Exhibit 10.11

 

PURCHASE AND SALE AGREEMENT

 

AND JOINT ESCROW INSTRUCTIONS

 

BY AND AMONG

 

HARVARD SQUARE, LLC,

 

A WASHINGTON LIMITED LIABILITY COMPANY

 

AS “DEVELOPED LAND SELLER;”

 

LDEV, LLC,

 

A WASHINGTON LIMITED LIABILITY COMPANY

 

AS “UNDEVELOPED LAND SELLER”;

 

AND

 

THE FRESHWATER GROUP, INC.,

 

AN ARIZONA CORPORATION

 

AS “BUYER”

 

DATED AS OF AUGUST 27, 2013

 

 

 

  

TABLE OF CONTENTS

 

    Page       1. Purchase and Sale 1 2. Purchase Price 2 2.1      Deposit 3 2.2
     Balance of Purchase Price 3 2.3      Independent Contract Consideration 3
2.4      Financing 3 3. Title to Property 4 3.1      Title Insurance 4 3.2
     Procedure for Approval of Title 4 4. Due Diligence Items 5 4.1      Due
Diligence Items 5 5. Inspections 5 5.1      Procedure; Indemnity 5 5.2
     Approval 6 6. Escrow 7 6.1      Opening of Escrow 7 6.2      Closing Date 7
6.3      Seller Deliveries 7 6.4      Buyer Deliveries 9 6.5      Post-Closing
Deliverables 9 6.6      Seller’s Costs 9 6.7      Buyer’s Costs 10 6.8
     Prorations 10 6.9      Duties of Escrow Holder 13 7. Seller
Representations, Warranties, and Covenants 14 7.1      Representations and
Warranties 14 7.2      Definition of “Seller’s knowledge”; Survival 20 7.3
     Covenants of Seller 21 8. Buyer Representations and Warranties 22 8.1
     Organization and Authorization 22 8.2      No Conflicting Agreements 22 8.3
     Patriot Act Compliance 22 9. Conditions Precedent to Closing; Status of
Employees at Closing 22 9.1      Conditions Precedent 23 9.2      Employees 24
10. Damage or Destruction 26 11. Eminent Domain 27 12. Notices 27 13. Remedies
28 13.1     Seller Default 28 13.2     Buyer Default 29 13.3     Indemnity 29
14. Assignment 30

 

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15. Interpretation and Applicable Law 30 16. Amendment 30 17. Attorneys’ Fees 30
18. Entire Agreement; Survival 30 19. Counterparts 30 20. Time Is of the
Essence; Calculation of Time Periods 31 21. Real Estate Commission 31 22.
Severability 31 23. Further Assurances 31 24. Exclusivity 31 25.
Non-Solicitation 31 26. No Option; Binding Effect 32

 

EXHIBITS

 

Exhibit A-1 Legal Description – Developed Land Exhibit A-2 Legal Description –
Undeveloped Land Exhibit B Deed Exhibit C Bill of Sale, Assignment and
Assumption Agreement Exhibit D Purchase Agreement Guaranty Exhibit E Non-Compete
Agreement Exhibit F Due Diligence Items Exhibit G Rent Roll     SCHEDULES    
Schedule 5.2.3 Service Contracts Schedule 7.1.6 Litigation Schedule 7.1.26
Current Permits

 

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PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS 

THIS PURCHASE AND SALE AGREEMENT AND JOINT ESCROW INSTRUCTIONS (this
“Agreement”) is made and entered into as of August 27, 2013 (the “Effective
Date”), by and between Harvard Square LLC, a Washington limited liability
company (“Developed Land Seller”); LDEV, LLC, a Washington limited liability
company (“Undeveloped Land Seller”, and together with Developed Land Seller,
individually and collectively, “Seller” or “Sellers”); and The Freshwater Group,
Inc., an Arizona corporation (“Buyer”). Developed Land Seller, Undeveloped Land
Seller and Buyer are sometimes each individually referred to as a “Party” and
collectively as the “Parties.”

 

IN CONSIDERATION of the mutual covenants and agreements contained in this
Agreement, and other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, the Parties hereby agree as follows:

 

1.            Purchase and Sale.   Each Seller, as applicable, hereby agrees to
sell and convey to Buyer, and Buyer hereby agrees to purchase from each Seller,
subject to the terms and conditions of this Agreement, the following
(collectively, the “Property”):

 

1.1           all of Developed Land Seller’s fee simple interest in, to and
under that certain real property known as Harvard Square, located in the City
and County of Denver, Colorado, inclusive of the real property more particularly
described on Exhibit A-1 (the “Developed Land”);

 

1.2           all of Undeveloped Land Seller’s fee simple interest in, to and
under that certain adjacent undeveloped real property, inclusive of the real
property more particularly described on Exhibit A-2 (the “Undeveloped Land”)
(The Developed Land and the Undeveloped Land are collectively referred to as the
“Land”);

 

1.3           all of Seller’s right, title and interest in, to and under all
privileges and easements appurtenant to the Land, including, without limitation,
all of Seller’s right, title and interest, if any, in and to all minerals, oil,
gas and other hydrocarbon substances in, on and under the Land, all development
rights, air rights, water rights and water stock owned by Seller relating to the
Land, and all easements, rights of way or other appurtenances of Seller used in
connection with the beneficial use and enjoyment of the Land (collectively, the
“Appurtenances”);

 

1.4           all improvements and fixtures located on the Developed Land,
including, without limitation, the seniors housing community (the “Community”),
and all other structures located on the Developed Land, all apparatus, equipment
and appliances used in connection with the operation or occupancy of the
Community or the Developed Land, such as heating, air conditioning, and lighting
systems and other facilities used to provide any utility services,
refrigeration, ventilation, garbage disposal, or other services on the Developed
Land (collectively, the “Improvements”, and together with the Land, and the
Appurtenances, the “Real Property”);

 

1.5           all of Developed Land Seller’s right, title and interest in and to
all tangible personal property now or hereafter located on or in, stored for
future use with, or used in

 

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connection with, the Real Property, excluding all tangible personal property
owned or leased by the Residents and Tenants (each as defined below) or other
occupants of the Property (the “Personal Property”);

 

1.6           all of Developed Land Seller’s right, title and interest in, to
and under any agreement (including any lease) between a Resident of the
Community, on the one hand, and Developed Land Seller or its management company,
as Developed Land Seller’s agent, on the other hand (collectively, the
“Residency Agreements”), and any real property leases relating to any premises
located at the Community other than the Residency Agreements (collectively, the
“Non-Residency Leases”), including any right, title and interest of Developed
Land Seller in and to any subleases with respect thereto, and including all
amendments or modifications thereto or supplements thereof, covering all or any
portion of the Community (such Residency Agreements and Non-Residency Leases
being referred to, collectively, as the “Leases”, and all persons or entities
occupying the Real Property or any part thereof pursuant to Residency
Agreements, the “Residents” and all persons or entities occupying the Real
Property or any part thereof pursuant to the Non-Residency Leases, the
“Tenants”), together with all deposits held in connection with the Leases
including, without limitation, all unapplied security deposits, prepaid rent,
guaranties, letters of credit and other similar charges and credit enhancements
providing additional security for the Leases (“Security Deposits”) as set forth
on the Rent Roll (as defined herein);

 

1.7           to the extent assignable, all right, title and interest in, to and
under all intangible property now or hereafter owned by either Seller and used
in the ownership, use, operation, occupancy, maintenance or development of the
applicable Real Property and Personal Property, including without limitation all
(a) licenses, permits, certificates, entitlements, approvals, authorizations and
other entitlements issued to or assigned to or otherwise for the benefit of
either Seller (the “Permits”); (b) copies of all reports, test results,
environmental assessments, surveys, plans, specifications in either Seller’s
possession (the “Plans”); (c) warranties and guaranties, if any, held by either
Seller from manufacturers, contractors, subcontractors, suppliers and installers
(“Warranties”); (d) trade names, trademarks, service marks, building and
property names and building signs, including without limitation, the name
“Harvard Square” (the “Tradenames”) used in connection with the Community, but
excluding all marks owned by Developed Land Seller’s property manager (the
“Property Manager”) at the Community; (e) telephone numbers, domain names,
e-mail addresses and other means of contact utilized in connection with the Real
Property; and (f) other intangible property related to the Real Property,
excluding only intangible property owned or leased by the Property Manager,
Residents, Tenants or other occupants of the Property (collectively, the
“Intangible Property”); and

 

1.8           to the extent approved by Buyer as set forth herein, all right,
title and interest in, to and under the “Assigned Contracts” (as defined in
Section 5.2.3 below).

 

2.            Purchase Price.   The total Purchase Price of the Property shall
be Thirty-One Million Five Hundred Thousand and No/100 Dollars ($31,500,000)
(“Purchase Price”) as allocated on the Allocation Schedule attached hereto and
adjusted by the prorations and adjustments provided elsewhere in this Agreement,
and the Purchase Price shall be payable as follows:

 

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2.1           Deposit.   Within three (3) business days following the mutual
execution and exchange of this Agreement, Buyer shall deposit into Escrow (as
defined below) the amount of Two Hundred Thousand and No/100 Dollars ($200,000)
(the “Initial Deposit”), in the form of a wire transfer payable to First
American Title Insurance Company (“Escrow Holder”). Unless this Agreement shall
have been terminated pursuant to the provisions hereof prior thereto, no later
than three (3) business days following the expiration of the “Due Diligence
Period” (as hereinafter defined), Buyer shall deposit with Escrow Holder
additional cash or other immediately available funds in the amount of Five
Hundred Fifty Thousand and No/100 Dollars ($550,000) (the “Additional Deposit”,
and together with the Initial Deposit and all interest accrued thereon, the
“Deposit”). Escrow Holder shall deposit the Deposit in a non-commingled trust
account and shall invest the Deposit in an insured, interest bearing money
market accounts, certificates of deposit, United States Treasury Bills or such
other instruments as directed by Buyer and reasonably acceptable to Seller and
interest thereon shall be credited to Buyer’s account and deemed to be part of
the Deposit. In the event of the consummation of the purchase and sale of the
Property as contemplated hereunder, the Deposit shall be paid to Seller and
credited against the Purchase Price on the Closing Date. In the event the sale
of the Property is not consummated because of (a) a Seller default, (b) the
termination of this Agreement by Buyer in accordance with any right to so
terminate provided herein, or (c) the failure of any of Buyer’s Closing
Conditions (as defined below) to occur, then the Deposit shall be immediately
and automatically paid over to Buyer without the need for any further action by
either Party hereto. The sole remedy for a failure by Buyer to make the Initial
Deposit or the Additional Deposit as and when required hereunder shall be for
Seller to terminate this Agreement.

 

2.2           Balance of Purchase Price.   On or before the Closing Date, Buyer
shall deposit with the Escrow Holder to be held in Escrow the balance of the
Purchase Price, as adjusted by the prorations and adjustments provided for in
this Agreement, in immediately available funds by wire transfer made payable to
Escrow Holder.

 

2.3           Independent Contract Consideration.   Notwithstanding anything in
this Agreement to the contrary, One Hundred and No/100 Dollars ($100.00) of the
Deposit is delivered to the Escrow Holder for delivery to Seller as “Independent
Contract Consideration”, and the Deposit is reduced by the amount of the
Independent Contract Consideration so delivered to Seller, which amount has been
bargained for and agreed to as consideration for Seller’s execution and delivery
of this Agreement.

