give rise to any right to terminate this Agreement.
 
3.4.  Westlake Facility Closing. The parties hereby acknowledge that the real
property upon which the Cypress Gardens at Westlake in Westlake, Ohio (“Westlake
Facility”)  is located (“Westlake Property”) is subject to that certain (i)
Commissioner’s Deed dated February 28, 1995, and (ii) Foreclosure Sale Use
Agreement dated February 28, 1995, as amended by that certain Amendment to
Commissioner’s Deed and Foreclosure Sale Use Agreement dated June 30, 1999
(collectively, “HUD Agreement”). The HUD Agreement provides, among other things,
that the Westlake Property may not be transferred without the prior written
approval of the Department of Housing and Urban Development (“HUD”). In order to
obtain HUD’s approval, the Buyer must obtain a “2530 Clearance” from HUD and
submit (i) a written request to HUD to approve the sale, (ii) a copy of the HUD
Agreement, and (iii) a copy of the Operator License in the name of the Buyer or,
if the application for the Operator License is pending, then a copy of the
applicable application, together with a statement from the State of Ohio
licensing agency that the Buyer is authorized to operate the Westlake Facility
under the existing Operator License pending issuance to Buyer of its Operator
License (collectively, “HUD Conditions”).
 
Buyer hereby agrees to diligently pursue in good faith the satisfaction of the
HUD Conditions and Seller and Licensee hereby agree to cooperate and work with
Buyer in good faith to satisfy the HUD Conditions until Buyer obtains HUD
approval or provides Seller with a Westlake Termination Notice, as defined
hereinafter below. However, in the event that Buyer, despite good faith efforts,
has not satisfied the HUD Conditions and obtained HUD approval on or before the
Closing Date, then, notwithstanding anything contained in this Agreement to the
contrary, the Sale Assets and Assumed Obligations associated with or related to
the Westlake Facility (collectively, “Westlake Facility Assets”) shall be
excluded from the Closing.

In such event, (i) the Purchase Price shall be reduced by the amount of the
Purchase Price allocated to the Westlake Facility Assets (“Westlake Facility
Price”) in Schedule 2, (ii) the amount of the Deposit that may be applied
against the reduced Purchase Price at Closing shall be an amount equal to the
Deposit less a proportionate share of the Deposit allocable to the Westlake
Facility Assets (“Westlake Facility Deposit”) and (iii) the Westlake Facility
Deposit shall be held in escrow as more particularly described in the Escrow
Agreement. In addition, at Closing, Buyer, or its designee, and Westlake Senior
Care, LLC shall enter into a management agreement on such reasonable terms and
conditions as are to be agreed by the parties pursuant to which Buyer or its
designee shall operate and manage the Westlake Facility on an interim basis (the
“Westlake Management Agreement”). Further, at the Westlake Facility Closing (as
hereinafter defined), the parties shall make the prorations and adjustments
provided in Article 10 with respect to the Westlake Facility Assets.

The closing with respect to the Westlake Facility Assets (“Westlake Facility
Closing”) shall be extended until the fifth business day after the date that
Buyer obtains HUD approval (“Westlake Facility Closing Date”). The purchase
price for the Westlake Facility Assets shall be equal to the Westlake Facility
Price and shall be paid to Seller at the Westlake Facility Closing in the manner
provided in Section 2.1. The parties shall provide the applicable closing
deliveries at the Westlake Facility Closing in accordance with the terms and
conditions of this Agreement. The representations and warranties made by
Sellers, Licensees and Buyers in this

 
8

--------------------------------------------------------------------------------

 

Agreement with respect to (i) the Westlake Facility Assets and (ii) the
authority to consummate the Westlake Facility Closing shall be true in all
material respects as of the Westlake Facility Closing Date. Sellers, Licensees
and Buyers shall continue to comply with the interim operating covenants and
other pre-closing agreements contained herein with respect to the Westlake
Facility until the Westlake Facility Closing Date. Closing expenses with respect
to the Westlake Facility Closing shall be allocated between the parties as
provided in Article 13. If the Westlake Facility Closing does not occur solely
due to Buyer’s default under this Agreement, Seller shall be entitled to retain
the Westlake Facility Deposit, which shall not be considered liquidated damages
pursuant to Section 7.4 hereof, and Seller shall have such additional remedies
as are available at law or in equity.

Notwithstanding anything contained herein to the contrary, in the event that
Buyer has not obtained HUD approval within one hundred twenty (120) days after
the Closing Date, then Buyer may, in its sole discretion, at anytime thereafter
until it receives HUD approval provide Seller and Licensees with notice that it
no longer desires to purchase the Westlake Facility Assets (“Westlake
Termination Notice”) and the balance of the Deposit shall be promptly returned
to Buyer in accordance with the terms and conditions of the Escrow Agreement;
provided, that Buyer or its designee shall continue to operate and manage the
Westlake Facility pursuant to the terms of the Westlake Management Agreement
until the Westlake Facility is sold to a third party. In such event, Seller will
use good faith efforts to sell the Westlake Facility as promptly as practicable;
provided, that Sellers shall not be obligated to sell the Westlake Facility for
an amount that is less than the Westlake Facility Price.

3.5.  California Facilities. The parties hereby acknowledge that the Manager
(“California Manager”) for the Facilities located in California (“California
Facilities”) is named in the applicable Operator License for each such
California Facility. Accordingly, such California Manager must be a party to any
Sale and Leaseback Agreement or Transition Services Agreement described in
Section 3.3 with respect to any California Facility. In the event that the
California Manager refuses to sign any such agreement and enter into a
reasonable management agreement, Buyer, in its sole discretion, upon notice to
Seller and Licensees may elect to delay Closing with respect to the Sale Assets
and Assumed Obligations associated with or related to the California Facilities
(collectively, “California Facility Assets”) until such time as Buyer has
obtained the Operator Licenses (“California Operator Licenses”) for the
California Facilities (“Delayed California Closing”).
 
In the event of a Delayed California Closing, (i) the Purchase Price shall be
reduced by the amount of the Purchase Price allocated to the California Facility
Assets (“California Facility Price”) in Schedule 2, (ii) the amount of the
Deposit that may be applied against the reduced Purchase Price at Closing shall
be an amount equal to the Deposit less a proportionate share of the Deposit
allocable to the California Facility Assets (“California Facility Deposit”) and
(iii) the California Facility Deposit shall be held in escrow as more
particularly described in the Escrow Agreement. In addition, at the California
Facility Closing (as hereinafter defined), the parties shall make the prorations
and adjustments provided in Article 10 with respect to the California Facility
Assets.

The closing with respect to the California Facility Assets (“California Facility
Closing”) shall be extended until the fifth business day after the date that
Buyer obtains the

 
9

--------------------------------------------------------------------------------

 

California Operator Licenses (“California Facility Closing Date”). The purchase
price for the California Facility Assets shall be equal to the California
Facility Price and shall be paid to Seller at the California Facility Closing in
the manner provided in Section 2.1. The parties shall provide the applicable
closing deliveries at the California Facility Closing in accordance with the
terms and conditions of this Agreement. The representations and warranties made
by Sellers, Licensees and Buyers in this Agreement with respect to (i) the
California Facility Assets and (ii) the authority to consummate the California
Facility Closing shall be true in all material respects as of the California
Facility Closing Date. Sellers, Licensees and Buyers shall continue to comply
with the interim operating covenants and other pre-closing agreements contained
herein with respect to the California Facilities until the California Facility
Closing Date. Closing expenses with respect to the California Facility Closing
shall be allocated between the parties as provided in Article 13. If the
California Facility Closing does not occur solely due to Buyer’s default under
this Agreement, Seller shall be entitled to retain the California Facility
Deposit, which shall not be considered liquidated damages pursuant to Section
7.4 hereof, and Seller shall have such additional remedies as are available at
law or in equity.

3.6.  Kansas Facility. The parties hereby acknowledge that the Manager (“Kansas
Manager”) for the Facility located in Overland Park, Kansas (“Kansas Facility”)
is named in the applicable Operator Licenses for the Kansas Facility.
Accordingly, the Kansas Manager must be a party to any Sale and Leaseback
Agreement or Transition Services Agreement described in Section 3.3 with respect
to Kansas Facility. In the event that the Kansas Manager refuses to sign any
such agreement, Buyer, in its sole discretion, upon notice to Seller and
Licensees may elect to either (i) retain the Kansas Manager to manage the Kansas
Facility for a period of time post-Closing until the applicable Operator
Licenses have been obtained, or (ii) delay Closing with respect to the Sale
Assets and Assumed Obligations associated with or related to the Kansas Facility
(“Kansas Facility Assets”) until such time as Buyer has obtained the Operator
Licenses (“Kansas Operator Licenses”) for the Kansas Facility (“Delayed Kansas
Closing”). Further, in the event that a Sale and Leaseback Agreement or
Transition Services Agreement described in Section 3.3 is found to be
impermissible under applicable regulatory requirements, then Buyer, in its sole
discretion, upon notice to Seller and Licensees may elect to have a Delayed
Kansas Closing.
 
In the event of a Delayed Kansas Closing, (i) the Purchase Price shall be
reduced by the amount of the Purchase Price allocated to the Kansas Facility
Assets (“Kansas Facility Price”) in Schedule 2, (ii) the amount of the Deposit
that may be applied against the reduced Purchase Price at Closing shall be an
amount equal to the Deposit less a proportionate share of the Deposit allocable
to the Kansas Facility Assets (“Kansas Facility Deposit”) and (iii) the Kansas
Facility Deposit shall be held in escrow as more particularly described in the
Escrow Agreement. In addition, at the Kansas Facility Closing (as hereinafter
defined), the parties shall make the prorations and adjustments provided in
Article 10 with respect to the Kansas Facility Assets.

The closing with respect to the Kansas Facility Assets (“Kansas Facility
Closing”) shall be extended until the fifth business day after the date that
Buyer obtains the Kansas Operator Licenses (“Kansas Facility Closing Date”). The
purchase price for the Kansas Facility Assets shall be equal to the Kansas
Facility Price and shall be paid to Seller at the Kansas Facility Closing in the
manner provided in Section 2.1. The parties shall provide the applicable closing
deliveries at the Kansas Facility Closing in accordance with the terms and
conditions of this
 

 
10

--------------------------------------------------------------------------------

 

Agreement. The representations and warranties made by Sellers, Licensees and
Buyers in this Agreement with respect to (i) the Kansas Facility Assets and (ii)
the authority to consummate the Kansas Facility Closing shall be true in all
material respects as of the Kansas Facility Closing Date. Sellers, Licensees and
Buyers shall continue to comply with the interim operating covenants and other
pre-closing agreements contained herein with respect to the Kansas Facility
until the Kansas Facility Closing Date. Closing expenses with respect to the
Kansas Facility Closing shall be allocated between the parties as provided in
Article 13. If the Kansas Facility Closing does not occur solely due to Buyer’s
default under this Agreement, Seller shall be entitled to retain the Kansas
Facility Deposit, which shall not be considered liquidated damages pursuant to
Section 7.4 hereof, and Seller shall have such additional remedies as are
available at law or in equity.
 
3.7.  Colorado Facilities. In the event that a Sale and Leaseback Agreement or
Transition Services Agreement described in Section 3.3 is found to be
impermissible under applicable regulatory requirements, then Buyer, in its sole
discretion, upon notice to Seller and Licensees, may elect to delay the Closing
(“Delayed Colorado Closing”) with respect to the Sale Assets and Assumed
Obligations (“Colorado Facility Assets”) associated with or related to the
Facilities located in the State of Colorado (“Colorado Facilities”).
 
In the event of a Delayed Colorado Closing, (i) the Purchase Price shall be
reduced by the amount of the Purchase Price allocated to the Colorado Facility
Assets (“Colorado Facility Price”) in Schedule 2, (ii) the amount of the Deposit
that may be applied against the reduced Purchase Price at Closing shall be an
amount equal to the Deposit less a proportionate share of the Deposit allocable
to the Colorado Facility Assets (“Colorado Facility Deposit”) and (iii) the
Colorado Facility Deposit shall be held in escrow as more particularly described
in the Escrow Agreement. In addition, at the Colorado Facility Closing (as
hereinafter defined), the parties shall make the prorations and adjustments
provided in Article 10 with respect to the Colorado Facility Assets.

The closing with respect to the Colorado Facility Assets (“Colorado Facility
Closing”) shall be extended until the fifth business day after the date that
Buyer obtains the Colorado Operator Licenses (“Colorado Facility Closing Date”).
The purchase price for the Colorado Facility Assets shall be equal to the
Colorado Facility Price and shall be paid to Seller at the Colorado Facility
Closing in the manner provided in Section 2.1. The parties shall provide the
applicable closing deliveries at the Colorado Facility Closing in accordance
with the terms and conditions of this Agreement. The representations and
warranties made by Sellers, Licensees and Buyers in this Agreement with respect
to (i) the Colorado Facility Assets and (ii) the authority to consummate the
Colorado Facility Closing shall be true in all material respects as of the
Colorado Facility Closing Date. Sellers, Licensees and Buyers shall continue to
comply with the interim operating covenants and other pre-closing agreements
contained herein with respect to the Colorado Facility until the Colorado
Facility Closing Date. Closing expenses with respect to the Colorado Facility
Closing shall be allocated between the parties as provided in Article 13. If the
Colorado Facility Closing does not occur solely due to Buyer’s default under
this Agreement, Seller shall be entitled to retain the Colorado Facility
Deposit, which shall not be considered liquidated damages pursuant to Section
7.4 hereof, and Seller shall have such additional remedies as are available at
law or in equity.
 
 
11

--------------------------------------------------------------------------------

 

4.  Seller’s and Licensees’ Representations and Warranties. Seller and Licensees
represent, warrant and covenant to Buyer that the following matters are true as
of the date hereof and shall be true in all material respects as of the Closing
Date:
 
4.1.  Ownership. PITA is the owner, in fee simple, of the Real Property, and
together with Tenant and Licensees, has good and marketable title to the
remainder of the Sale Assets, subject only to the Permitted Encumbrances.
 
4.2.  Status. PITA is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois and Tenant is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Each Licensee is a limited liability company duly organized
and validly existing and in good standing under the laws of the State of Indiana
as set forth in Exhibit A. PITA, Tenant and the Licensees are duly qualified to
do business as a foreign corporation or limited liability company in the states
in which the Facilities are located.
 
4.3.  Authority. The execution and delivery of this Agreement and all documents
to be executed by it pursuant to this Agreement by Seller and/or Licensees, and
the performance of this Agreement and all documents to be executed by it
pursuant to this Agreement by Seller and/or Licensees, have been duly authorized
by Seller and/or Licensees, and this Agreement is binding on Seller and
Licensees and enforceable against Seller and Licensees in accordance with its
terms except as enforceability may be restricted, limited or delayed by
applicable bankruptcy or other laws affecting creditors’ rights generally and
except as enforceability may be subject to general principles of equity. The
execution of this Agreement and the consummation of the transactions
contemplated in this Agreement do not and will not result in a breach of the
terms and conditions of, nor constitute a default under or violation of,
Seller’s or Licensees’ articles of incorporation, bylaws or any law, regulation,
court order, or any mortgage, note, bond, indenture, agreement, license or other
instrument or obligation to which Seller or Licensees are now a party or by
which any of portion of the Sale Assets may be bound or affected and that is
material to Seller’s and Licensees’ business. At the Closing, the Seller and
Licensees shall cause the Secured Debt to be prepaid in full and all liens and
security interests encumbering any of the Sale Assets and securing the Secured
Debt shall be released and discharged in full.
 
4.4.  Notices of Violations. Except as set forth on Exhibit H, since April 1,
2003, and except as set forth on Exhibit H to Seller’s and Licensees’ knowledge
prior to April 1, 2003, Seller and Licensees have not received any written
notices, orders, demands or other directives from any governmental authorities
or quasi-governmental authorities or their agents and contractors pertaining to
any uncured material violations of any applicable laws, ordinances, rules,
regulations, codes, licenses, permits and authorizations pertaining to the
operation of the Facilities, including but not limited to all applicable federal
and state health care laws, rules and regulations, including, without limitation
those relating to the payment or receipt of illegal remuneration, including 42
U.S.C. § 1320a-7b(b) (the Medicare/Medicaid anti-kickback statute), 42 U.S.C.
§ 1395nn (the Stark Statute), 42 U.S.C. § 1320a-7a, 42 U.S.C. § 1320a-7b(a), 42
U.S.C. § 1320a-7b(c), and applicable state anti-kickback laws. Notwithstanding
anything herein to the contrary, Seller shall be responsible for any (i) fines
or penalties relating to periods prior to Closing or (ii) post-Closing capital
expenditures in excess of $2,500, that are required solely in
 

 
12

--------------------------------------------------------------------------------

 

connection with the OSHA inspection of September 26, 2006 - October 3, 2006 of
the Facility located in Denver, Colorado, as disclosed in Exhibit H hereto.
 
4.5.  Litigation. To Seller’s and Licensees’ knowledge, and except as disclosed
on Exhibit I attached hereto and made a part hereof, there are no pending or
currently threatened in writing, judicial, municipal or administrative
proceedings affecting the Sale Assets or in which Seller or Licensees are
parties by reason of Seller’s or Licensees’ ownership of the Sale Assets or any
portion thereof in each case other than those that could not reasonably be
expected to have a material effect on Seller and Licensees or the Facilities,
nor that will have any material effect on the Facilities from and after the
Closing Date.
 
4.6.  Operator Licenses and Provider Agreements. Except as disclosed in Exhibit
H, the Licenses have been issued, and, to Seller’s and Licensees’ knowledge, are
in good standing with respect to, any and all permits, licenses, regulatory
approvals, approvals, certificates of need, accreditations and comparable
authorizations (collectively, “Operator Licenses”) from all applicable
governmental and quasi-governmental authorities that have jurisdiction over any
aspect of the Facilities or over the operation thereof) necessary for the use,
operation and maintenance of the applicable Facility in the current use and the
conduct of Seller’s and Licensees’ business therein. The Licensees have obtained
and, to Seller’s and Licensees’ knowledge, are in good standing with respect to
any and all material Provider Agreements under which the Seller or Licensees
and/or the applicable Facility is entitled to receive payment or reimbursement
under Medicare, Medicaid or any Third Party Payor Programs. To the best
knowledge of Seller and Licensees all Operator Licenses and Provider Agreements
are in full force and effect and Seller and Licensees have complied with such
Agreements in all material respects.
 
4.7.  No Reimbursement Audits or Appeals. To Seller’s and Licensees’ knowledge,
there are no current, pending or outstanding Medicaid, Medicare or other Third
Party Payor Programs’ investigations, audits or appeals pending at the
Facilities other than those, if any, identified on Exhibit J attached hereto.
 