 

2.4           Financing.   Following the execution of this Agreement, Buyer
shall apply for and thereafter shall use commercially reasonable efforts to
obtain for the Property, at Buyer’s sole cost and expense, a loan from an
institutional lender for new mortgage financing for the Property on current,
commercially customary terms (the “Financing”). If Buyer is unable to obtain the
Financing as of Closing, Buyer shall have the right to terminate this Agreement,
in its sole discretion, by giving written notice of such election on or prior to
the Closing Date, in which event the Deposit shall be returned forthwith to
Buyer provided Seller receives the termination notice within sixty (60) days
after the Effective Date (the “Financing Contingency Deadline”). Any termination
of this Agreement by Buyer solely under this Section 2.4 after the Financing
Contingency Deadline shall entitle Seller to receive and retain the Deposit as
compensation for the termination but Buyer’s right to terminate under this
Section 2.4 is without prejudice to

 

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Buyer’s other rights to terminate this Agreement as set forth in this Agreement
and to have its Deposit refunded to the extent expressly set forth herein.

 

3.            Title to Property.

 

3.1           Title Insurance.   At the Closing, each Seller shall convey to
Buyer fee simple title to its portion of the Real Property by a duly executed
and acknowledged Deed (as defined in Section 6.3.1 below). A condition to
Buyer’s obligations under this Agreement is the issuance by First American Title
Insurance Company whose address is 777 South Figueroa Street, 4th Floor, Los
Angeles, California 90017 (Attention: Maurice Neri) (the “Title Company”) to
Buyer of a 2006 ALTA Extended Coverage Owner’s Policy of Title Insurance (with
the general exceptions deleted) insuring fee simple title to the Real Property
in Buyer with liability in the amount of the Purchase Price, subject only to
such exceptions as Buyer shall have approved pursuant to Section 3.2 below (the
“Permitted Exceptions”), and without survey exceptions (the “Title Policy”);
provided, however, Buyer agrees to accept the Title Policy without creditor’s
rights coverage. The Title Policy shall provide full coverage against all labor,
mechanics’ and materialmen’s liens, and contain such endorsements as Buyer may
reasonably require, including any endorsements required as a condition to
Buyer’s approval of any title exceptions pursuant to Section 1.6 below (the
“Endorsements”). Notwithstanding anything in this Agreement to the contrary, and
notwithstanding any approval or consent given or deemed given by Buyer
hereunder, Seller covenants to cause to be released and reconveyed from the
Property, and to remove as exceptions to title on or prior to the Closing Date
all labor, materialmen’s and mechanics’ liens, mortgages, deeds of trust and
other monetary encumbrances, assessments and/or indebtedness, except for real
estate taxes and assessments not yet due or payable (the “Pre-Disapproved
Exceptions”).

 

3.2           Procedure for Approval of Title.   Seller shall, no later than
five (5) days following the Effective Date (the “Title Delivery Date”), provide
to Buyer a title insurance commitment for the Property (the “Commitment”),
together with access to all of the recorded items identified as exceptions
therein (the “Title Documents”). Within five (5) business days following the
Effective Date, Seller shall furnish Buyer with a copy of the most recent survey
of the Real Property in Seller’s possession (the “Prior Survey”, and if no New
Survey is obtained, the “Survey”), and on or before the expiration of the Due
Diligence Period, Buyer may at its option obtain a current as-built survey (a
“New Survey”, and collectively with the Prior Survey, the “Survey”) of any or
all of the Land and the Improvements by a registered land surveyor. Buyer shall
pay all costs and expenses incurred in obtaining a New Survey. Buyer shall have
forty five (45) days after the Effective Date to review and approve, in writing,
the condition of the title to the Real Property (“Title Review Period”). If the
Title Documents or the Survey reflect or disclose any defect, exception or other
matter that is unacceptable to Buyer (each, a “Title Defect”, and collectively,
the “Title Defects”), then Buyer shall provide Seller with written notice of
Buyer’s objections no later than the conclusion of the Title Review Period;
provided, however, that if Buyer shall fail to notify Seller in writing within
the Title Review Period either that the condition of title is acceptable or of
any specific objections to the state of title, then Buyer shall be deemed to
have objected to all exceptions to title or other conditions or matters which
are described in the Title Documents or shown on the Survey. Seller may, at its
sole option, elect, by written notice given to Buyer within five (5) days
following the conclusion of the Title Review Period (“Seller’s Notice Period”),
to cure or remove, or agree to cure and

 

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remove by Closing, the Title Defects; provided, however, Seller shall in all
events have the obligation to (i) act in good faith in making such election and
curing any Title Defects that Seller elects to cure, (ii) specifically remove
the Pre-Disapproved Exceptions, and (iii) remove any Title Defect that attaches
to the Property subsequent to the conclusion of the Title Review Period. The
failure of Seller to deliver written notice electing to cure any or all such
objected to exceptions during Seller’s Notice Period shall be deemed an election
by Seller not to cure such exceptions. In the event Seller elects (or is deemed
to have elected) not to cure or remove any objection, or in any event Seller
fails to cure or remove any objection which Seller agrees or is required to
cure, then Buyer shall be entitled, as Buyer’s sole and exclusive remedies,
either to (i) terminate this Agreement and obtain a refund of the Deposit or
(ii) waive any Title Defects that Seller has not elected to cure and close this
transaction as otherwise contemplated herein. The failure of Buyer to provide
written notice to Seller within ten (10) days following the expiration of
Seller’s Notice Period waiving any Title Defects Seller has not elected to cure
shall be deemed an election by Buyer to waive its objections as to all Title
Defects that are (x) not Pre-Disapproved Exceptions and (y) Seller has not
agreed to release or cure. If at any time prior to the Closing Date, Buyer
receives a new, updated or supplemental Commitment or Survey (including the
initial version of the Survey) and such new, updated or supplemental Commitment
or Survey discloses one or more Title Defects that are not Permitted Exceptions
(in each case, a “New Title Defect”) and any New Title Defect is unacceptable to
Buyer, Buyer may, within five (5) business days after receiving such initial
version, new, updated or supplemental Commitment or Survey, as the case may be,
deliver to Seller another written notice of Buyer’s objections with respect to
any New Title Defect only and the process described in this Section shall apply
thereto. If any of the time periods set forth in this Section 3.2 extend beyond
the expiration of the Due Diligence Period, Buyer shall nevertheless be afforded
any rights (including termination of this Agreement and return of the Deposit)
on the terms set forth in this Section.

 

4.            Due Diligence Items.

 

4.1           Due Diligence Items.   Seller shall, on or before three (3)
business days after the Effective Date (the “Delivery Date”), deliver or
otherwise make available to Buyer all of the information regarding the Property
as Buyer shall reasonably request, including any preliminary title reports, a
detailed delinquency report (“Delinquency Report”), copies of existing licenses
and permits (including without limitation any assisted living facility license
required to operate the Community the “License”), and such other items as are
set forth on Exhibit F (collectively, the “Due Diligence Items”). With respect
to the Due Diligence Items listed on Exhibit F which are listed as being “N/A”,
it is acknowledged that such items are not currently in Seller’s possession and
accordingly, Buyer is not expecting such items to be provided by Seller during
the Due Diligence Period; provided, however, to the extent that such items
become available to Seller during the term of this Agreement, Seller agrees that
it will deliver such items to Buyer at such time. Developed Land Seller has
attached hereto as Exhibit G the rent roll for the Community as of the end of
July 2013 (“Rent Roll”).

 

5.            Inspections.

 

5.1           Procedure; Indemnity.   Buyer, at its sole expense, shall have the
right to conduct feasibility, environmental, engineering and physical studies of
the Property at any time during the period beginning on the Effective Date and
expiring on the later of (i) the date forty-

 

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five (45) days after the Effective Date or (ii) the expiration of the Title
Review Period (the “Due Diligence Period”); provided, however, if the Due
Diligence Items are not delivered on the Delivery Date or if the Title Documents
and Survey are not delivered by the Title Delivery Date, Buyer may, by written
notice delivered prior to the conclusion of the original Due Diligence Period,
extend the Due Diligence Period for a period equal to the associated delay in
delivery of such materials beyond the applicable Delivery Date but in no event
to a date more than seventy five (75) days after the Effective Date. Buyer and
its duly authorized agents or representatives shall be permitted to enter upon
the Property at all reasonable times during the Due Diligence Period in order to
conduct Resident/Tenant interviews (Resident/Tenant interviews will be conducted
after notice to and approval by Seller, not to be unreasonably withheld,
conditioned or delayed), engineering studies, soil tests and any other
inspections and/or tests that Buyer may deem necessary or advisable
(collectively, the “Inspections”). Buyer agrees to promptly discharge any liens
that may be imposed against the Property as a result of Buyer’s Inspections and
to defend, indemnify and hold Seller harmless from all claims, suits, losses,
costs, expenses (including without limitation court costs and attorneys’ fees),
liabilities, judgments and damages (collectively, “Claims”) incurred by Seller
as a result of any Inspections performed by Buyer, except for any Claims against
Seller based upon any pre-existing conditions merely discovered by Buyer or any
obligations and liabilities of Seller.

 

5.2          Approval.

 

5.2.1           Buyer shall have until the conclusion of the Due Diligence
Period to approve or disapprove of the Inspections, Due Diligence Items and the
economic feasibility of the Property. If Buyer shall fail to deliver a written
notice to Seller and Escrow Holder within the Due Diligence Period approving
Buyer’s due diligence in Buyer’s sole and absolute discretion, this Agreement
shall thereupon be automatically terminated, Buyer shall not be entitled to
purchase the Property, Seller shall not be obligated to sell the Property to
Buyer and the Parties shall be relieved of any further obligation to each other
with respect to the Property. Upon termination, Escrow Holder shall, without any
further action required from any Party, return all documents and funds,
including the Deposit, to the Party who deposited same and no further duties
shall be required of Escrow Holder.

 

5.2.2           Notwithstanding anything to the contrary contained herein, Buyer
hereby agrees that in the event this Agreement is terminated for any reason,
then Buyer shall promptly and at its sole expense return to Seller all Due
Diligence Items which have been delivered by Seller to Buyer in connection with
Buyer’s inspection of the Property within five (5) business days following the
termination of this Agreement.

 

5.2.3           On or before the expiration of the Due Diligence Period Buyer
may deliver a written notice to Seller (the “Contracts Notice”) identifying
those service contracts, vending machine, telecommunications and other
facilities leases, utility contracts, maintenance contracts, management
contracts, leasing contracts, equipment leases, brokerage and leasing commission
agreements and other agreements or rights related to the construction,
ownership, use, operation, occupancy, maintenance, repair or development of each
Property (collectively, the “Service Contracts”) listed on Schedule 5.2.3 that
Seller shall assign to Buyer and that Buyer shall assume as of the Closing Date
(such designated Service Contracts shall be collectively referred to herein as
the “Assigned Contracts”). All Assigned Contracts shall be

 

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listed on a Schedule to the “Assignment Agreement” (as hereinafter defined). All
Service Contracts that are not Assigned Contracts (the “Terminated Contracts”)
shall be terminated at Closing by Seller whereupon the Terminated Contracts
shall not be assigned to, or assumed by, Buyer. To the extent that any
Terminated Contracts require payment of a penalty or premium for cancellation,
Seller shall be solely responsible for the payment of any such cancellation fees
or penalties. Notwithstanding the foregoing, Buyer shall be solely responsible
for the payment of any such cancellation fees or penalties with respect to AT&T
Wireless/ New Cingular Wireless, Comcast, Pitney Bowes and Tyco/SymplexGrinnell.
If Buyer fails to deliver the Contracts Notice on or before the expiration of
the Due Diligence Period, all Service Contracts will be Terminated Contracts.

 

6.            Escrow.

 

6.1           Opening of Escrow. The sale of the Property shall be consummated
through an escrow (“Escrow”) to be opened with Escrow Holder within two (2)
business days after the execution of this Agreement by Seller and Buyer. This
Agreement shall constitute the joint escrow instructions between the Parties,
with such further consistent instructions as Escrow Holder shall require in
order to clarify its duties and responsibilities. If Escrow Holder shall require
further Escrow instructions, Escrow Holder may prepare such instructions on its
usual form. Such further instructions shall, so long as not inconsistent with
the terms of this Agreement, be promptly signed by Buyer and Seller and returned
to Escrow Holder within three (3) business days after receipt thereof. In the
event of any conflict between the terms and conditions of this Agreement and any
further Escrow instructions, the terms and conditions of this Agreement shall
control.

 

6.2           Closing Date. The consummation of the purchase and sale of the
Property (the “Closing”) shall occur on the first business day of a month
following the date that is fifteen (15) days after the expiration of the Due
Diligence Period; provided, however, that so long as Buyer is using commercially
reasonable efforts to procure the “Required Governmental Approvals” (as
hereinafter defined), Buyer shall have the right to extend the “Closing Date”
(as hereinafter defined) until the date five (5) business days after Buyer has
procured all such Required Governmental Approvals, but in no event beyond the
date that is ninety (90) days after the expiration of the Due Diligence Period
(the “Outside Closing Date”). In the event Buyer terminates this Agreement due
to a failure to procure the Required Governmental Approvals by the Outside
Closing Date, the Deposit shall be immediately and automatically paid over to
Buyer without the need for any further action by either Party hereto. The date
upon which the Closing shall actually occur is referred to as the “Closing
Date”.

 

6.3           Seller Deliveries. No later than one (1) business day prior to the
Closing Date (or such earlier date as is specified in any subsection below),
Seller shall deliver to Escrow Holder the following:

 

 6.3.1           One (1) original Special Warranty Deed, in the form attached
hereto as Exhibit B (the “Developed Land Deed”), for the Developed Land, duly
executed and acknowledged by Developed Land Seller and in proper form for
recording, conveying fee title to the Developed Land to Buyer, and one (1)
original Special Warranty Deed in the same form (the “Undeveloped Land Deed”,
and together with the Developed Land Deed, individually and

 

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collectively, the “Deed” or “Deeds”), for the Undeveloped Land, duly executed
and acknowledged by Undeveloped Land Seller and in proper form for recording,
conveying fee title to the Undeveloped Land to Buyer;

 

6.3.2           Assignment Agreement.   Two (2) originals of a Bill of Sale,
Assignment and Assumption Agreement in the form attached hereto as Exhibit C
(the “Assignment Agreement”), duly executed by each Seller;

 

6.3.3           Transferor’s Certification of Non-Foreign Status.   One (1)
original certification as to Developed Land Seller’s non-foreign status which
complies with the provisions of Section 1445(b)(2) of the Internal Revenue Code
of 1986, as amended, any regulations promulgated thereunder (“Internal Revenue
Code”), and any revenue procedures or other officially published announcements
of the Internal Revenue Service or the U.S. Department of the Treasury in
connection therewith (“Developed Land Seller FIRPTA”) and one (1) original
certification as to Undeveloped Land Seller’s non-foreign status which complies
with the provisions of Section 1445(b)(2) of the Internal Revenue Code, and any
revenue procedures or other officially published announcements of the Internal
Revenue Service or the U.S. Department of the Treasury in connection therewith
(“Undeveloped Land Seller FIRPTA”, and together with the Developed Land Seller
FIRPTA, the “FIRPTAs”;

 

6.3.4           Residents/Tenant Notice.   One (1) original letter, in a form
approved by Buyer, duly executed by Developed Land Seller (and, to the extent
requested by Buyer, either counter-signed by Buyer or attaching an additional
letter from Buyer), advising the Residents and Tenants of the change in
ownership of the Community (provided that the Parties agree that this notice
shall be sent out at such earlier date as is required by applicable law, to the
extent required);

 

6.3.5           Rent Roll; Delinquency Report.   At least three (3) business
days prior to Closing, one (1) original updated Rent Roll and updated
Delinquency Report, each certified by Developed Land Seller as being true and
accurate as of the Closing Date;

 

6.3.6           Title Documents.   Such other documents and instruments,
executed and properly acknowledged by either or both Sellers, as Title Company
may require from Seller in order to issue the Title Policy;

 

6.3.7           Purchase Agreement Guaranty.   Two (2) originals of a Purchase
Agreement Guaranty in the form attached hereto as Exhibit D (the “Purchase
Agreement Guaranty”), duly executed by Lytle Enterprises, LLC;

 

6.3.8           Non-Compete Agreement.   Two (2) originals of a Non-Competition
Agreement in the form attached hereto as Exhibit E (the “Non-Compete
Agreement”), duly executed by each Seller and the principals thereof;

 

6.3.9           Closing Statement.   A customary Closing Statement prepared by
Escrow Holder and approved by Seller showing the payment of the Purchase Price
by Buyer, all prorations and credits and the balance payable to Seller;

 

8

  

6.3.10         Other Documents.   Such other documents as may be required by
this Agreement or as may reasonably be required to carry out the terms and
intent of this Agreement, provided that such documents shall not increase
Seller’s liability or result in a material expense to Seller.

 

6.4         Buyer Deliveries.   No later than one (1) business day prior to the
Closing Date, Buyer shall deliver to Escrow Holder the following:

 

6.4.1           Purchase Price.   The balance of the Purchase Price, as adjusted
by the prorations and adjustments provided for in this Agreement;

 

6.4.2           Assignment Agreement.   Two (2) originals of the Assignment
Agreement, duly executed by Buyer;

 

6.4.3           Non-Compete Agreement.   Two (2) originals of the Non-Compete
Agreement, duly executed by Buyer;

 

6.4.4           Title Documents.   On or before the Closing Date, such other
documents as the Title Company may require from Buyer in order to issue the
Title Policy;

 

6.4.5           Closing Statement.   A customary Closing Statement prepared by
Escrow Holder and approved by Buyer showing the payment of the Purchase Price by
Buyer, all prorations and credits and the balance payable to Seller; and

 

6.4.6           Other Documents.   Such other documents as may be required by
this Agreement or as may reasonably be required to carry out the terms and
intent of this Agreement, such as the Real Property Transfer Declaration (form
TD 1000), provided that such documents shall not increase Buyer’s liability or
result in a material expense to Buyer.

 

6.5         Post-Closing Deliverables.   Within one (1) business day after the
Closing Date, Seller shall deliver to Buyer or make available to Buyer at the
Property the following:

 

6.5.1           Keys.   All keys to all buildings and other improvements located
on the Property, combinations to any safes thereon, and security devices therein
in Seller’s possession;

 

6.5.2           Contracts.   The original Leases, Assigned Contracts, Permits,
Plans and Warranties; and

 

6.5.3           Records.   All records and files relating to the management or
operation of the Property that are in Seller’s possession, including, without
limitation, all Resident and Tenant files (including correspondence), employee
files, property tax bills, and any existing calculations used to prepare
statements of rental increases under the Leases.

 

6.6         Seller’s Costs.   Seller shall pay the following:

 

6.6.1           One-half (½) of Escrow Holder’s fee, costs and expenses;

 

9

  

6.6.2           All realty transfer, recordation and documentary fees and taxes
imposed on the Deeds, the conveyance of the Property or the transaction
contemplated by this Agreement (including any sales or other tax related to the
transfer of the Personal Property);

 

6.6.3           The premium cost for the Title Policy (including extended
coverage) for the Property;

 

6.6.4           All costs incurred in connection with the prepayment,
satisfaction or reconveyance of any loan encumbering the Property or any portion
thereof, including, without limitation, all prepayment, reconveyance and
recording fees, penalties or charges, and any legal fees associated therewith,
and any other document(s) required by the Title Company in order to release
Title Defects or New Title Defects;

 

6.6.5           All costs associated with the cure of any Title Defect and/or
New Title Defect identified in Section 3.2 above that Seller has agreed to
remove (collectively, “Curative Endorsements”);

 

6.6.6           All real estate commissions due in connection with this
transaction pursuant to Section 22 below;

 

6.6.7           Seller’s attorneys’ fees; and

 

6.6.8           All other costs customarily borne by sellers of real property in
the City and County of Denver, Colorado.

 

The provisions of this Section 6.6 shall survive the termination of this
Agreement.

 

6.7         Buyer’s Costs.   Buyer shall pay the following:

 

6.7.1           One-half (½) of Escrow Holder’s fees, costs and expenses;

 

6.7.2           The cost of the Survey and the Endorsements (other than the
Curative Endorsements);

 

6.7.3           Buyer attorneys’ fees; and

 

6.7.4           All other costs customarily borne by buyers of real property in
the City and County of Denver, Colorado.

 

The provisions of this Section 6.7 shall survive the termination of this
Agreement.

 

6.8          Prorations.

 

6.8.1           Items to Be Prorated.   The following shall be prorated between
Seller and Buyer as of the Closing Date with Buyer being deemed the owner of the
Property as of the Closing Date and with Buyer receiving credit for or charged
with the entire day of the Closing. Except as hereinafter expressly provided,
all prorations shall be done on the basis of the actual number of days in the
year in which Closing occurs for the actual number of days elapsed

 

10

  

to the Closing Date or the actual number of days in the month in which the
Closing occurs and the actual number of days elapsed in such month to the
Closing Date, as applicable:

 

(a)          Taxes and Assessments.   Seller shall pay, on or prior to Closing,
any and all delinquent real estate and personal property taxes and assessments
with respect to the Property. General real estate and personal property taxes
and assessments that are due or accrue during the year in which the Closing
occurs shall be prorated as of the Closing Date; provided, however, that Seller
shall pay on or before Closing the full amount of any bonds or assessments
against the Property, including interest payable therewith, and including any
bonds or assessments that may be payable after the Closing Date that are a
result of or relate to the construction or operation of any Improvements or any
public improvements that serve only the Property. If after the Closing there is
any retroactive increase in the real or personal property taxes or assessments
imposed on the Property: (i) if such increase relates to the tax year in which
the Closing occurred, then such increase shall be prorated by Seller and Buyer
on a per diem basis based on their respective periods of ownership during the
period to which such increase applies, (ii) if such increase relates to any tax
year subsequent to the tax year which the Closing occurred, then such increase
shall be the obligation of Buyer, and (iii) if such increase relates to any tax
year prior to the tax year in which the Closing occurred, then such increase
shall be the obligation of Seller. The prorations shall be based upon the most
recently issued tax bill for the Property. If the most recent tax bill is not
for the current tax year, then the Parties shall reprorate within ninety (90)
days of the receipt of the tax bill for the current tax year.

 

(b)          Rents.   Buyer will receive a credit at Closing for all rents
collected by Developed Land Seller prior to the Closing Date and allocable to
the period from and after the Closing Date based upon the actual number of days
in the month. No credit shall be given Developed Land Seller for accrued and
unpaid rent or any other non-current sums due from Residents or Tenants until
these sums are paid, and Developed Land Seller shall retain the right to collect
any such rent provided Developed Land Seller does not sue to evict any tenants
or terminate any Leases. Buyer shall cooperate with Developed Land Seller after
the Closing Date to collect any rent under the Leases which has accrued as of
the Closing Date; provided, however, Buyer shall not be obligated to sue any
Residents or Tenants or exercise any legal remedies under the Leases or to incur
any expense over and above its own regular collection expenses. All payments
collected from Residents and Tenants after the Closing Date shall first be
applied to the month in which the Closing occurs, then to any rent due to Buyer
for the period after the Closing Date through the month in which such payment
was made, and finally to any rent due to Developed Land Seller for the period
prior to Closing Date.