4.8.  Cost Reports. Except as set forth in Exhibit K, any and all Medicare cost
reports for all applicable Facilities that were due after April 1, 2003, and to
Seller’s and Licensees’ knowledge prior to April 1, 2003, have been filed with
the appropriate government agency or contractor by the required filing date.
Except as indicated on Exhibit K, to the Seller’s and Licensees’ knowledge there
have been no determined overpayments between Seller and Licensees, on the one
hand, and any Medicare fiscal intermediary, on the other hand, regarding the
filed cost reports of a Facility other than with respect to adjustments thereto
made in the ordinary course of business.
 
4.9.  Penalties or Exclusion from Government Programs. Since April 1, 2003, and
to Seller’s and Licensees’ knowledge prior thereto, neither Seller or Licensees
nor any senior management, officers or directors have been (i) excluded from
participating in any federal health care program (as defined in 42 U.S.C.
§1320a-7b (f)), (ii) subject to sanction pursuant to 42 U.S.C. §1320a-7a or
1320a-8, or (iii) convicted of a crime described at 42 U.S.C. §1320a-7b.
 
4.10.  Compliance Program. Except as set forth in Exhibit L, (a) Seller and
Licensees are not a party to a Corporate Integrity Agreement with the Office of
Inspector General of the
 

 
13

--------------------------------------------------------------------------------

 

Department of Health and Human Services, and (b) Seller and Licensees have no
ongoing reporting obligations pursuant to any settlement agreement entered into
with any governmental authority.
 
4.11.  United States Person. PITA, Tenant and each Licensee are each a “United
States Person” within the meaning of Section 1445(f)(3) of the Internal Revenue
Code of 1986, as amended.
 
4.12.  Taxes and Tax Returns. Seller and Licensees have taken any and all
actions pursuant to applicable federal and state tax laws relating to the timely
filing of any and all federal, state, local and foreign tax returns and have
paid of any and all applicable tax liabilities, as required, the nonpayment of
which could result in a lien being placed against the Sale Assets. Seller and
Licensees have paid (or shall pay as required) all taxes imposed against Seller
and Licensees with respect to which Buyer could be held liable under applicable
law, or the Sale Assets, or any part of it, could be subject to liens or claims,
with respect to any period on or prior to the Closing Date, under applicable
law.
 
4.13.  Bankruptcy/Dissolution Event. No “Bankruptcy/Dissolution Event” (as
defined below) has occurred with respect to (a) Seller; (b) Tenant, or (b) any
Licensee. “Bankruptcy/Dissolution Event” means the occurrence of any of the
following: (a) the commencement of a case under Title 11 of the U.S. Code, as
now constituted or hereafter amended, or under any other applicable federal or
state bankruptcy law or other similar law; (b) the appointment of a trustee or
receiver of any property interest; (c) an assignment for the benefit of
creditors; (d) an attachment, execution or other judicial seizure of a
substantial property interest; (e) the taking of, failure to take, or submission
to any action indicating an inability to meet its financial obligations as they
accrue; or (f) a dissolution or liquidation, death or incapacity.
 
4.14.  Personal Property. Exhibit M sets forth a complete list of all Personal
Property with an original aggregate cost of Ten Thousand Dollars ($10,000) or
more that Seller or Licensees acquired after April 1, 2003, and Seller or
Licensees hold good title to, and the entire right, title, and interest in and
to, the Personal Property, free and clear of any and all leases, liens,
encumbrances, or other liabilities except as set forth in Exhibit N.
 
4.15.  Operating Statements. Attached hereto as Exhibit O are financial
statements for the Facilities (the “Operating Statements”). To the best
knowledge of Seller and Licensees, the Operating Statements are full, true and
correct in all material respects and have been prepared in accordance with
standard accounting practices, consistently applied, and no material adverse
change has occurred since the respective dates thereof with the exception that
the interim Operating Statements do not include any footnote disclosures or any
customary year-end adjustments.
 
4.16.  Tenant Leases. Exhibit P is a full, true and correct rent roll and lease
summary (the “Rent Roll”) for each of the Facilities as of the date specified
therein, which sets forth all Admission Agreements with respect to the
Facilities. Except as set forth in the Rent Roll, each Admission Agreement is in
full force and effect, and the term of the same and the obligation to pay rent
thereunder has commenced and the tenant thereunder is in full possession and
actual
 

 
14

--------------------------------------------------------------------------------

 

occupancy thereof. All brokerage commissions with respect to the Admission
Agreements have been paid in full or will have been paid in full prior to the
Closing Date and there are and will be no commissions payable with respect to
renewals, extensions or expansions of or under any Admission Agreements.
 
4.17.  Existing Agreements. There are no agreements or understandings (whether
written or oral) relating to the Facilities, except for the Permitted
Encumbrances, the Admission Agreement, the Master Lease, the Regulatory
Subleases and the Facility Agreements. All Facility Agreements with respect to
or affecting the Facilities are listed and described in Exhibit Q which will
reasonably be expected to have liabilities or obligations thereunder involving
more than Ten Thousand Dollars ($10,000) in the aggregate within any 12 month
period from and after the Closing Date.
 
4.18.  Hazardous Materials. To the best knowledge of Seller and Licensees,
Exhibit S is a list of all environmental reports (the “Environmental Reports”)
obtained by Seller and Licensees or in Seller’s and Licensees’ possession or
control with respect to the Facilities. Except as set forth in the Environmental
Reports, to the best knowledge of Seller and Licensees, there are (and have
been) no Hazardous Materials (as hereinafter defined) installed or stored in or
otherwise existing at, on, in or under the Facilities in violation of any
applicable federal, state and local laws, ordinances, rules, regulations, and
other governmental requirements applicable to any of the Facilities. The term
“Hazardous Material” shall mean asbestos, petroleum products, and any other
hazardous waste or substance which has, as of the date hereof, been determined
to be hazardous or a pollutant by the U.S. Environmental Protection Agency, the
U.S. Department of Transportation, or any instrumentality authorized to regulate
substances in the environment which has jurisdiction over the Facilities.
 
4.19.  ERISA.   Seller and Licensees are not, and no portion of the Property is
an asset of, an “employee benefit plan” as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended (“ERISA”) (whether
or not subject to ERISA, and including, without limitation, governmental and
foreign plans), a plan subject to Section 4975 of Internal Revenue Code of 1986,
as amended, or an entity that is deemed to hold plan assets of any of the
foregoing by reason of investment by an employee benefit plan or other plan in
such entity.
 
4.20.  COBRA. Seller and Licensees are in compliance with all currently
applicable Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”)
requirements respecting current or former employees. Seller and Licensees do not
provide any retiree medical benefits to former employees.
 
4.21.  Limitation of Liability. Buyer’s exclusive post-Closing remedy for any
damages hereunder shall be a claim or action for breach of contract, or a breach
of a representation or warranty. The maximum aggregate amount of damages
recoverable against Seller and Licensees with respect to any and all breaches,
performance, non-performance, acts or omissions hereunder will not exceed in the
aggregate an amount equal to $2,500,000. Notwithstanding the foregoing, Buyer
shall not be entitled to any payment of damages until the aggregate amount of
all such damages exceeds One Hundred Thousand Dollars ($100,000), and then only
to the extent such damages exceed $100,000. Moreover, a claim or action for
damages shall only be valid to the extent brought by Buyer in accordance with
the provisions of this Agreement prior to the first
 

 
15

--------------------------------------------------------------------------------

 

anniversary of the Closing Date (or, if applicable pursuant to Sections 3.4 or
3.5 hereof, with respect to Westlake Facility Assets or California Facility
Assets, the Westlake Facility Closing Date or the California Facility Closing
Date, respectively). On the Closing Date, Surety or Centre Solutions (US)
Limited shall execute a guaranty in favor of Buyer guaranteeing Seller’s and
Licensees’ potential post-Closing liability under this Agreement (“Guaranty”). 
 
5.  Buyer’s Representations and Warranties. Buyer represents, warrants and
covenants to Seller and Licensees that the following matters are true as of the
date hereof and shall be true in all material respects as of the Closing Date:
 
5.1.  Authority. The execution and delivery of this Agreement by Buyer, and the
performance of this Agreement by Buyer, has been duly authorized by Buyer, and
this Agreement is binding on Buyer and enforceable against Buyer in accordance
with its terms except as enforceability may be restricted, limited or delayed by
applicable bankruptcy or other laws affecting creditors’ rights generally and
except as enforceability may be subject to general principles of equity.
 
5.2.  Capacity. Buyer is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Delaware. Buyer has
the requisite power and authority to enter into this Agreement, perform its
obligations hereunder and to conduct its business or operations as now being
conducted.
 
5.3.  Qualification. Neither Buyer nor any of its respective representatives,
officers, directors, partners, members, agents or employees has been
disqualified from participating in either the Medicare or Medicaid programs or
under any Third Party Payor Programs. Without limitation of the foregoing,
neither Buyer nor any of its respective officers, directors or managing
employees or other employees or agents, or other persons required to be
identified (Medicare Form 855) has engaged in any activities which are
prohibited under criminal law, or are cause for civil penalties or mandatory or
permissive exclusion from Medicare, or any other state health care program.
 