 

(c)          Operating Expenses.   All operating expenses (including all charges
under the Assigned Contracts and agreements assumed by Buyer) shall be prorated,
and as to each service provider, operating expenses payable or paid to such
service provider in respect to the billing period of such service provider in
which the Closing 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 Close Date and the number of days in the Current Billing Period from and
after the Closing Date, and assuming that all charges are incurred uniformly
during the Current Billing Period. 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.

 

11

  

(d)          Security Deposits; Prepaid Rents.   All deposits, including,
without limitation, all prepaid rentals, damage, and other tenant charges and
security deposits (including any portion thereof which may be designated as
prepaid rent) under Leases, if and to the extent that such deposits are in
Developed Land Seller’s actual possession or control and have not been otherwise
applied by Developed Land Seller to any obligations of any Residents or Tenants
under the Leases and any interest earned thereon which by law or the terms of
the Leases could be required to be paid or refunded to Residents or Tenants,
shall be assigned to Buyer and either delivered to Buyer or, at Buyer’s option,
credited to Buyer against the Purchase Price, and upon the Closing Date, Buyer
shall assume full responsibility for all security deposits to be refunded to the
Residents and Tenants under the Leases (to the extent the same are required to
be refunded by the terms of such Leases or applicable). To the extent that any
free rent, abatements or other unexpired concessions under any Leases
(collectively, “Abatements”) apply to any period after the Closing Date, Buyer
shall be entitled to a credit against the Purchase Price for the amount of any
such Abatements based on actual rents as set forth in the Rent Roll. In the
event that any security deposits are in a form other than cash (the instrument
constituting such security deposits shall be known as, the “Non-Cash Security
Deposits”), Developed Land Seller will, at Closing, cause Buyer to be named as
beneficiary under the Non-Cash Security Deposits. Buyer will not receive a
credit against the Purchase Price for such Non-Cash Security Deposits. In the
event that Buyer cannot be named the beneficiary under the Non-Cash Security
Deposits as of the Closing Date, a cash escrow equal to the amount of the
Non-Cash Security Deposit will be established at the Closing until the Non-Cash
Security Deposits are reissued in Buyer’s name. Prior to such time of reissue,
Buyer shall be entitled to draw from such cash escrow in the event the terms of
the relevant lease entitle Buyer, as landlord, to draw on the Non-Cash Security
Deposit.

 

(e)          Utility Charges.   Utility charges for which Seller is liable, if
any, shall be prorated at Closing on the basis of the most recent meter reading
occurring prior to Closing (dated not more than fifteen (15) days prior to the
Closing Date) or, if unmetered, on the basis of a current bill for each such
utility.

 

(f)          Employee Costs.   Except for “Accrued Employee Benefits” (as
hereinafter defined), for which Buyer shall receive a credit at Closing, there
shall be no adjustment for wages, vacation pay, pension and welfare benefits and
other fringe benefits of all persons employed by Developed Land Seller or
Property Manager; it being the intent of the parties that Buyer shall have no
liability or obligation with respect to any employee of Seller or the Property
Manager prior to Closing, except as expressly set forth in Section 9.2. With
respect to only those employees who are to be-hired by Buyer, Buyer shall
provide a credit to Developed Land Seller at Closing for such employees’
benefits which relate to the period from and after the Closing Date through the
end of the calendar month in which Closing occurs, which benefits are to be
maintained by Developed Land Seller in accordance with Section 9,.2 hereof.

 

(g)          Leasing Costs.   Developed Land Seller shall pay all tenant
improvement allowances and leasing commissions with respect to premises leased
by the Residents and Tenants pursuant to the Leases in effect prior to the
Closing Date, to the extent that such tenant improvement allowances and leasing
commissions are unpaid as of the Closing Date.

 

12

  

6.8.2           Calculation; Reproration.   Escrow Holder shall prepare and
deliver to Buyer no later than three (3) business days prior to the Closing Date
an estimated closing statement which shall set forth all costs payable, and the
prorations and credits provided for in this Agreement. 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 adjusted
when the information is available in accordance with this subsection. The
Parties shall attempt in good faith to reconcile any differences or disputes
regarding such estimated closing statement no later than one (1) business day
before the Closing Date. The estimated closing statement as adjusted as
aforesaid and approved in writing by the Parties (which shall not be withheld if
prepared in accordance with this Agreement) shall be referred to herein as the
“Closing Statement”. If the prorations and credits made under the Closing
Statement shall prove to be incorrect or incomplete for any reason, then either
Party shall be entitled to an adjustment to correct the same; provided, however,
that any adjustment shall be made, if at all, within ninety (90) days after the
Closing Date, and if a Party fails to request an adjustment to the Closing
Statement by a written notice delivered to the other Party within the applicable
period set forth above (such notice to specify in reasonable detail the items
within the Closing Statement that such Party desires to adjust and the reasons
for such adjustment), then the prorations and credits set forth in the Closing
Statement shall be binding and conclusive against such Party.

 

6.8.3           Items Not Prorated.   Seller and Buyer agree that (a) on the
Closing Date, the Property will not be subject to any financing arranged by
Seller; (b) none of the insurance policies relating to the Property will be
assigned to Buyer and Buyer shall be responsible for arranging for its own
insurance as of the Closing Date; and (c) utilities, including telephone,
electricity, water and gas, shall be read on the Closing Date and Buyer shall be
responsible for all the necessary actions needed to arrange for utilities to be
transferred to the name of Buyer on the Closing Date, including the posting of
any required deposits and Seller shall be entitled to recover and retain from
the providers of such utilities any refunds or overpayments to the extent
applicable to the period prior to the Closing Date, and any utility deposits
which it or its predecessors may have posted. Accordingly, there will be no
prorations for debt service, insurance or utilities. In the event a meter
reading is unavailable for any particular utility, such utility shall be
prorated in the manner provided in Section 6.8.2 above.

 

6.8.4           Indemnification.   Buyer and Seller shall each indemnify,
protect, defend and hold the other harmless from and against any claim in any
way arising from the matters for which the other receives a credit or otherwise
assumes responsibility pursuant to this Section 6.8.

 

6.8.5           Survival.   This Section 6.8 shall survive the Closing.

 

6.9         Duties of Escrow Holder.   Escrow Holder’s Obligations at Closing.
Escrow Holder shall undertake the following at or promptly after Closing:

 

6.9.1           If necessary, Escrow Holder is authorized and instructed to
insert the Closing Date as the effective date of any documents conveying
interests herein or which are to become operative as of the Closing Date;

 

13

 

 

6.9.2           Cause the Deeds and any other recordable instruments which the
Parties so direct to be recorded in the Official Records of the Recorder of the
County in which the Property is located. If permitted by applicable law, Escrow
Holder is hereby instructed not to affix the amount of the documentary transfer
tax on the face of the Deeds, but to pay on the basis of a separate affidavit of
the applicable Seller not made a part of the public record;

 

6.9.3           Cause each non-recorded document to be delivered to the Party
acquiring rights thereunder, or for whose benefit such document was obtained,
unless there are sufficient fully executed counterparts so that each Party
executing the same can receive its own fully executed counterpart;

 

6.9.4           Deliver the Title Policy to Buyer as soon as practicable; and

 

6.9.5           Deliver to Seller the Purchase Price, as adjusted by the
prorations and adjustments provided for in this Agreement, and such other funds,
if any, as may be due to Seller by reason of credits under this Agreement.

 

6.9.6           Comply with all applicable federal, state and local reporting
and withholding requirements relating to the close of the transactions
contemplated herein. Without limiting the generality of the foregoing, to the
extent the transactions contemplated by this Agreement involve a real estate
transaction within the purview of Section 6045 of the Internal Revenue Code,
Escrow Holder shall have sole responsibility to comply with the requirements of
Section 6045 of the Internal Revenue Code (and any similar requirements imposed
by state or local law). For purposes hereof, Developed Land Seller’s and
Undeveloped Land Seller’s tax identification numbers are, respectively:
91-1728584 and 20-4460522. Escrow Holder shall defend, indemnify and hold Buyer,
Seller and their counsel free and harmless from and against any and all
liability, claims, demands, damages and costs, including reasonable attorneys’
fees and other litigation expenses, arising or resulting from the failure or
refusal of Escrow Holder to comply with such reporting requirements.

 

7.            Seller Representations, Warranties, and Covenants.

 

7.1          Representations and Warranties.   Each Seller, as indicated, hereby
represents and warrants as of the date hereof and as of the Closing Date as
follows:

 

7.1.1           Organization and Authorization.   Each Seller is a limited
liability company, duly formed and validly existing under the laws of the State
of Washington and, to the extent required under applicable law, authorized to do
business in the State of Colorado. Each Seller has full power and authority to
enter into this Agreement, to perform their respective obligations under this
Agreement and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and all documents contemplated hereby
by each Seller have been duly and validly authorized by all necessary action on
the part of the each Seller and all required consents and approvals have been
duly obtained and will not result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, agreement or instrument to
which either Seller is a Party or otherwise bound. This Agreement is a legal,
valid and binding obligation of each Seller, enforceable against each Seller in
accordance

 

14

  

with its terms, subject to the effect of applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting the
rights of creditors generally.

 

7.1.2           No Conflicting Agreements.   The execution and delivery by each
Seller of, and the performance of and compliance by each Seller with, the terms
and provisions of this Agreement, do not (a) conflict with, or result in a
breach of, the terms, conditions or provisions of, or constitute a default
under, either Seller’s organizational documents, or any other agreement or
instrument to which either Seller is a Party or by which all or any part of the
Property is bound, (b) violate any restriction, requirement, covenant or
condition to which all or any part of the Property is bound, (c) constitute a
violation of any applicable code, resolution, law, statute, regulation,
ordinance or rule applicable to either Seller or the Property, (d) constitute a
violation of any judgment, decree or order applicable to either Seller or
specifically applicable to the Property, or (e) require the consent, waiver or
approval of any third Party.

 

7.1.3           Title.   Each Seller has good, marketable and indefeasible title
to its portion of the Property, subject to the Permitted Exceptions. There are
no outstanding rights of first refusal, rights of first offer, rights of
reverter, purchase options or other similar rights or options relating to the
Property or any interest therein. There are no unrecorded or undisclosed
documents or other matters which affect title to the Property. Subject to the
Leases, each Seller has enjoyed the continuous and uninterrupted quiet
possession, use and operation of its portion of the Property, without material
complaint or objection by any person.

 

7.1.4           FIRPTA.   Each Seller is not a “foreign person” within the
meaning of Section 1445(f) of the Internal Revenue Code.

 

7.1.5           Employees.

 

 (a)          Following the Closing Date, Buyer shall have no obligation to
employ or continue to employ any individual employed by either Seller or
Property Manager or either of their respective affiliates in connection with the
Property. All of the “Community Employees” (as hereinafter defined) are at-will,
common law employees of Developed Land Seller.

 

 (b)          (i) Neither Seller nor the Property Manager has agreed to
recognize any union, works council or other collective bargaining unit, nor has
any union, works council or other collective bargaining unit been certified as
representing any “Community Employees” (as hereinafter defined), and (ii) to the
knowledge of each Seller, there is no organizational effort being made or
threatened by or on behalf of any labor union or works council with respect to
Community Employees. There is no labor strike, slowdown, work stoppage, material
grievance or lockout actually pending or, to the knowledge of each Seller,
threatened against either Seller or the Property Manager.

 

 (c)          As of the date hereof there is no filed complaint or lawsuit filed
by or with respect to any Community Employee pending against either Seller or
the Property Manager with respect to violation of any federal, state or local
law relating to employment matters.

 

15

  

7.1.6           Litigation.   Except as set forth on Schedule 7.1.6 attached
hereto (i) there are no actions or suits, or any proceedings or investigations
by any governmental agency or regulatory body pending against either of the
Sellers or the Property; (ii) no HIPDB adverse action reports have been issued
to either of the Sellers or the Community; (iii) neither Seller has received
notice of any threatened actions, suits, proceedings or investigations against
either of the Sellers or the Community at law or in equity, or before any
governmental board, agency or authority which, if determined adversely, would
materially and adversely affect the Community or title to the Community (or any
part thereof), the right to operate the Community as presently operated; (iv)
there are no unsatisfied or outstanding judgments against either of the Sellers
or the Community; (v) there is no labor dispute materially and adversely
affecting the operation or business conducted by either of the Sellers or the
Community; and (vi) neither Seller has knowledge of any facts or circumstances
which might reasonably form the basis for any such action, suit or proceeding.

 

7.1.7           Compliance with Laws and Environmental Conditions.   Except as
expressly set forth in the Due Diligence Items, to Seller’s knowledge the
Property is not in violation in any material respect of any laws, orders, rules
or regulations, ordinances or codes of any kind or nature whatsoever
(collectively, “Laws”) including, without limitation, (i) laws relating to
“Hazardous Materials” (as hereinafter defined) (“Environmental Laws”) (ii) laws
relating to the Property or the ownership, operation or licensure thereof
(including, without limitation, building, fire, health, occupational safety and
health, zoning and land use, planning and environmental laws, orders, rules and
regulations); (iii) any covenants, conditions, restrictions or agreements
affecting or relating to the ownership, use or occupancy of the Property; or
(iii) any order, writ, regulation or decree relating to any matter referred to
in (i) or (ii) above. With respect to the Property, except to the extent set
forth in the Due Diligence Items, if at all: (a) to Seller’s knowledge, there
have been no releases or threatened releases of Hazardous Materials on, from or
under the Property during either Seller’s ownership of its portion of the
Property, except in compliance with all Environmental Laws; (b) no Hazardous
Materials have been or are being used, generated, stored or disposed of at the
Property during either Seller’s period of ownership of its portion of the
Property, except in compliance with all Environmental Laws; (c) intentionally
deleted; (d) no permit is or has been required from the Environmental Protection
Agency or any similar agency or department of any state or local government for
the use or maintenance of any Improvements; (e) to Seller’s knowledge,
underground storage tanks on or under the Property, if any, have been and
currently are being operated in compliance with all applicable Environmental
Laws; (f) any closure, abandonment in place or removal of an underground storage
tank on or from the Property was performed, to Seller’s knowledge, in compliance
with applicable Environmental Laws, and any such tank had no release
contaminating the Property or, if there had been a release, the release was
remediated in compliance with applicable Environmental Laws to the satisfaction
of regulatory authorities; and (g) no summons, citation or inquiry has been made
by any such environmental unit, body or agency or a third party demanding any
right of recovery for payment or reimbursement for costs incurred under CERCLA
or any other Environmental Laws, and the Property is not subject to the lien of
any such agency. Developed Land Seller has been informed by a building inspector
that there may be asbestos in the building. Neither Seller makes any
representations and provides no warranties whatsoever with respect any potential
asbestos at the Property. “Disposal” and “release” shall have the meanings set
forth in CERCLA. For purposes of this Agreement, “Hazardous Materials” are
substances defined as: “toxic substances”, “toxic materials”,

 

16

 

 

“hazardous waste”, “hazardous substances”, “pollutants”, or “contaminants” as
those terms are defined in the Resource, Conservation and Recovery Act of 1976,
as amended (42 U.S.C. § 6901, et seq.), the Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended (42 U.S.C. § 9601, et seq.),
the Hazardous Materials Transportation Act, as amended (49 U.S.C. § 1801,
et seq.), the Toxic Substances Control Act of 1976, as amended (15 U.S.C.
§ 2601, et seq.), the Clean Air Act, as amended (42 U.S.C. § 1251, et seq.) and
any other federal, state or local law, statute, ordinance, rule, regulation,
code, order, approval, policy and authorization relating to health, safety or
the environment; asbestos or asbestos-containing materials; lead or
lead-containing materials; oils; petroleum-derived compounds; pesticides; or
polychlorinated biphenyls. During each Seller’s period of ownership of its
portion of the Property, no part of the Property was used by either of the
Sellers, and to Seller’s knowledge, no part of the Property has been used,
either during or prior to Seller’s ownership of the Property, or by any other
person or entity, for the storage, manufacture or disposal of Hazardous
Materials, except for the use and storage of routine cleaning and other supplies
used in the normal operation of the Community in accordance with applicable laws
and as may be disclosed in the Due Diligence Items.

 

7.1.8           Unpaid Claims.   There are no unpaid bills, claims, or liens in
connection with any construction or repair of the Property except for those that
will be paid in the ordinary course of business prior to the Closing Date or
which have been bonded over or the payment of which has otherwise been
adequately provided for to the satisfaction of Buyer.

 

7.1.9           Intentionally Deleted.

 

7.1.10         Zoning.   To Seller’s knowledge, the zoning of the Property
permits the current building and use of the Property.

 

7.1.11         Leases.   As of the date of this Agreement there are no Residency
Agreements or other Leases other than those described on the Rent Roll. To
Seller’s knowledge, the Rent Roll is true, accurate and complete in all material
respects as of the date hereof. Except as otherwise specifically set forth in
the Rent Roll:

 

 (a)          to Seller’s knowledge, the Leases are in full force and effect and
none of them has been modified, amended or extended;

 

 (b)          excluding notices of late rent payments, Seller has neither sent
written notice to any Resident or Tenant of the Community under a Lease, nor
received any written notice from any such Resident or Tenant, claiming that such
Resident or Tenant, or Developed Land Seller, as the case may be, is in default,
in any material respect which default remains uncured;

 

 (c)          there are no Security Deposits or other deposits under any Leases
other than those set forth in the Rent Roll; and

 

 (d)          no leasing commission shall be due for any period subsequent to
the Closing other than for lease extensions, expansions or renewals exercised
after the Closing, which commissions shall be paid by Buyer.

 

17

  

7.1.12         Condemnation Proceedings.   There are no presently pending or, to
either Seller’s knowledge, contemplated proceedings to condemn or assess the
Property or any part of it, or any utilities, sewers, roadways or other public
improvements serving the Property.

 

7.1.13         Utilities.   To Seller’s knowledge, all water, sewer, gas,
electric, telephone and drainage facilities, and all other utilities required by
law or by the normal operation of the Property are connected to the Property and
are adequate to service the Property in its present use and normal usage by the
Residents, Tenants and occupants of the Property. There is no pending or, to the
knowledge of Seller, threatened governmental or third-party proceeding directly
involving either Seller which would impair or result in the termination of such
utility availability.

 

7.1.14         Permits.   To Seller’s knowledge, each Seller has all material
licenses, permits (including, without limitation, all building permits,
occupancy permits and facility licenses), easements and rights-of-way which are
required in order to continue the present use of the Property and ensure
adequate vehicular and pedestrian ingress and egress to the Property. To
Seller’s knowledge, except as otherwise disclosed to Buyer in writing, each
Seller holds all material government authorizations, if any, necessary for the
operation of the Property in accordance with its current uses.

 

7.1.15         Service Contracts.   Except for the Leases set forth on the Rent
Roll (and those Leases that may be subsequently entered into pursuant to Section
7.3.3 below and the Service Contracts set forth on Schedule 5.2.3, neither
Seller has entered into any agreements, written or oral, relating to the
management, leasing, operation, maintenance and/or improvement of the Property
or any portion thereof that would bind Buyer after the Closing Date. Neither
Seller has delivered or received any notice alleging any default in the
performance or observance of any of the covenants, conditions or obligations to
be kept, observed or performed under any of the Service Contracts which alleged
default remains uncured. Seller has delivered or made available to Buyer a true,
correct and complete copy of each of the Service Contracts (including all
amendments thereto).

 

7.1.16         Personal Property.    Developed Land Seller has good title to all
the Personal Property and the execution and delivery to Buyer of the Assignment
Agreement shall vest good title to all of the Personal Property in Buyer, free
and clear of liens, encumbrances and adverse claims.

 

7.1.17         Affordable Housing Units.   To Seller’s knowledge, the Property
is not subject to any restriction or covenant requiring that any units in the
Facility be leased or reserved for lease as an affordable housing unit or for
low or moderate income residents.

 

7.1.18         Rights.   Neither Seller has, except by operation of law, sold,
transferred, conveyed, or entered into any agreement regarding “air rights”,
“excess floor area ratio”, or other rights or restrictions relating to the
Property except as may otherwise be disclosed as an exception set forth in the
Title Policy for the Property.

 

7.1.19         Due Diligence Items.   The Due Diligence Items provided to Buyer
do not contain, to Seller’s knowledge, any material inaccuracies. Seller has
provided or

 

18

  

made available to Buyer all of the Due Diligence Items in its possession or
control and has not intentionally hidden from Buyer or destroyed any documents
which Seller reasonably believes would be material to Buyer’s decision to waive
the Due Diligence contingency set forth in Section 5 above.

 

7.1.20         Patriot Act Compliance.   To the extent applicable to each
Seller, each Seller has complied with the International Money Laundering
Abatement and Anti-Terrorist Financing Act of 2001, which comprises Title III of
the Uniting and Strengthening America by Providing Appropriate Tools Required to
Intercept and Obstruct Terrorism Act of 2001 (the “Patriot Act”) and the
regulations promulgated thereunder, and the rules and regulations administered
by the U.S. Treasury Department’s Office of Foreign Assets Control (“OFAC”), to
the extent such Laws are applicable to either Seller. Neither Seller is included
on the List of Specially Designated Nationals and Blocked Persons maintained by
the OFAC, or is a resident in, or organized or chartered under the laws of,
(A) a jurisdiction that has been designated by the U.S. Secretary of the
Treasury under Section 311 or 312 of the Patriot Act as warranting special
measures due to money laundering concerns or (B) any foreign country that has
been designated as non-cooperative with international anti-money laundering
principles or procedures by an intergovernmental group or organization, such as
the Financial Action Task Force on Money Laundering, of which the United States
is a member and with which designation the United States representative to the
group or organization continues to concur.

 

7.1.21         Completion Obligations.   On the Closing Date, there will be no
written or oral contract made by either Seller for any improvements, including
capital improvements, to the spaces covered by the Leases, to the Property, or
for offsite improvements related to the Property, which have not been fully
completed and paid for or a credit given to Buyer at Closing in the amount
sufficient to complete the improvement.

 

7.1.22         Certificate of Need; Operator License.   To Seller’s knowledge, a
certificate of need (C.O.N.) is not required in connection with the current
operation of any building or any other structure or business located on the
Land; however, a License is required to operate the Community, and Developed
Land Seller will provide a copy of an unexpired License to Buyer by the Delivery
Date.

 

7.1.23         No Redemption.   Upon conveyance of the Property to Buyer,
neither of the Sellers, nor anyone claiming by, through or under them shall have
any right of redemption in the Property, and each Seller and all such persons or
entities will be estopped from asserting any claim to or right of redemption
against the Property.

 

7.1.24         Parties in Possession.   There are no parties in possession of
the Property or any portion thereof other than each Seller and the Residents and
any tenants under any Leases.

 

7.1.25         Financial Statements.   Seller has delivered to Buyer copies of
the financial statements of each Seller and the Community that, to Seller’s
knowledge, are true, correct and complete in all material respects, on a
consolidated basis to the extent applicable, as of and for the fiscal years
ended December 31, 2010, 2011, 2012 and 2013 (through June) (the “Financial
Statements”). To Seller’s knowledge, the Financial Statements fairly present the

 

19

  

financial position of each Seller and the Property as of the respective dates
and the results of operations for the periods then ended in conformance with
Seller’s accounting practices applied on a basis consistent with prior periods.
To Seller’s knowledge, no material adverse change has occurred since the
furnishing of the Financial Statements. To Seller’s knowledge, the Financial
Statements do not contain any untrue statement or omission of a material fact
and are not misleading in any material respect.