5.4.  Availability of Funds. Buyer has, or at Closing will have, the credit
facilities or cash in amounts equal to the Purchase Price and will at the
Closing have immediately available funds in cash, which are sufficient to pay
the balance of the Purchase Price and to pay any other amounts payable pursuant
to this Agreement and to consummate the transactions contemplated by this
Agreement. If Buyer is relying on financing to consummate the purchase of the
Sale Assets, failure to obtain any such financing shall not excuse Buyer’s
performance hereunder.
 
5.5.  Sale Assets. Buyer’s agreement to acquire the Sale Assets “as-is
where-is”, as more particularly provided in Section 3.1 hereof, includes,
subject to Section 8.1, Buyer’s acceptance of the state of title to the Land and
matters of survey as disclosed in the title commitments, title policies and
surveys previously obtained by and/or provided to Buyer and any updates thereto
including, without limitation, the Permitted Encumbrances.
 
5.6.  Hart-Scott-Rodino. Buyer has determined that no filings are required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended ("HSR Act")
in connection with the transactions contemplated by this Agreement on the basis
that the acquiring person (as
 

 
16

--------------------------------------------------------------------------------

 

defined in the HSR Act and Rules) does not meet the jurisdictional threshold
under Section 7A(a)(2)(B)(ii)(II).  Buyer indemnifies and holds the Seller and
Licensees harmless from and against any losses, costs, expenses, attorneys’
fees, fines, or penalties which any of the Licensees or Seller may incur,
suffer, sustain, or become subject to as the result of any claim or
determination that Seller was required to file Hart-Scott-Rodino applications
with the Federal Trade Commission and the Department of Justice.
 
6.  Conduct Prior to Closing. During the period commencing on the date of this
Agreement and ending on the Closing Date:
 
6.1.  Continued Operations. Seller and Licensees will operate the Facilities
only in the ordinary course of business consistent with past practices and with
due regard to the proper maintenance and repair of the Sale Assets, to the end
that the Sale Assets, and any inventory levels, will be maintained substantially
in the same condition as they were in at the date of this Agreement, ordinary
wear and tear, insured casualty loss and taking by eminent domain excepted.
 
6.2.  Admission Agreements. Seller and Licensees will continue to actively
market (including the placing of advertisements in accordance with its past
business practices) and offer the Facilities for lease in the same manner as
prior hereto pursuant to its current business practices and in accordance with
the current market rent schedule provided to Buyer prior to the date of this
Agreement Date subject to certain leasing incentives offered by Seller and
Licensees from time to time disclosed on Exhibit Q, provided that no leasing
incentives to new residents that are not consistent with Exhibit Q that are to
remain in effect after Closing may be given without Buyer’s consent. For the
avoidance of doubt, Seller and Licensees have not in the past accepted (i) the
advance payment of rent, (ii) any lump sum payment, or (iii) an extraordinarily
large security deposit from any resident in exchange for a reduced monthly
rental payment.
 
6.3.  Facility Agreements. Seller and Licensees shall not enter into any
additional Facility Agreements (other than Admission Agreements) nor shall
Seller and Licensees amend or extend any Facility Agreements without the prior
consent of Buyer with the exception of those Facility Agreements entered into,
extended or amended in the ordinary course of business and consistent with past
business practices. Seller and Licensees shall terminate as of the Closing Date
any Facility Agreement which is objected to by Buyer in writing at least ten
(10) days prior to the Closing Date, provided (i) such Facility Agreements can
be terminated in accordance with their respective terms and (ii) Buyer agrees in
writing to pay the cost of any termination fee or other expense incurred by
Seller or Licensees in terminating such Facility Agreement. Notwithstanding
anything contained herein to the contrary, Seller and Licensees may not (i)
extend or amend any existing Facility Agreement disclosed on Exhibit R or (ii)
enter into a new Facility Agreement that would have been required to be
disclosed on Exhibit R without Buyer’s written consent, which cannot be
unreasonably withheld, conditioned or delayed, with the exception of any
extended or amended Facility Agreement or a new Facility Agreement that is
entered into in the ordinary course of business and consistent with the past
business practices of Seller and Licensees, and that can be terminated upon
thirty (30) days’ advance written notice without penalty.
 
6.4.  Seller’s and Licensees’ Insurance. Seller and Licensees shall maintain
their existing insurance policies for the Facilities through the Closing Date.
 
 
17

--------------------------------------------------------------------------------

 
6.5.  Termination of Agreements. Except to the extent expressly requested by
Buyer in writing to the contrary, Seller, Tenant and Licensees, as applicable,
shall cause the Master Lease, each Regulatory Sublease, and each of the C&S
Agreements, to be terminated as of Closing. To the extent that the Master Lease,
any Regulatory Sublease, or any C&S Agreement, or any memorandum thereof has
been recorded, Seller, Tenant and Licensee, as applicable, shall cause a release
of same to be recorded on the Closing Date.
 
7.  Termination.
 
7.1.  Right to Terminate. Notwithstanding anything herein to the contrary, this
Agreement and the transactions contemplated hereby may be terminated at any time
prior to the Closing:
 
(a)  by the written consent of Buyer, Seller and Licensees;
 
(b)  by Seller or Licensees, if there has been (i) a material breach by Buyer in
its obligation to proceed to Closing pursuant to the terms of this Agreement
(all conditions to such obligation having been satisfied in all material
respects or waived by Buyer);
 
(c)  by Buyer, if there has been a material breach by Seller or Licensees of any
of the representations, warranties, covenants or agreements made by Seller or
Licensees in this Agreement, following written notice from Buyer, and Seller or
Licensees failing to cure any such material breach within ten (10) days of
receipt of such notice, results in a material adverse change in the business,
results of operation, assets or financial condition of Seller and Licensees,
collectively and taken as a whole, or as a result thereof causes a material
adverse impact on the condition, value or operations of the Facilities or
Buyer’s investment therein, each as determined from the perspective of a
reasonable person in Buyer’s position of such material breach by Buyer;
 
(d)  by Buyer, pursuant to Article 11 hereof; or 
 
(e)  by prompt notice given in accordance with Article 16, by Seller and
Licensees if the Closing shall not have occurred at or before 11:59 p.m. on
December 1, 2006, or 11:59 p.m. on December 15, 2006, if the Closing Date is
changed pursuant to Section 3.3; provided, however, that the right to terminate
this Agreement under this Section 7.1(e) shall not be available to Seller and
Licensees if their failure to fulfill any of their material obligations under
this Agreement have been the cause of or resulted in the failure of the Closing
to occur on or prior to the aforesaid date.
 
7.2.  Certain Effects of Termination. In the event of the termination of this
Agreement by either Seller and Licensees or Buyer as provided in Section 7.1:
 
(a)  each party, if so requested by the other party, will return promptly every
document furnished to it by the other party (or any subsidiaries, division,
associate or affiliate of such other party) in connection with the transactions
contemplated hereby, whether so obtained before or after the execution of this
Agreement, and any copies thereof (except for copies of documents publicly
available) which may have been made,
 

 
18

--------------------------------------------------------------------------------

 

and will use reasonable efforts to cause its representatives and any
representatives of financial institutions and investors and others to whom such
documents were furnished promptly to return such documents and any copies
thereof any of them may have made;
 
(b)  solely with respect to any termination of this Agreement by Buyer pursuant
to Section 7.1(c) or Section 7.1(d), upon termination of this Agreement, Buyer
shall be entitled to the return of its Deposit thereon plus, in the event the
termination of this Agreement is pursuant to Section 7.1(c) and as liquidated
damages, the cost of any reasonable expenses incurred and paid by Buyer to a
third party in connection with this transaction (in all other instances of
termination the Deposit shall be paid to Seller); and
 
(c)  the Confidentiality Agreement (as defined herein) shall remain in effect.
 
7.3.  Remedies. Notwithstanding any termination right granted in Section 7.1, in
the event of the non-fulfillment of any condition to a party’s closing
obligations, in the alternative; such party may elect to do one of the
following:
 
(a)  proceed to close despite the non-fulfillment of any closing condition, it
being understood that consummation of the Closing shall be deemed a waiver of a
breach of any representation, warranty or covenant and of such party’s rights
and remedies with respect thereto to the extent that such party shall have
actual knowledge of such breach and the Closing shall nonetheless occur;
 
(b)  decline to close, and terminate this Agreement as provided in Section 7.1;
 
(c)  with respect to Seller and Licensees only, seek the remedy described in
Section 7.4; or
 
(d)  with respect to Buyer only, seek specific performance of this Agreement.
 
7.4.  LIQUIDATED DAMAGES. IF THE CLOSING DOES NOT OCCUR SOLELY DUE TO BUYER’S
DEFAULT UNDER THIS AGREEMENT (ALL CONDITIONS TO BUYER’S OBLIGATIONS HAVING BEEN
SATISFIED OR WAIVED), IT WOULD BE IMPRACTICAL AND EXTREMELY DIFFICULT TO
ESTIMATE THE DAMAGES WHICH SELLER MAY SUFFER. THEREFORE, THE PARTIES HAVE AGREED
THAT A REASONABLE ESTIMATE OF THE TOTAL DETRIMENT THAT SELLER WOULD SUFFER IN
SUCH EVENT IS AND SHALL BE THE RIGHT TO RETAIN THE DEPOSIT TOGETHER WITH ANY AND
ALL INTEREST THEREON AS LIQUIDATED DAMAGES, AS SELLER’S SOLE AND EXCLUSIVE
REMEDY UNDER THIS AGREEMENT. SUCH LIQUIDATED DAMAGES ARE NOT INTENDED AS A
FORFEITURE OR PENALTY WITHIN THE MEANING OF APPLICABLE LAWS. THE PARTIES
EXPRESSLY ACKNOWLEDGE THAT BUYER’S FAILURE OR INABILITY TO OBTAIN THE NECESSARY
OPERATOR LICENSES IS NOT A CONDITION TO BUYER’S OBLIGATION TO CLOSE FOR PURPOSES
OF THIS ARTICLE 7.
 