 

7.1.26         Licenses.   As of the date hereof, the governmental permits,
licenses and approvals (including the License) listed on Schedule 7.1.26 are
held by Developed Land Seller or Property Manager (collectively, the “Current
Permits”). Developed Land Seller has not received (either directly or delivered
to Developed Land Seller by the Property Manager) since January 1, 2009 any
written notice from a governmental authority (including without limitation, the
Colorado Department of Public Health and Environment and the Colorado Department
of Public Safety) alleging any violation under any Current Permits that has not
been previously remedied or stating any intention to cancel, terminate, suspend,
or not renew any of the Current Permits. There are no open or outstanding plans
of correction with respect to the Property.

 

7.1.27         Health Regulatory Compliance.

 

 (a)          To Seller’s knowledge, no Resident fees are paid to Developed Land
Seller by Medicare or Medicaid reimbursement. Developed Land Seller makes no
representation or warranty herein with respect to any governmental assistance or
third party payor program that may make any payment to any resident or such
resident’s family (and not to Developed Land Seller). To Seller’s knowledge,
Developed Land Seller has not received written notice that any action,
proceeding, or investigation in connection with Medicare, Medicaid or other
public or private third-party payor or other programs is pending or threatened
against Developed Land Seller or any of Seller’s Affiliates in connection with
the Community.

 

 (b)          To Seller’s knowledge, Developed Land Seller has complied in all
material respects with all applicable security and privacy standards regarding
protected health information under the Health Insurance Portability and
Accountability Act of 1996 (“HIPAA”) and, since January 1, 2001, with all
applicable regulations promulgated under HIPAA and all applicable state privacy
laws.

 

 (c)          Sellers have not applied for or received a waiver from any
applicable regulations relating to the Property, the Community or its
operations. Seller maintains all insurance, including, without limitation,
professional liability insurance required in connection with all Licenses for
the Property.

 

7.2           Definition of “Seller’s knowledge”; Survival.   As used in this
Agreement, the phrases “Seller’s knowledge” or “to the knowledge of Seller”
means the actual knowledge of Charles S. Lytle and Jill Ashton; provided that
within fifteen (15) days of the Effective Date, Charles S. Lytle or Jill Ashton
shall consult with and discuss the representations and warranties set forth in
Section 7.1 with the General Manager and any information communicated to Charles
S. Lytle or Jill Ashton by the General Manager during such consultation which
renders any of the representations or warranties to be materially inaccurate
shall be in turn communicated to

 

20

  

Buyer in writing prior to the expiration of such fifteen (15) day period and the
representation and warranty shall be deemed modified to reflect the information
communicated to Buyer by Seller or the General Manager. The foregoing
representations and warranties of each Seller are made by each Seller, as
appropriate, as of the date hereof and again as of the Closing Date, shall
survive the Closing for a period of eighteen (18) months and shall not be merged
as of the Closing Date hereunder.

 

7.3          Covenants of Seller.   Each Seller, as applicable, hereby covenants
from and after the Effective Date and through the Closing Date as follows:

 

7.3.1           Seller Insurance.   To cause to be in force professional
liability insurance as required by applicable regulations, fire and extended
coverage insurance upon the Property, and public liability insurance with
respect to damage or injury to persons or property occurring on the Property in
at least such amounts, and with the same deductibles, as are maintained by
Seller on the date hereof.

 

7.3.2           Maintenance.   To maintain any building constituting an
Improvement on the Property in the same physical condition as it was at the date
of Buyer’s inspection, reasonable wear and tear excepted, and to perform all
normal maintenance from and after the Effective Date in the same fashion as
prior to the Effective Date.

 

7.3.3           Leasing.   To not enter into any new Non-Residency Lease with
respect to the Property, without Buyer’s prior written consent. The exercise of
a mandatory renewal option, shall not be considered a new Lease. Developed Land
Seller shall not, subsequent to the expiration of the Due Diligence Period,
without Buyer’s prior written consent, (a) enter into any new Residency
Agreement for a unit with a first-time tenant unless the Residency Agreement is
for a period of no more than one year and has an effective rental rate
consistent with Developed Land Seller’s current practice; or (b) enter into,
amend, renew or extend any Residency Agreement with an existing unless the
residency agreement is for a period of not more than one year and has an
effective rental rate for the amended, renewal or extension term consistent with
Developed Land Seller’s current practice; (c) terminate any Residency Agreement
except by reason of a default by the Resident thereunder or by reason of the
provisions contained in the Residency Agreement, or (d) enter into, modify or
amend any Leases that are not Residency Agreements.

 

7.3.4           Liens.   To not sell, assign, or convey any right, title, or
interest whatsoever in or to the Property, or create or permit to attach any
lien, security interest, easement, encumbrance, charge, or condition affecting
the Property (other than the Permitted Exceptions).

 

7.3.5           Agreements.   To not, without Buyer’s written approval
(a) amend, modify, renew, extend or waive any right under any Service Contract,
or (b) enter into any service, operating or maintenance agreement affecting the
Property that would survive the Closing except for such agreements that may be
cancelled or terminated by Seller, without penalty, by notice of thirty (30)
days or less.

 

21

  

7.3.6           Obligations.   To fully and timely comply in all material
respects with all obligations to be performed by it under all of the Leases,
Service Contracts, Permits, Warranties licenses, approvals and laws, regulations
and orders applicable to the Property.

 

7.3.7           Notices.   To provide Buyer with copies of (a) any default
letters sent to or received from Residents or Tenants, and (b) any copies of
correspondence received from a Resident or Tenant that it is discontinuing
operations at the Property or seeking to re-negotiate its lease, and (c) notices
of bankruptcy filings received with respect to any Resident or Tenant.

 

7.3.8           Operations.   To operate the Property from and after the date
hereof in substantially the same manner as prior thereto.

 

7.3.9           Terminated Contracts.   To terminate the Terminated Contracts as
of the Closing Date.

 

7.3.10         Required Government Approvals.   Developed Land Seller shall
cooperate with and do all things reasonably practicable to assist Buyer in its
efforts to obtain all of the regulatory approvals and licenses of Governmental
Authorities necessary to operate the Community (collectively, the “Required
Governmental Approvals”); provided, however, that, neither Developed Land Seller
nor Buyer, their affiliates shall be required to make payments or incur any
other liability to pursue or secure any such Required Governmental Approvals
beyond any required application fees incurred in connection with obtaining such
Required Governmental Approvals (which application fees shall be Buyer’s
responsibility). Developed Land Seller further agrees to assist Buyer in any
post-Closing transition with respect to the Required Government Approvals for a
period up to sixty (60) days after the Closing Date subject to the same
foregoing limitations.

 

8.            Buyer Representations and Warranties.   Buyer hereby represents
and warrants to Seller as of the date hereof that:

 

8.1           Organization and Authorization.   Buyer is a corporation duly
organized and validly existing under the laws of the State of Arizona. Buyer has
full power and authority to enter into this Agreement, to perform this Agreement
and to consummate the transactions contemplated hereby. This Agreement is a
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms, subject to the effect of applicable bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
affecting the rights of creditors generally.

 

8.2           No Conflicting Agreements.   The execution, delivery and
performance of this Agreement and all documents contemplated hereby by Buyer
have been duly and validly authorized by all necessary action on the part of
Buyer and all required consents and approvals have been duly obtained and will
not result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, agreement or instrument to which Buyer is a Party
or otherwise bound. To Buyer’s knowledge, Buyer’s acquisition of the Property
will not cause any violation by Buyer or its members of the requirements of
ERISA.

 

22

  

8.3           Patriot Act Compliance.   To the extent applicable to Buyer, Buyer
has complied in all material respects with the Patriot Act and the regulations
promulgated thereunder, and the rules and regulations administered by OFAC, to
the extent such Laws are applicable to Buyer. Buyer is not included on the List
of Specially Designated Nationals and Blocked Persons maintained by the OFAC, or
is a resident in, or organized or chartered under the laws of (A) a jurisdiction
that has been designated by the U.S. Secretary of the Treasury under Section 311
or 312 of the Patriot Act as warranting special measures due to money laundering
concerns, or (B) any foreign country that has been designated as non-cooperative
with international anti-money laundering principles or procedures by an
intergovernmental group or organization, such as the Financial Action Task Force
on Money Laundering, of which the United States is a member and with which
designation the United States representative to the group or organization
continues to concur.

 

9.           Conditions Precedent to Closing; Status of Employees at Closing.

 

9.1          Conditions Precedent.   The obligation of Buyer to purchase the
Property pursuant to this Agreement shall, at the option of Buyer, be subject to
the fulfillment, on or before the Closing Date, of all of the conditions set
forth in this Section 9.1 (“Buyer’s Closing Conditions”), any or all of which
may be waived by Buyer in its sole and absolute discretion:

 

9.1.1           Representations, Warranties and Covenants.   All of the
representations and warranties of each Seller set forth in this Agreement shall
be true and correct in all material respects as of the date hereof and as of the
Closing Date, and each Seller shall have fully complied with all of its duties
and obligations contained in this Agreement.

 

9.1.2           Title.   There shall be no change in the matters reflected in
the Title Documents, and there shall not exist any encumbrance or Title Defect
affecting the Property not described in the Title Documents except for the
Permitted Exceptions or matters to be satisfied as of the Closing Date.

 

9.1.3           Title Policy.   On the Closing Date, the Title Company shall be
unconditionally obligated and prepared, subject to the payment of the applicable
title insurance premium and other related charges, to issue to Buyer the Title
Policy in accordance with the requirements of Section 3.2.

 

9.1.4           Management Agreements and Employees.   Any management agreement
or leasing agreement affecting the Community shall be terminated by Developed
Land Seller and any and all termination fees incurred as a result thereof shall
be the sole obligation of Developed Land Seller. Buyer has no obligation to hire
any existing employees (including any employees of Developed Land Seller or
Property Manager) at the Community.

 

9.1.5           Zoning.   There shall be no change in the zoning classification
or the zoning ordinances or regulations affecting the Property from that
existing as of the conclusion of the Due Diligence Period.

 

9.1.6           Adverse Actions.   Except as disclosed in the Due Diligence
Items, on the Closing Date, no action or proceeding shall have been instituted
or be threatened before any court or governmental authority (a) that relates to
the Property and materially and

 

23

  

adversely affects the Property after the Closing Date, or (b) that seeks to
restrain or prohibit, or to obtain substantial damages in respect of, or which
is related to or arises out of, this Agreement or the consummation of the
transactions contemplated herein, unless Seller has demonstrated, to Buyer’s
reasonable satisfaction, that any costs and liabilities to be incurred in
connection with such matters are fully covered by Seller’s insurance (subject to
commercially reasonable deductibles paid Seller) and Seller provides a written
commitment to assign all proceeds therefrom to Buyer and add Buyer as an
additional insured party under such insurance policy.

 

9.1.7           Bankruptcy.   As of the Closing Date, Seller shall not have
commenced (within the meaning of any Bankruptcy Law) a voluntary case, nor shall
there have been commenced against Seller an involuntary case, nor shall Seller
have consented to the appointment of a Custodian of it or for all or any
substantial part of its property, nor shall a court of competent jurisdiction
have entered an order or decree under any Bankruptcy Law that is for relief
against Seller in an involuntary case or appoints a Custodian of Seller for all
or any substantial part of its property. The term “Bankruptcy Law” means Title
11, U.S. Code, or any similar state law for the relief of debtors. The term
“Custodian” means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.