8.  Seller’s and Licensees’ Closing Deliveries. At Closing (or such other times
as may be specified below), Seller and/or Licensees shall deliver or cause to be
delivered to Buyer or its designees the following, in form and substance
reasonably acceptable to Buyer:
 
 
19

--------------------------------------------------------------------------------

 
8.1.  Deed. A limited warranty deed which shall be the equivalent of an Illinois
special warranty deed, provided Buyer’s local counsel reasonably approves the
form of the limited warranty deed and the form is consistent with the form of
limited warranty deed that is customary for such jurisdiction, for each
Facility’s Real Property, executed by Seller, in recordable form, conveying that
Facility’s Real Property to Buyer free and clear of all liens, claims and
encumbrances except for the Permitted Encumbrances. In this regard, and except
as specifically provided herein, Seller and Licensees will have no obligation to
cure or otherwise remove or release any of the Permitted Encumbrances. As used
herein, the term “Permitted Encumbrances” shall mean covenants, conditions,
restrictions, easements, liens, encumbrances, rights of others and other title
exceptions set forth on Schedule 1  to this Agreement and encroachments and/or
other matters disclosed on a survey of each Facility’s Real Property provided to
Buyer that Buyer does not object to within ten (10) business days of receipt of
such survey, however, Buyer shall have no right to object to survey matters that
do not materially and adversely affect the use of the particular Facility but
shall specifically exclude any title matters first arising or appearing of
record after the date of this Agreement that could materially and adversely
affect Purchaser’s use of the Facility, and all construction financing,
mortgages, deeds of trust and monetary liens (including liens for delinquent
taxes, mechanics’ liens and judgment liens) affecting each Facility’s Real
Property and all indebtedness secured thereby, including the Secured Debt
(collectively, the “Existing Liens”) to be fully satisfied, released and
discharged of record on or prior to the Closing Date so that Buyer shall take
title to each Facility’s Real Property free of the same. The parties acknowledge
that there are a number of Permitted Encumbrances that a title company (“Title
Insurer”) will customarily remove or insure over with affidavits from Seller
and/or Licensees, clarifications from the Surveyor, or otherwise. In particular,
the parties have designated with an asterisk those Permitted Encumbrances listed
on Schedule 1 that the parties reasonably believe the Title Insurer will remove
or insure over as an exception to the title policy (“Designated Permitted
Exceptions”). Seller and Licensees agree to use commercially reasonable efforts
to work with the Title Insurer to exclude or insure over the Designated
Permitted Exceptions from the title policy to be issued to Buyer, including
executing affidavits that are customary in such transactions, pursuing estoppel
certificates and other matters that Seller and Licensee customarily perform to
remove as exceptions to a title policy. However, Buyer hereby expressly
acknowledges that the removal of any such Designated Permitted Exceptions is not
a condition to Closing.
 
8.2.  Assignment and Assumption Agreement. The Assignment and Assumption
Agreement, executed by Seller and Licensees, assigning, conveying and warranting
to Buyer, or Buyer’s assignee, title to the Personal Sale Assets and Inventory,
free and clear of all liens, claims and encumbrances except Permitted
Encumbrances and the Assumed Obligations.
 
8.3.  Transfer Agreement(s). The Transfer Agreement(s), executed by Licensee and
Manager.
 
8.4.  Business Records. Copies, or to the extent available, originals, of all of
the Business Records in Seller’s and Licensees’ possession or reasonable
control, to the extent not already delivered to Buyer.
 
8.5.  Keys. Keys to all locks located in the Improvements, to the extent in
Seller’s and Licensees’ possession or reasonable control.
 
 
20

--------------------------------------------------------------------------------

 
8.6.  ALTA Statement. If required by the Escrow Agent in order to issue the
title policies, an affidavit of title, ALTA (or comparable) statements, executed
by Seller and Licensees and in form and substance acceptable to the Escrow
Agent.
 
8.7.  Closing Statement. A closing statement conforming to the proration and
other relevant provisions of this Agreement (the “Closing Statement”).
 
8.8.  Entity Transfer Certificate. Entity Transfer Certification confirming that
Seller and Licensees are a “United States Person” within the meaning of
Section 1445 of the Internal Revenue Code of 1986, as amended.
 
8.9.  Certified Resolutions. Certified resolutions of Seller and Licensees
authorizing the transaction and incumbency certificate.
 
8.10.  Discharges of Liens and Security Interests. Such discharges, releases and
termination statements or agreements necessary to discharge, release and
terminate all leases, liens and security interests attached to the Sale Assets,
including the Master Lease and the Regulatory Subleases, other than the Assumed
Obligations and Permitted Encumbrances.
 
8.11.  Possession of the Facilities. Seller and Licensees will deliver
possession of the Sale Assets to Buyer.
 
8.12.  Other. Such other documents and instruments as may reasonably be required
by Buyer, Tenant or the Title Insurer and that may reasonably be necessary or
appropriate to consummate this transaction and to otherwise effect the
agreements of the parties pursuant to this Agreement. For a period of six (6)
months after Closing, Seller and Licensees shall execute and deliver to Buyer
and/or the Title Insurer such further documents and instruments as shall be
reasonably requested to effect this transaction and otherwise effect the
agreements of the parties hereto including, but not limited to, customary title
affidavits and estoppel certificates necessary to have the Designated Permitted
Exceptions excluded from the title policy. Seller will reimburse Buyer for any
reasonable costs and expenses incurred and paid by Buyer to a third party within
180 days after the Closing Date, in an amount not to exceed Fifteen Thousand
Dollars ($15,000), for work associated with causing the Title Insurer to exclude
or insure over any Designated Permitted Exceptions from the title policy.
 
8.13.  Guaranty. The Guaranty executed in accordance with Section 4.21.
 
8.14.  Sale and Leaseback Agreements; Transition Services Agreements. Any Sale
and Lease Back Agreement or Transition Services Agreements executed in
accordance with Section 3.3.
 
9.  Buyer’s Closing Deliveries. At Closing Buyer shall cause the following to be
delivered to Seller and Licensees in form reasonably acceptable to Seller and
Licensees with respect to those Sale Assets and Assumed Obligations subject to
the Closing:
 
9.1.  Purchase Price. The balance of the Purchase Price shall be paid in
accordance with Article 2 hereof.
 
 
21

--------------------------------------------------------------------------------

 
9.2.  Assignment and Assumption Agreement. The Assignment and Assumption
Agreement executed by Buyer assuming the Assumed Obligations.
 
9.3.  Closing Statement. A closing statement conforming to the proration and
other relevant provisions of this Agreement.
 
9.4.  Certified Resolutions. Certified resolutions of Buyer authorizing the
transaction and an incumbency certificate.
 
9.5.  Other. Such other documents and instruments as may reasonably be required
by Seller and Licensees or the Title Insurer and that may reasonably be
necessary or appropriate to consummate this transaction and to otherwise effect
the agreements of the parties pursuant to this Agreement. Buyer shall not
withhold any funds from Closing whatsoever. For a period of six (6) months after
Closing, Buyer shall execute and deliver to Seller and Licensees and/or the
Title Insurer such further documents and instruments as shall be reasonably
requested to effect this transaction and otherwise effect the agreements of the
parties hereto.
 
9.6.  Transfer Agreement(s). The Transfer Agreement(s), executed by Tenant and
Manager, and Buyer.
 
10.  Prorations And Adjustments. 
 
10.1.  Real Estate Taxes. All real estate taxes and assessments accruing on the
Facilities in respect to the current fiscal year of the applicable taxing
authority in which the Closing Date occurs (the “Current Tax Year”) shall be
prorated between Seller and Buyer as of the Closing Date. Such real estate taxes
and assessments shall be prorated on a per diem basis based upon the number of
days in the Current Tax Year prior to the Closing Date (which shall be allocated
to Seller) and the number of days in the Current Tax Year on and after the
Closing Date (which shall be allocated to Buyer). In addition to its pro-rata
portion for the Current Tax Year, Seller shall be responsible for real estate
taxes, assessments, and special assessments on the Facilities payable in respect
to periods prior to the Current Tax Year, provided, however, if the tax bill
from any prior year is not yet due and payable, Seller shall give Buyer a
proration credit therefor. Upon the Closing Date and subject to the adjustment
provided for above, Buyer shall be responsible for real estate taxes and
assessments on the Facilities payable in respect to the Current Tax Year, all
periods after the Current Tax Year, and all periods prior to the Current Tax
Year, to the extent Seller gave Buyer a credit therefor.
 
10.2.  Rents. All rentals and other resident charges, including any community
fees and reimbursements including reimbursements received from private,
governmental or otherwise, received in respect to the month in which the Closing
Date occurs (the “Current Month”), shall be prorated on a per diem basis based
upon the number of days in the Current Month, including the Closing Date and
Buyer shall be entitled to pro-rated portions for the remaining days in the
Current Month. All rentals and other resident charges received by Buyer from a
resident after the Closing Date shall be applied: first, to any rent due for a
resident for the Current Month; second, to any accrued and unpaid rent of such
resident for the month immediately preceding the Current Month; third, to any
rent of the resident that has accrued after the Current Month; and fourth, to
the balance of any accrued and unpaid rent of such resident. Consistent with
Section 10.3, Buyer
 

 
22

--------------------------------------------------------------------------------

 

shall promptly remit to Seller its share of any rentals and other resident
charges received after the Closing Date in accordance with the proration set
forth above. Buyer shall use commercially reasonable efforts to collect such
amounts for the benefit of Seller. No person or entity (other than Buyer) shall
institute an action against any resident for delinquent rentals and other
resident charges attributable to periods prior to the Current Month prior to 90
days after the Closing Date (“Restricted Collection Period”). After the
expiration of the Restricted Collection Period, Seller and/or Licensees may
undertake efforts to collect any remaining uncollected Retained Receivables. In
no event shall Seller and Licensees be entitled to take any action against a
resident which would result in a termination of any Admission Agreement or the
resident’s right of occupancy thereunder.
 
10.3.  Accounts Receivable. To the extent permitted by law, Buyer shall use
commercially reasonable efforts to collect on Seller’s and Licensees’ behalf,
all Retained Receivables relating to outstanding invoices that remain unpaid as
of the Closing Date in accordance with Seller’s and Licensees’ customary
practices for the collection of such amounts and shall remit any amounts
received therefor to an account designated by Seller and Licensees on a weekly
basis. Notwithstanding the foregoing: 
 
(a)  Third Party Payments. Prior to the Closing Date, Licensees will contact the
applicable Medicaid agent for all applicable Facilities and request that the
agent mail or wire transfer such Medicaid payments directly to Licensees for all
periods up to and including the Closing Date, it being understood that the
applicable Medicaid agent will pay Buyer for services rendered after it receives
its Operator Licenses and any applicable approvals required by Medicaid.
Additionally, Licensees will contact the applicable regional offices for the
Centers for Medicaid & Medicaid Services regarding Licensees’ electronic fund
transfer of Medicare payments and request that all amounts due Licensees for
services provided on or before the Closing Date be paid directly to Licensees,
it being understood that the applicable Medicare intermediary will pay Buyer for
services rendered after it receives any applicable approvals required by
Medicare. Following Closing, Buyer shall promptly notify Licensees of receipt of
any Medicaid or Medicare vendor payments that relate to the Facilities and that
include any dates of service up to and including the Closing Date and Buyer
shall promptly remit such funds to Licensees and Licensees shall promptly notify
Buyer of receipt of any Medicaid or Medicare vendor payments that relate to the
Facilities and that include any dates of service after the Closing Date and
Seller and Licensees shall promptly remit such funds to Buyer, it being
understood that Licensees’ obligation to remit Medicaid or Medicare vendor
payments is not triggered until Buyer has obtained all applicable Medicare and
Medicaid approvals necessary to receive such funds.
 
(b)  Private Pay Payments. Prior to the Closing Date, Seller and Licensees shall
prepare and send to the private pay residents, patients or consumers their
private pay invoices and any payments from a third party for all periods through
and including the Closing Date, with instructions notifying the private pay
residents or responsible party to make any such payment payable to Seller or
such other party as Seller directs.
 
10.4.  Operating Expenses. All operating expenses (including all charges under
Facility Agreements assumed by Buyer hereunder) payable or paid to each such
service provider
 

 
23

--------------------------------------------------------------------------------

 

in respect to the billing period of such service provider in which the Closing
Date occurs (the “Current Billing Period”), shall be prorated on a per diem
basis based upon the number of days in the Current Billing Period prior to the
Closing Date (which shall be allocated to Seller and Licensees) and the number
of days in the Current Billing Period on and after the Closing Date (which shall
be allocated to Buyer), and assuming that all charges are incurred uniformly
during the Current Billing Period. Any amounts which have been prepaid by Seller
and Licensees to a service provider or other contract party shall be prorated
between Buyer and Seller and Licensees. At Closing, Buyer shall provide Seller
and Licensees with a credit for the amount of such prepayment which is
attributable to the term of such Service Contract which has not expired. If
actual bills for the Current Billing Period are unavailable as of the Closing
Date, then such proration shall be made on an estimated basis based upon the
most recently issued bills, subject to readjustment upon receipt of actual
bills.
 
10.5.  Security Deposits; Prepaid Rents; Resident Inducements. Buyer shall
receive a credit against the Purchase Price for (a) prepaid rentals and other
resident charges, including any community fees for periods after the Current
Month, and (b) any security deposits (including any portion thereof which may be
designated as prepaid rent) made under Admission Agreements (and if applicable
laws or any agreements require a landlord to be accountable for interest on such
security deposits, any accrued interest owed thereon at the applicable legal
rate).
 
10.6.  Calculation. The prorations and credits shall be made on the basis of a
written statement approved by Buyer and Seller and Licensees. In the event any
prorations or credits made under this Article 10 shall prove to be incorrect for
any reason, then any party shall be entitled to an adjustment to correct the
same. Any item which cannot be finally prorated because of the unavailability of
information shall be tentatively prorated on the basis of the best data then
available and re-prorated when the information is available. Notwithstanding the
foregoing, any re-proration shall be made, if at all, within ninety (90) days
after the Closing Date (except with respect to taxes and assessments, in which
case such re-proration shall be made within thirty (30) days after the
information necessary to perform such re-proration is available).
 
10.7.  Items Not Prorated. Seller and Licensees and Buyer agree that (a) none of
the insurance policies relating to the Facilities will be assigned to Buyer (and
Seller and Licensees shall pay any cancellation fees or minimum earned premiums
resulting from the termination of such policies) and Buyer shall be responsible
for arranging for its own insurance as of the Closing Date; (b) utilities,
including telephone, electricity, water and gas, shall be read on the Closing
Date to the extent reasonably feasible; and (c) the Facilities will not be
subject to any existing liens, other than those items listed as Permitted
Encumbrances. Accordingly, there will be no prorations for insurance or
utilities. Notwithstanding the foregoing, in the event a meter reading is
unavailable for any particular utility, such utility shall be prorated in the
manner provided in Section 10.4 above.
 
11.  Casualty and Condemnation. 
 
11.1.  Casualty. If prior to the Closing one or more of the Facilities shall be
damaged by fire or other casualty, then Buyer shall take the Sale Assets as is
and Seller and Licensees hereby assign all insurance proceeds (including
casualty and business interruption insurance), or the right to receive the same,
and the rights to any other claims arising as a result of the damage,
 

 
24

--------------------------------------------------------------------------------

 

and Buyer shall receive a credit at Closing equal to any deductible or uninsured
amount related to such casualty. Notwithstanding the foregoing, if such casualty
is a Material Event (as defined below), then Buyer, at its option, may terminate
this Agreement by written notice to Seller and Licensees given on or before the
Closing Date, and upon such termination, the Deposit shall be returned to Buyer
and the parties shall have no further liability or obligation hereunder. As used
in this Article 11, a “Material Event” means either of the following: (a) a
casualty resulting in damage or destruction to one or more of the Facilities, if
the cost to restore the Facilities to the condition immediately prior to such
casualty is reasonably estimated to exceed Twenty Million Dollars ($20,000,000);
or (b) a taking or condemnation which would impede access to one or more
Facilities, reduce available parking below that required by, or in general cause
a violation of, any applicable law, Admission Agreement or Facility Agreement,
or result in a condemnation award (“Condemnation Award”) reasonably estimated to
exceed Twenty Million Dollars ($20,000,000). Further, in the event of (i) a
casualty resulting in damage or destruction to a Facility and the cost to
restore the Facility to the condition immediately prior to such casualty is
reasonably estimated to be in excess of Seven Hundred Fifty Thousand Dollars
($750,000) or (ii) there is a condemnation with respect to a Facility that a
reasonable result would be a Condemnation Award in excess of Seven Hundred Fifty
Thousand Dollars ($750,000), then Buyer, at its option, may elect not to
purchase the Facility subject to the casualty or condemnation and the Purchase
Price of the Sale Assets will be reduced by the amount of the Purchase Price
allocated to such Facility as determined in accordance with Section 2.2.
 
11.2.  Condemnation. If prior to the Closing (a) less than substantially all of
a Facility shall be taken by condemnation or eminent domain, (b) there is any
material taking of land lying in the bed of any street or highway, open or
proposed, in front of or adjoining all or any part of the Land, or (c) there is
any change of grade or closing of any such street or highway abutting or
adjacent to the Land, that in any such case would materially impair access to
and from the Land or otherwise materially interfere with its occupancy and use
as an assisted living or skilled nursing facility, then Buyer shall be entitled
to no abatement of the Purchase Price by reason of such taking, change of grade,
or closing, and the proceeds of, or right to any proceeds of, any award or
payment in respect of such taking, change of grade, or closing are hereby
assigned to Buyer at the Closing. Notwithstanding the foregoing, if such taking
is a Material Event, then Buyer, at its option, may terminate this Agreement by
written notice to Seller and Licensees given on or before the Closing Date, and
upon such termination, the Deposit shall be returned to Buyer and the parties
shall have no further liability or obligation hereunder.
 