 

9.1.8           Warranties.   Seller shall have caused all warranties and
guaranties from manufacturers, contractors, subcontractors, suppliers and
installers to be assigned to Buyer effective as of the Closing Date, to the
extent such warranties and guaranties are assignable.

 

9.1.9           Required Governmental Approvals.   All Required Governmental
Approvals shall have been obtained by Buyer and shall be in full force and
effect. Buyer shall have filed and submitted to the appropriate governmental
authorities complete applications for all Required Governmental Approvals by the
expiration of the Due Diligence Period. If Buyer fails to file and submit such
applications by the expiration of the Due Diligence Period, Seller shall have
the right to terminate this Agreement in which case the Deposit shall be
returned to Buyer.

 

9.1.10         ERISA.   Buyer shall be satisfied that its acquisition of the
Property will not cause any violation by Buyer or its members of the
requirements of ERISA.

 

9.2          Employees

 

9.2.1           All employees are employees of Developed Land Seller (“Community
Employees”). Developed Land Seller has provided Buyer with a complete and
accurate list of Community Employees by position and the annual salary, benefit
entitlements (if any) and other compensation payable to each Community Employee.
All of the Community Employees are at-will, common law employees of Developed
Land Seller.

 

9.2.2           Developed Land Seller shall cause Property Manager to terminate,
on Developed Land Seller’s behalf, all employees employed at the Community
(including without limitation the General Manager of the Community) effective as
of the Closing Date and take such other action as may be required by any
applicable laws, rules, regulations and orders so that Buyer shall have no
liability for any matter concerning any employee which

 

24

  

accrued and relates to the period occurring prior to Closing, except for accrued
vacation, sick time and other accrued paid time off (“Accrued Employee
Benefits”) related to any employee hired by Buyer at Closing, if any, with
respect to which Buyer receives a credit in accordance with the provisions of
Section 6.8.1(f) hereof, and the transactions contemplated by this Agreement
shall not result in the payment or accelerate any payment to any Community
Employees. In the event Buyer hires any Community Employees, then neither
Developed Land Seller nor Property Manager shall have any liability for any
matter concerning any employee which accrued and relates to a period occurring
from and after Closing. Buyer has no obligation to hire any Community Employees.
With respect to all Community Employees that are to be terminated at Closing,
Developed Land Seller shall cause Property Manager to maintain all of such
employees’ benefits through the end of the calendar month in which the Closing
occurs, and the cost thereof shall be prorated in accordance with Section
6.8.1(f) hereof.

 

9.2.3           Notwithstanding any provision hereof to the contrary, Buyer
shall have the right to meet with the General Manager, marketing/sales director
or any other department director of the Community at any reasonable time after
the Effective Date of this Agreement to discuss operational and other issues
concerning the Community (but not employment arrangements or offers of
employment until after the expiration of the Due Diligence Period) and to review
the Community’s books and records. In addition, from and after the expiration of
the Due Diligence Period, Buyer (and its prospective property manager) may meet
with any employee of the Community to discuss employment arrangements and
operational and other issues concerning the Community with any employee and
Buyer’s property manager may, but shall have no obligation to, make offers of
employment to any employee contingent upon Closing occurring hereunder and
otherwise upon such terms and conditions of employment, compensation and
benefits as Buyer shall determine in its sole discretion.

 

9.2.4           As of the Closing Date, there will be no filed complaint or
lawsuit filed by or with respect to any Community Employee pending against
Developed Land Seller or the Property Manager with respect to violation of any
federal, state or local Law relating to employment matters that, either
individually or in the aggregate, would reasonably be expected to materially and
adversely affect the ability of Developed Land Seller (or, following the
Closing, Purchaser) to own or operate the Community or to continue to conduct
the business currently conducted at the applicable Community, or the ability of
Developed Land Seller to consummate the transactions contemplated hereby.

 

9.2.5           The parties do not believe the provisions of the Workers
Adjustment and Retraining Notification Act (the “WARN Act”) apply to this
transaction and do not expect to incur any such liability as a result of actions
taken or not taken prior to the Closing. Developed Land Seller shall indemnify
and hold harmless Buyer from any loss, liabilities, debt, costs (including, but
not limited to, attorneys’ fees) or any other amounts that Buyer may incur due
to “employment losses”, as defined in the WARN Act, which occur prior to
Closing; however, Developed Land Seller shall have no liability hereunder for
“employment losses” which occur as a result of the termination of employees by
Buyer after the Closing Date.

 

9.2.6           Neither Developed Land Seller nor Property Manager has any
current liability, contingent or otherwise under Title IV of ERISA. Within the
six (6) years preceding the Closing Date, neither Developed Land Seller nor
Property Manager (nor any

 

25

  

ERISA Affiliate of Developed Land Seller or Property Manager) has been a party
to, or made any contributions to, any “multiemployer plan” within the meaning of
Section 4001(a)(3) of ERISA, or any plan subject to Title IV of ERISA or Section
412 of the Code. “Seller Employee Benefit Plan” means any employee benefit plan,
as defined in Section 3(3) of ERISA, or any other material benefit arrangement
(including any employment or consulting agreement, any arrangement providing for
insurance coverage or workers’ compensation benefits, any incentive or deferred
bonus arrangement, any arrangement providing termination allowance, severance
pay, salary continuation for disability or other leave of absence, supplemental
unemployment benefits, lay-off, reduction in force or similar benefits, any
stock option or equity compensation plan, any deferred compensation plan, any
compensation policy or practice (including, without limitation sick and vacation
pay policies or practices), any educational assistance arrangements or policies,
any plan governed by Section 125 of the Code, any fringe benefit (including,
without limitation, company cars) and any change of control arrangements or
policies) that is sponsored or contributed to by Developed Land Seller, by
Property Manager or by an ERISA Affiliate of Developed Land Seller or Property
Manager (or that has been maintained by such Person within the preceding six (6)
years) covering Community Employees or former employees of Developed Land Seller
or Property Manager (but only with respect to the Community Employees or former
employees at the Community) or any of their ERISA Affiliates. “ERISA” means the
Employee Retirement Income Security Act of 1974, as amended. “ERISA Affiliate”
means any person and/or such person’s subsidiaries or Affiliates or any trade or
business (whether or not incorporated) that is under common control with such
person or such person’s subsidiaries or Affiliates or that is treated as a
single employer with such person or such person’s subsidiaries or Affiliates
under Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of
ERISA.

 

9.2.7           Seller agrees to comply with the non-compete provisions set
forth in the Non-Compete Agreement attached hereto as Exhibit E.

 

9.2.8           The provisions of this Section 9.2 shall survive the Closing or
earlier termination of this Agreement.

 

10.         Damage or Destruction.   In the event that the Property should be
damaged or destroyed by fire or any other casualty prior to the Closing Date,
then Seller shall promptly provide Buyer with written notice of such casualty.
If the cost of repairing such damage, as estimated by an architect or contractor
retained pursuant to the mutual agreement of the Parties (the “Cost of
Repairs”), is (a) less than $250,000, then the Closing shall proceed as
scheduled and (i) Seller shall cause all collected insurance proceeds, plus the
cash amount of all associated deductibles, to be paid over to Buyer (or credited
against the Purchase Price) at Closing, (ii) Seller shall assign to Buyer all
right, title and interest in and to all claims and proceeds Seller may have with
respect to all policies of insurance relating to the Property at Closing, and
(iii) Seller shall pay over to Buyer all insurance proceeds collected after the
Closing by Seller promptly upon receipt thereof; or (b) greater than $250,000,
then Buyer may in its discretion either (i) elect to terminate this Agreement,
in which case the Deposit shall be returned to Buyer without any further action
required from either Party, Buyer and Seller shall each be liable for one-half
of any escrow fees or charges and neither Party shall have any further
obligation to the other except for any obligations which expressly survive
termination of this Agreement, or (ii) proceed as scheduled and (i) Seller shall
cause all collected insurance proceeds, plus the cash amount of all associated
deductibles, to be paid over to Buyer (or credited against the Purchase

 

26

  

Price) at Closing, (ii) Seller shall assign to Buyer all right, title and
interest in and to all claims and proceeds Seller may have with respect to all
policies of insurance relating to the Property at Closing, and (iii) Seller
shall pay over to Buyer all insurance proceeds collected after the Closing by
Seller promptly upon receipt thereof. In the event that the casualty is
uninsured, Buyer may terminate this Agreement unless Buyer receives a credit
against the Purchase Price equal to the Cost of Repairs. The foregoing
notwithstanding, in the event any casualty results in the cancellation of, or
rental abatement under, any Lease, Buyer shall have the option to terminate this
Agreement without regard to the Cost of Repairs. Any notice required to
terminate this Agreement pursuant to this Section shall be delivered no later
than thirty (30) days following Buyer’s receipt of Seller’s notice of such
casualty. The provisions of this Section 10 shall survive the Closing.

 

11.         Eminent Domain.   If, before the Closing Date, proceedings are
commenced for the taking by exercise of the power of eminent domain of all or a
material part of the Property which, as reasonably determined by Buyer, would
render the Property unacceptable to Buyer or unsuitable for Buyer’s intended
use, Buyer shall have the right, by giving written notice to Seller within sixty
(60) days after Seller gives notice of the commencement of such proceedings to
Buyer, to terminate this Agreement, in which event this Agreement shall
automatically terminate, the Deposit shall be returned to Buyer without any
further action required from either Party, Buyer and Seller shall each be liable
for one-half of any escrow fees or charges and neither Party shall have any
continuing obligations hereunder. If, before the Closing Date, proceedings are
commenced for the taking by exercise of the power of eminent domain of less than
a material part of the Property, or if Buyer has the right to terminate this
Agreement pursuant to the preceding sentence but Buyer does not exercise such
right, then this Agreement shall remain in full force and effect and, on the
Closing Date, the condemnation award (or, if not theretofore received, the right
to receive such portion of the award) payable on account of the taking shall be
assigned, or paid to, Buyer. Seller shall give written notice to Buyer within
three (3) business days after Seller’s receiving notice of the commencement of
any proceedings for the taking by exercise of the power of eminent domain of all
or any part of the Property. The foregoing notwithstanding, in the event the
taking results in the cancellation of, or rent abatement under, any Lease, Buyer
shall have the option to terminate this Agreement. The provisions of this
Section 11 shall survive the Closing.

 

12.         Notices.   All notices, demands, or other communications of any type
given by any Party hereunder, whether required by this Agreement or in any way
related to the transaction contracted for herein, shall be void and of no effect
unless given in accordance with the provisions of this Section 12. All notices
shall be in writing and delivered to the person to whom the notice is directed,
either (a) in person, (b) by United States Mail, as a registered or certified
item, return receipt requested, (c) by electronic mail, or (d) by a nationally
recognized overnight delivery service. Notices transmitted to the then
designated facsimile number of the Party intended to be given notice shall be
deemed received upon electronic verification of receipt by the sending machine,
notices sent by a nationally recognized overnight delivery service shall be
deemed received on the next business day and notices delivered by certified or
registered mail shall be deemed delivered three (3) days following posting.
Notices shall be given to the following addresses:

 

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  Seller: RC Manager, Inc.     10500 NE 8th Street, Suite 1700     Bellevue, WA
 98004     Attention:  Jill Ashton     Telephone:  (425) 533-0793         With a
copy to: Perkins Coie, LLP     108855 NE 4th Street, Suite 700     Bellevue, WA
 98004     Attention:  Craig H. Shrontz     Telephone:  (425) 635-1404        
Buyer: The Freshwater Group, Inc.     Attention:  Carl Mittendorff     2020 W.
Rudasill Road     Tucson, Arizona  85704     Email:  carl@thefreshwatergroup.com
        With a copy to: Cox, Castle & Nicholson LLP     Attention:  Kevin
Kinigstein, Esq.     2049 Century Park East, 28th Floor     Los Angeles,
California  90067     Telephone:  (310) 277-4222     E-mail:
 kkinigstein@coxcastle.com         If to Escrow Holder: First American Title
Insurance Company     777 S. Figueroa Street, Suite 400     Los Angeles,
California 90017     Attention:  Mr. Maurice Neri     Phone:  (213) 271-1737    
Fax:  (714) 361-3603     E-mail:  mneri@firstam.com

 

With respect to any notice sent by email, to constitute effective notice, the
“subject line” of such notice must state “Formal Notice under Purchase and Sale
Agreement”, and the sender of such notice shall use reasonable efforts to
confirm that such email was received (such as a request for a confirmation email
or a follow-up confirmation call).

 

13.         Remedies.

 

13.1         Seller Default.   If either Seller defaults in performing any
covenants or agreements to be performed by such Seller under this Agreement or
if either Seller breaches any representations or warranties made by such Seller
in this Agreement, following notice to Seller and five (5) business days
thereafter during which period such Seller may cure the default, Buyer may, in
its sole and absolute discretion, avail itself of any and all rights and
remedies available at law or in equity, including without limitation the right
to terminate this Agreement and recover all damages proximately caused by such
Seller’s breach or default and the right to continue this

 

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Agreement pending Buyer’s action for specific performance and/or damages
hereunder, and no such remedy shall be deemed exclusive or to preclude the
pursuit of any other remedy. Notwithstanding the foregoing, Buyer must file its
specific performance action within six (6) months after the date of the notice
of default, but a failure to do so does not limit Buyer’s other remedies set
forth herein. Any damages to which Buyer is entitled shall include without
limitation all due diligence costs, title, escrow, legal and inspection fees and
any other expenses reasonably incurred by Buyer in connection with the
performance of its due diligence review of the Property, including, without
limitation, environmental and engineering consultants’ fees and the fees
incurred in connection with the preparation and negotiation of this Agreement,
but shall exclude any consequential or indirect damages except in the case of
fraud or willful misconduct. The foregoing notwithstanding, no right to cure
shall extend the Closing.

 

13.2         Buyer Default.   In the event the sale of the Property is not
consummated solely because of a default under this Agreement on the part of
Buyer following notice to Buyer and five (5) days thereafter during which period
Buyer may cure the default, Seller may declare this Agreement terminated, in
which case the Deposit shall be paid to and retained by Seller as liquidated
damages. The Parties have agreed that Seller’s actual damages, in the event the
sale of the Property is not consummated solely because of a default by Buyer,
would be extremely difficult or impracticable to determine. Therefore, by
placing their initials below, the Parties acknowledge that the Deposit has been
agreed upon, after negotiation, as the Parties’ reasonable estimate of Seller’s
damages and as Seller’s sole and exclusive remedy against Buyer, at law or in
equity, in the event the sale of the Property is not consummated solely because
of a default under this Agreement on the Party of Buyer and each Party shall
thereupon be relieved of all further obligations and liabilities, except any
which survive termination.

 

INITIALS: Seller __________           Buyer __________

 

13.3        Indemnity.

 

13.3.1           Seller shall hold harmless, indemnify and defend Buyer, its
successors and assigns and their respective agents, employees, officers,
trustees, members and retirants and the Property and the Community from and
against any and all obligations, liabilities, claims, liens or encumbrances,
demands, losses, damages, causes of action, judgments, costs and expenses
asserted by third parties (including attorneys’ fees), whether direct,
contingent or consequential and no matter how arising (“Losses and Liabilities”)
in any way (i) related to the Property and/or the Community and arising or
occurring prior to the Closing; (ii) related to or arising from any act,
conduct, omission, contract or commitment of either of the Sellers or Property
Manager or their respective employees related to the Property; or (iii)
resulting from any breach of representation or warranty or other breach or
default by either of the Sellers under this Agreement.

 

13.3.2           Except for Losses and Liabilities arising directly or
indirectly from or out of a circumstance resulting from a breach of any of
either Seller’s representations or warranties, or which shall have arisen out of
any aspect of the Property or the Community, its management or operations prior
to Closing, Buyer shall hold harmless, indemnify and defend Seller, their
successors and assigns and their respective agents, employees, officers and
partners, from and against any and all Losses and Liabilities asserted by third
parties in any way (i) related

 

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to the Property or the Community and arising or occurring after the Closing;
(ii) related to or arising from any act, conduct, omission, contract or
commitment of Buyer related to the Property; or (iii) resulting from any breach
of representation or warranty or other breach or default by Buyer under this
Agreement.

 

14.         Assignment.   Neither Seller shall assign any of its right, title,
claim or interest in, to or under this Agreement. Buyer may assign any or all of
its rights and obligations under this Agreement (or directly deed the Land and
assign all of the Property) to any one or more persons or entities upon notice
to Seller; provided, however, that absent the express agreement of Seller, no
such assignment shall release Buyer from its liabilities hereunder. For the
avoidance of doubt, any provisions herein which state that all or any portion of
the Property shall be assigned or transferred “to Buyer” shall be deemed to mean
“to Buyer or its designee”.

 

15.         Interpretation and Applicable Law.   This Agreement shall be
construed and interpreted in accordance with the laws of the State where the
Property is located. Where required for proper interpretation, words in the
singular shall include the plural; the masculine gender shall include the neuter
and the feminine, and vice versa. The terms “successors and assigns” shall
include the heirs, administrators, executors, successors, and assigns, as
applicable, of any Party hereto.

 

16.         Amendment.   This Agreement may not be modified or amended, except
by an agreement in writing signed by the Parties. The Parties may waive any of
the conditions contained herein or any of the obligations of the other Party
hereunder, but any such waiver shall be effective only if in writing and signed
by the Party waiving such conditions and obligations.

 

17.         Attorneys’ Fees.   In the event a dispute arises concerning the
performance, meaning or interpretation of any provision of this Agreement or any
document executed in connection with this Agreement, the prevailing party in
such dispute shall be awarded any and all costs and expenses incurred by the
prevailing party in enforcing, defending or establishing its rights hereunder or
thereunder, including, without limitation, court costs and attorneys and expert
witness fees. In addition to the foregoing award of costs and fees, the
prevailing party shall also be entitled to recover its attorneys’ fees incurred
in any post judgment proceedings to collect or enforce any judgment.

 

18.         Entire Agreement; Survival.   This Agreement, including all Exhibits
and Schedules attached hereto, constitutes the entire agreement between the
Parties pertaining to the subject matter hereof and supersedes all prior and
contemporaneous agreements and understandings of the Parties in connection
therewith. No representation, warranty, covenant, agreement, or condition not
expressed in this Agreement shall be binding upon the Parties hereto nor shall
affect or be effective to interpret, change, or restrict the provisions of this
Agreement. The obligations of the Parties hereunder and all other provisions of
this Agreement shall survive the Closing or earlier termination of this
Agreement, except as expressly limited herein.

 

19.         Counterparts.   This Agreement may be executed in any number of
counterparts, all of which when taken together shall constitute the entire
agreement of the Parties.

 

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20.         Time Is of the Essence; Calculation of Time Periods.   Time is of
the essence in this Agreement as to each provision in which time is an element
of performance. Unless otherwise specified, in computing any period of time
described herein, the day of the act or event after which the designated period
of time begins to run is not to be included and the last day of the period so
computed is to be included, except that if such last day falls upon a Saturday,
Sunday, or legal holiday under the Federal law or laws of the State(s) where the
Property is located, then such period shall run until the end of the next day
that is neither a Saturday, Sunday, or legal holiday under Federal law or the
laws of the State(s) where the Property is located. The last day of any period
of time described herein shall be deemed to end at 11:59 p.m. Los Angeles,
California time.

 

21.         Real Estate Commission.   Seller and Buyer each represent and
warrant to the other that neither Seller nor Buyer has contacted or entered into
any agreement with any real estate broker, agent, finder or any other Party in
connection with this transaction, and that neither Party has taken any action
which would result in any real estate broker’s, finder’s or other fees or
commissions being due and payable to any Party with respect to the transaction
contemplated hereby, except that Seller will pay a commission to VantAge Pointe
Capital Management and Advisory, Inc. (“Broker”) under the terms of a separate
agreement between Seller and Broker. Such commission shall be payable on the
Closing Date from the proceeds of the Purchase Price deposited by Buyer. Each
Party hereby indemnifies and agrees to hold the other Party harmless from any
loss, liability, damage, cost, or expense (including reasonable attorneys’ fees)
resulting to the other Party by reason of a breach of the representation and
warranty made by such Party in this Section.

 

22.         Severability.   If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be invalid, unenforceable or void, the
remainder of this Agreement and such provisions as applied to other persons,
places and circumstances shall remain in full force and effect.

 

23.         Further Assurances.   Each Party will, whenever and as often as it
shall be requested to do so by the other Party, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered any and all such
further conveyances, assignments, approvals, consents and any and all other
documents and do any and all other acts as may be necessary to carry out the
intent and purpose of this Agreement. The provisions of this Section 23 shall
survive the Closing.

 

24.         Exclusivity.   Until the Closing Date or the date that this
Agreement is terminated, neither Seller shall enter into any contract, or enter
into or continue any negotiations, to sell the Property to any person or entity
other than Buyer, nor will either Seller solicit proposals from, or furnish any
non-public information to, any person or entity other than each Seller’s agents,
attorneys and lenders and Buyer regarding the possible sale of the Property.

 

25.         Non-Solicitation.   For the period beginning on the Closing Date and
ending on the fifth (5th) anniversary of the Closing Date, Developed Land Seller
covenants agrees that it shall not, nor shall it permit any of its Affiliates,
or its successors and assigns, directly or indirectly, call on or solicit any
Resident or Tenant of the Property for the purpose of leasing space to such
Resident or Tenant at another property managed, operated or otherwise controlled

 

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by Developed Land Seller or its Affiliates. For the purposes of this Section 25,
the term (a) “Affiliate” means any corporation, limited liability company,
partnership, joint venture or other entity, regardless of how organized or
identified, which is directly or indirectly controlled by Developed Land Seller,
and (b) “control” means, when used with respect to any person, the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such person, whether through the ownership of voting
securities, by contract, or otherwise, and the terms “controlling” and
“controlled” have correlative meanings. The provisions of this Section 25 shall
survive the Closing.

 

26.         No Option; Binding Effect.   The submission of this Agreement for
examination and review does not constitute an option to purchase the Property,
an offer to sell the Property or an agreement to purchase and sell. This
Agreement shall have no binding effect and will only be effective upon Seller’s
and Buyer’s execution and mutual receipt of the others executed version of this
Agreement. Escrow Agent’s execution of this Agreement shall not be a
prerequisite to the effectiveness of this Agreement.

 

[Remainder of page intentionally left blank;

Signatures begin on following page]

 

32

  

SIGNATURE PAGE to PURCHASE AND SALE AGREEMENT

AND JOINT ESCROW INSTRUCTIONS

 

SELLER:

 

HARVARD SQUARE, LLC, a Washington limited liability company

 

By: RC Manager, Inc., a Washington corporation and its Manager       By: /s/
Charles S. Lytle   Name: Charles S. Lytle   Its: President  

 

UNDEVELOPED LAND SELLER:

 

LDEV, LLC, a Washington limited liability company

 

By: RC Manager, Inc., a Washington corporation and its Manager

 

By: /s/ Charles S. Lytle   Name: Charles S. Lytle   Its: President  

 

BUYER:

 

THE FRESHWATER GROUP, INC.,

an Arizona corporation

 

By: /s/ Carl Mittendorf   Name: Carl Mittendorf   Its: Chief Investment Officer