 
25

--------------------------------------------------------------------------------

 
12.  Employees.
 
12.1.  WARN Act. In the event any notice or payments to any employee employed at
the Facilities by Seller or Licensees as of the day immediately preceding the
Closing Date (“Facility Employee”) is required under the Worker Adjustment
Retraining Notification Act (the “WARN Act”) or other applicable plant closure
law due either to actual or constructive termination of employment, such notice
or payments shall be the sole responsibility of Seller and Licensees, at
Seller’s and Licensees’ sole cost and expense. Seller and Licensees, subject to
Section 4.21, agrees to indemnify and hold Buyer harmless from any and all
liabilities, costs or expenses associated with or arising from any WARN Act
requirements. Anything to the contrary notwithstanding, this Agreement shall not
be deemed to create or grant to any Facility Employee any third party
beneficiary rights or claims or any cause of action of any kind or nature.
 
12.2.  Facility Employees. With respect to the Facility Employees, Seller and
Licensees shall be solely responsible for all wages, salaries, bonuses,
employment taxes, withholding taxes, and all accrued vacation days, sick days
and personal days accruing prior to Closing. Effective upon Closing, employment
of all employees working at the Facilities shall be terminated by Seller and
Licensees. On or before the day that is ten (10) days after the date of this
Agreement, Seller or Licensees shall provide Buyer with a list of all employees
at the Facilities and other pertinent information including copies of employee
files with respect to such employees and the terms of employment of such
employees, as requested by Buyer, provided, however, Seller and Licensees shall
not be required to provide Buyer with any information in any employment file
which violates Seller’s and Licensees’ responsibility to such employee under any
existing law and the disclosure of confidential information which is not
available for disclosure without the express written consent of the employee.
Buyer, or its affiliates, shall hire all such terminated employees (“Terminated
Employees”). Notwithstanding the above, Buyer may elect not to hire up to 49
Terminated Employees (such employees hired by Buyer, or its affiliate, as
applicable, being referred to herein as the “Retained Employees”).
 
12.3.  Health Insurance. Buyer shall be responsible for providing all eligible
Retained Employees with health care coverage on and after the Closing Date
sufficient to extinguish any rights a Retained Employee may have to continuation
of health care coverage under Seller’s and Licensees’ health care plans
including, but not limited to, COBRA insurance coverage, if a Retained Employee
so elects such coverage.
 
12.4.  Other Benefits. On the Closing Date, the Parties shall agree as to the
amount of accrued vacation pay, sick pay, paid leave time or other similar
benefits owed to Facility Employees pursuant to established plans, programs,
practices and arrangements accrued prior to the Closing Date. On and after the
Closing Date, Seller and Licensees shall be solely responsible for the payment
of any and all vacation pay, sick pay, paid leave time or other similar benefit
owed to Facility Employees pursuant to established plans, programs, practices
and arrangements accrued prior to the Closing Date.
 
12.5.  Post Closing Liability. Neither Buyer, nor any affiliate of Buyer, shall
have any obligation to continue the employment of any Facility Employee and,
subject to the terms of this Article 12, shall not be liable to any employee for
any wages, salaries, bonuses, vacation days, sick days or personal days in which
said Facility Employee may have acquired an accrued or
 

 
26

--------------------------------------------------------------------------------

 

vested right by virtue of, or in connection with, their employment by Seller and
Licensees. Seller and Licensees shall and hereby agree to indemnify and save
Buyer, and its affiliates, harmless from and against any liability for wages,
salaries, bonuses, accrued vacation days, sick days and personal days to be paid
to Facility Employees on account of services rendered prior to Closing.
Notwithstanding anything to the contrary herein contained, there shall be no
apportionment or proration of medical, pension, welfare benefits, other employee
benefits or other fringe benefits (hereinafter collectively referred to as
“benefits”) and Seller and Licensees shall remain liable for and hereby
indemnifies and saves Buyer, and its affiliates, harmless from and against all
benefits due to Facility Employees under plans in which Facility Employees
participate prior to Closing, and all payments due on the plans providing such
benefits. Seller and Licensees shall also remain responsible for and hereby
indemnifies and saves Buyer, and its affiliates, harmless from any severance pay
which may become due to any of the Facility Employees whose employment ends at
or prior to Closing as a result of this transaction, whether due to Seller’s and
Licensees’ employment policies or as a matter of law. Seller and Licensees agree
to give all affected Facility Employees written notice of termination of
participation of employees working at the Facilities in any applicable 401(K) or
other pension or retirement plan affecting the employees.
 
12.6.  Advertising. Seller and Licensees will renew or maintain their yellow
pages, assign those to Buyer, work with Buyer to transition the ads in a timely
manner. Nothing in this Section 12.6 shall be construed to imply that Buyer has
the right to use any of Seller’s or Licensees’ trade names or trademarks
 
13.  Closing Expenses. Seller and Licensees will pay at Closing, all closing
costs and expenses, pertaining to the release of the Existing Liens, including
any fees or premiums of any nature, associated with prepayment of the Existing
Liens. Each party shall pay their own attorneys’ fees and expenses. Buyer shall
be responsible for its due diligence costs, including, without limitation, its
environmental site assessments. The parties shall share equally any closing or
escrow fee that may be charged by the Escrow Agent and the cost of any surveys.
Seller and Licensees shall pay the cost of an owner’s extended coverage title
insurance policy to be issued to Buyer at Closing with respect to the Sale
Assets (excluding the cost of any endorsements thereto that may be requested by
Buyer). All other costs and expenses associated with procuring any documentary,
deed or transfer taxes and any fees or stamp duties imposed by any applicable
state, county and municipalities in connection with the execution and delivery
of the instruments of conveyance (collectively “Transfer Taxes”), shall be
shared between the parties equally. Prior to Closing, Parties shall determine
responsibility for Transfer Taxes in excess of $800,000.00 and Parties expressly
acknowledge that mortgage taxes are not included in the definition of Transfer
Taxes and are to be borne solely by Buyer.
 
14.  Successors and Assigns. The terms, conditions and covenants of this
Agreement shall be binding upon and shall inure to the benefit of the parties
and their respective nominees, successors, beneficiaries and assigns. Buyer
shall be entitled to assign this Agreement in whole or in part, to any affiliate
of Buyer, or designate a separate affiliate to take title with respect to each
of the Facilities. Notwithstanding the above, any such assignment shall not
relieve or release Buyer of any of its obligations or liabilities under this
Agreement.
 
 
27

--------------------------------------------------------------------------------

 
15.  Survival. Notwithstanding any provision of this Agreement to the contrary,
the obligations of the parties under Articles 4, 5, 10, 12, 18, and 20 and
Section 8.12 shall survive the Closing.
 
16.  Notices. Any notice, demand or request which may be permitted, required or
desired to be given in connection therewith shall be given in writing and
directed to Seller and Licensees and Buyer as follows:
 
if to Seller or  PITA General Corporation and AHC Tenant, Inc.
Licensees:  10401 North Meridian Street, Suite 122
Indianapolis, Indiana 46290
Attention: Jay L. Hicks
Facsimile: (317) 630-3159
Telephone: (317) 630-3156

with a copy to:  Bose McKinney & Evans LLP
2700 First Indiana Plaza
135 N. Pennsylvania Street
Indianapolis, Indiana 46204
Attention: Brantley Wright
Facsimile: (317) 223-0306
Telephone: (317) 684-5306
if to Buyer: The Blackstone Group
345 Park Avenue
New York, New York 10154
Attention: David A. Roth
Facsimile: (212) 583-5202
Telephone: (212) 583-5885

with a copy to: Pircher, Nichols & Meeks
900 North Michigan Avenue
Suite 1050
Chicago, Illinois 60611  
Attention: Real Estate Notices (JDL)
Facsimile: (312) 915-3348
Telephone: (312) 915-3111

with a copy to:  Emeritus Corporation
3131 Elliott Avenue, #500
Seattle, Washington 98121
Attention: Eric Mendelsohn
Facsimile: (206) 357-7388
Telephone: (206) 301-4493

 
28

--------------------------------------------------------------------------------

 

with a copy to:  Foster Pepper LLC
1111 Third Avenue, Suite 3400
Seattle, Washington 98101
Attention: Laura McClellan
Facsimile: (206) 749-1917
Telephone: (206) 447-2871

or to such other address as either party may hereunder designate in writing.

Notices shall be deemed properly delivered and received (i) the same day when
personally delivered; or (ii) one day after deposit with Federal Express or
other commercial overnight courier; or (iii) the same day when sent by confirmed
facsimile. Any notice to be sent a party hereto may be sent by such party’s
attorney.
 
17.  Benefit. This Agreement is for the benefit only of the parties hereto and
their nominees, successors, beneficiaries and assignees and no other person or
entity shall be entitled to rely hereon, receive any benefit herefrom or enforce
against any party hereto any provision hereof. There are no third party
beneficiaries.
 
18.  Brokerage. Buyer hereby represents, covenants, and warrants to Seller and
Licensees that it has not employed any broker, agent or finder in connection
with the transaction contemplated herein and agrees to indemnify Seller and
Licensees against any claim for any commission made by any broker claiming to
have been retained by Buyer. Sellers agree to pay the brokerage commission due
to Marcus & Millichap in connection with the transaction contemplated herein and
hereby represent, covenant and warrant to Buyer that they have not employed any
other broker, agent or finder in connection with the transaction contemplated
herein, and agree to indemnify Buyer against any claim for any commission made
by any broker, including Marcus & Millichap, claiming to have been retained by
Sellers. The foregoing indemnities shall survive the Closing.
 
19.  Reasonable Efforts. Seller and Licensees and Buyer shall use their
reasonable, diligent and good faith efforts, and shall cooperate with and assist
each other in their efforts, to obtain such consents and approvals of third
parties (including, but not limited to, governmental authorities and the
Licenses), to the transaction contemplated hereby, and to otherwise perform as
may be necessary to effectuate transfer the Sale Assets to Buyer in accordance
with this Agreement.
 
20.  Miscellaneous.
 
20.1.  Entire Agreement. This Agreement and the Confidentiality Agreement
constitute the entire understanding between the parties with respect to the
transaction contemplated herein, and all prior or contemporaneous oral
agreements, understandings, representations and statements, and all prior
written agreements, understandings, letters of intent and proposals, in each
case with respect to the transaction contemplated herein, are hereby superseded
and rendered null and void and of no further force and effect and are merged
into this Agreement. Neither this Agreement, the Confidentiality Agreement nor
any provisions hereof or thereof may be waived, modified, amended, discharged or
terminated except by an instrument in
 

 
29

--------------------------------------------------------------------------------

 

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. Except as expressly set forth in this
Agreement, Buyer shall have no obligation to make any payments to or on behalf
of Seller and Licensees in connection with the transaction contemplated by this
Agreement.
 
20.2.  Construction. This Agreement shall not be construed more strictly against
one party than against the other merely by virtue of the fact that it may have
been prepared by counsel for one of the parties, it being recognized that each
of Seller, Licensees and Buyer have contributed substantially and materially to
the preparation of this Agreement. The headings of various sections in this
Agreement are for convenience only, and are not to be utilized in construing the
content or meaning of the substantive provisions hereof.
 
20.3.  Knowledge. The parties acknowledge that the day to day operations of the
Facilities have not been managed by Seller and Licensees but by a management
company under contract with a Licensee. Whenever any statement herein is made
“to Seller’s and Licensees’ knowledge” or words of similar intent or effect of
any party or representative, such person shall make such statement only if such
facts and other information which, as of the date the representation is given,
are actually known to the party making such statement, which with respect to
Seller and Licensees means the knowledge of the President, Jay Hicks, and
Treasurer, Robert N. Davies, without any independent investigation, other than
consultation with the executive directors of each of the Facilities who are
identified on Exhibit T.
 
20.4.  Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
 
20.5.  Partial Invalidity. The provisions hereof shall be deemed independent and
severable, and the invalidity or partial invalidity or enforceability of any one
provision shall not affect the validity of enforceability of any other provision
hereof, provided that the intent and content of this Agreement are not
substantially altered.
 
20.6.  Conflict. Notwithstanding there may have been a letter of interest
executed by the parties, Buyer and Seller and Licensees agree that the letter of
interest and anything contained therein shall have absolutely no effect upon or
in any fashion have any influence on this Agreement.
 
20.7.  Confidential Information; Publicity. The parties agree to continue to be
bound by the terms and provisions of that certain Confidentiality and
Non-Disclosure Agreement dated as of July 27, 2006 (the “Confidentiality
Agreement”). The Confidentiality Agreement is hereby incorporated into this
Agreement by reference and made a part of this Agreement and shall survive the
execution of this Agreement notwithstanding the terms thereof. If a conflict
arises between the provisions of this Agreement and the provisions of the
Confidentiality Agreement, the provisions of the Confidentiality Agreement shall
control. Except as otherwise required by law or applicable stock exchange rules,
press releases and other publicity concerning this transaction shall be made
only with the prior agreement of Seller and Licensees and Buyer (and in any
event, the parties shall use all reasonable efforts to consult and agree with
each other with respect to the content of any such required press release or
other publicity). Except as otherwise
 

 
30

--------------------------------------------------------------------------------

 

required by law or applicable stock exchange rules, no such press releases or
other publicity shall state the amount of the Purchase Price.
 
20.8.  Consent to Jurisdiction. The parties hereto irrevocably agree that all
actions or proceedings in any way, manner or respect arising out of or from or
related to this Agreement shall be litigated in Courts having situs within the
State of Illinois. The parties hereby consent and submit to the jurisdiction of
any local, state or federal courts located within Ohio and consent that all such
service of process be made by certified mail directed to the party at the
address stated herein and service so made shall be deemed to be completed upon
actual receipt thereof. The parties hereby waive any right they may have to
transfer or change the venue of any litigation brought in accordance herewith.
 
20.9.  Waiver of Trial by Jury. The parties hereto knowingly, voluntarily and
intentionally waive (to the fullest extent permitted by applicable law) any
right they may have to a trial by jury of any dispute arising under or relating
to this Agreement and agree that any such dispute shall be tried before a judge
sitting without a jury.
 
20.10.  Time of Essence. Time is of the essence of this Agreement and each and
all of its provisions.
 

[remainder of page intentionally left blank]

 
31

--------------------------------------------------------------------------------

 

IN WITNESS WHEREOF, the parties hereto have executed this Purchase and Sale
Agreement on the date first above written.
 

PITA GENERAL CORPORATION, an Illinois corporation

By:__ /s/ Jay L. Hicks_________
Name: Jay L. Hicks
Title: President

AHC TENANT, INC., a Delaware corporation

By:_ /s/ Jay L. Hicks ____________
Name: Jay L. Hicks
Title: President

BREA EMERITUS LLC, a Delaware limited liability company

By:_/s/ Raymond R. Brandstrom_______
Name: Raymond R. Brandstrom
Title: Authorized Signatory

 
 

--------------------------------------------------------------------------------

 

 
LICENSEES
 
Boynton Village SeniorCare, LLC
 
By: /s/ Jay L. Hicks ____________
Jay Hicks, President
 
Brea SeniorCare, LLC 
 
By: /s/ Jay L. Hicks __________
Jay Hicks, President
 
Charlotte SeniorCare, LLC 
 
By: /s/ Jay L. Hicks _____________
Jay Hicks, President
 
Citrus Heights SeniorCare, LLC 
 
By: /s/ Jay L. Hicks _____________
Jay Hicks, President
 
Cobb County SeniorCare, LLC 
 
By: /s/ Jay L. Hicks __________
Jay Hicks, President
 
Colorado Springs SeniorCare, LLC 
 
By: ____________________________
Jay Hicks, President
 
Decatur SeniorCare, LLC 
 
By: /s/ Jay L. Hicks _______________
Jay Hicks, President
 
Denver SeniorCare, LLC 
 
By: /s/ Jay L. Hicks ______________
Jay Hicks, President

 
 

--------------------------------------------------------------------------------

 

 
 
 
 
Dunedin SeniorCare, LLC 
 
By: /s/ Jay L. Hicks _______________
Jay Hicks, President
 
Emerson SeniorCare, LLC 
 
By: /s/ Jay L. Hicks _______________
Jay Hicks, President
 
Fulton County SeniorCare, One, LLC 
 
By: /s/ Jay L. Hicks _______________
Jay Hicks, President
 
Fulton County SeniorCare, Two, LLC
 
By: /s/ Jay L. Hicks _____________
Jay Hicks, President
 
Mesa SeniorCare, LLC
 
By: /s/ Jay L. Hicks ______________
Jay Hicks, President
 
Overland Park SeniorCare, LLC
 
By: /s/ Jay L. Hicks _______________
Jay Hicks, President
 
Palmer Ranch SeniorCare, LLC
 
By: /s/ Jay L. Hicks _______________
Jay Hicks, President
 
Peoria SeniorCare, LLC
 
By: /s/ Jay L. Hicks _______________
Jay Hicks, President
 
Reno SeniorCare, LLC
 
By: /s/ Jay L. Hicks _____________
Jay Hicks, President

 
 

--------------------------------------------------------------------------------

 

 
 
Roanoke SeniorCare, LLC
 
By: /s/ Jay L. Hicks ____________
Jay Hicks, President
 
Sarasota SeniorCare, LLC
 
By: /s/ Jay L. Hicks ___________
Jay Hicks, President
 
Sun City West SeniorCare, LLC
 
By: /s/ Jay L. Hicks ______________
Jay Hicks, President
 
Tucson SeniorCare, LLC
 
By: /s/ Jay L. Hicks _____________
Jay Hicks, President
 
Wayne SeniorCare, LLC
 
By: /s/ Jay L. Hicks _____________
Jay Hicks, President
 
West Orange SeniorCare, LLC
 
By: /s/ Jay L. Hicks ______________
Jay Hicks, President
 
Westlake SeniorCare, LLC
 
By: /s/ Jay L. Hicks ______________
Jay Hicks, President
 
Whittier SeniorCare, LLC
 
By: /s/ Jay L. Hicks ____________
Jay Hicks, President

 
 

--------------------------------------------------------------------------------

 

List of Schedules and Exhibits

Schedule 1 Permitted Encumbrances
Schedule 2 Allocation of the Purchase Price

Exhibit A Licensees
Exhibit B Facilities
Exhibit C Regulatory Subleases
Exhibit D Management Companies
Exhibit E Transfer Agreement
Exhibit F Assignment and Assumption Agreement
Exhibit G Legal Descriptions
Exhibit H Facility Violations
Exhibit I Litigation
Exhibit J Audits/Appeals
Exhibit K Cost Reports
Exhibit L Compliance Program
Exhibit M Personal Property
Exhibit N Personal Property Encumbrances
Exhibit O Operating Statements
Exhibit P Rent Roll
Exhibit Q Leasing Incentive Programs
Exhibit R Facility Agreements
Exhibit S Environmental Reports
Exhibit T Facilities’ Directors
Exhibit U Transition Services Agreement
Exhibit V Sale and Leaseback Agreement

 
 

--------------------------------------------------------------------------------