exv10w1



 






Exhibit 10.1










ASSET PURCHASE AGREEMENT

BY AND AMONG




SUNRISE SENIOR LIVING INVESTMENTS, INC.,




as Purchaser




AND




FOUNTAINS CONTINUUM OF CARE, INC.,

FOUNTAINS RETIREMENT COMMUNITIES, INC.,

HOME & HOSPITAL SERVICES, INC.,

FOUNTAINS HOME CARE OF ARIZONA, INC.,

HARVEST VILLAGE PARTNERS, L.L.C.,

FOUNTAINS HOME CARE OF NORTH CAROLINA, INC.,

FOUNTAINS HOME CARE OF MICHIGAN, INC.,

FOUNTAINS HOME CARE OF ILLINOIS, INC.,

FOUNTAINS SENIOR PROPERTIES OF NEW YORK, INC.,

FOUNTAINS HOME CARE OF NEW YORK, INC.,

FOUNTAINS RETIREMENT COMMUNITIES OF CALIFORNIA, INC., and

FOUNTAINS RETIREMENT COMMUNITIES OF ILLINOIS, INC.




as Sellers




AND




GEORGE B. KAISER,

the sole stockholder of Fountains Continuum of Care, Inc.




Dated as of January 19, 2005











 









 








TABLE OF CONTENTS




	 	 	 	 	 
	ARTICLE I PURCHASE AND SALE OF ASSETS
	 	 	2	 
	1.1 Transfer of Purchased Assets.
	 	 	2	 
	1.2 Assets Not Being Transferred.
	 	 	3	 
	1.3 Further Assurances.
	 	 	3	 
	1.4 Assignment of Contracts, Permits, Rights, Etc.
	 	 	3	 
	 
	 	 	 	 
	ARTICLE II ASSUMED OBLIGATIONS; EXCLUDED OBLIGATIONS
	 	 	4	 
	2.1 Liabilities Being Assumed at Closing.
	 	 	4	 
	2.2 Liabilities Not Being Assumed.
	 	 	5	 
	 
	 	 	 	 
	ARTICLE III PURCHASE PRICE
	 	 	5	 
	3.1 Purchase Price.
	 	 	5	 
	3.2 Adjustments to the Purchase Price.
	 	 	5	 
	3.3 Purchased Real Property Adjustment.
	 	 	6	 
	3.4 Payment of Purchase Price at Closing.
	 	 	7	 
	3.5 Allocation of Purchase Price.
	 	 	7	 
	 
	 	 	 	 
	ARTICLE IV THE CLOSING
	 	 	8	 
	4.1 The Closing.
	 	 	8	 
	4.2 Closing Deliveries by the Sellers and the Stockholder.
	 	 	8	 
	4.3 Closing Deliveries by Purchaser.
	 	 	9	 
	 
	 	 	 	 
	ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE STOCKHOLDER
	 	 	9	 
	5.1 Organization, Power, Authority and Good Standing.
	 	 	9	 
	5.2 Authority; No Conflicts.
	 	 	10	 
	5.3 Consents and Authorizations.
	 	 	11	 
	5.4 Ownership of the Sellers and Others.
	 	 	11	 
	5.5 Books and Records.
	 	 	11	 
	5.6 Financial Information.
	 	 	11	 
	5.7 Absence of Undisclosed Liabilities.
	 	 	12	 
	5.8 Absence of Changes.
	 	 	13	 
	5.9 Tax Matters.
	 	 	14	 
	5.10 Title to Purchased Assets and Related Matters.
	 	 	15	 
	5.11 Leases.
	 	 	15	 
	5.12 Facilities; Management Agreements; Reserves.
	 	 	16	 
	5.13 Assigned Contracts.
	 	 	16	 
	5.14 Resident Agreements.
	 	 	18	 
	5.15 Real Property.
	 	 	18	 
	5.16 Intellectual Property.
	 	 	20	 
	5.17 Inventories.
	 	 	20	 
	5.18 Accounts Receivable.
	 	 	21	 
	5.19 Litigation, Etc.
	 	 	21	 






i









 






	 	 	 	 	 
	5.20 Compliance with Laws.
	 	 	22	 
	5.21 Permits.
	 	 	22	 
	5.22 Insurance.
	 	 	22	 
	5.23 Labor Relations: Employees.
	 	 	23	 
	5.24 Pension and Benefit Plans and Compliance with Employment Laws.
	 	 	23	 
	5.25 WARN Act.
	 	 	24	 
	5.26 Environmental Matters.
	 	 	25	 
	5.27 Brokers.
	 	 	25	 
	5.28 Suppliers and Vendors.
	 	 	26	 
	5.29 Payments.
	 	 	26	 
	5.30 Seller Documents.
	 	 	26	 
	5.31 Solvency.
	 	 	26	 
	5.32 Health Regulatory Compliance.
	 	 	27	 
	5.33 Subsidiaries; Affiliate Transactions.
	 	 	28	 
	 
	 	 	 	 
	ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER
	 	 	29	 
	6.1 Organization; Corporate Authority.
	 	 	29	 
	6.2 Authority; No Conflicts.
	 	 	29	 
	6.3 Brokers.
	 	 	30	 
	6.4 Consents.
	 	 	30	 
	 
	 	 	 	 
	ARTICLE VII COVENANTS AND AGREEMENTS
	 	 	30	 
	7.1 Access to Records and Properties.
	 	 	30	 
	7.2 Conduct Pending Closing.
	 	 	33	 
	7.3 Efforts to Consummate.
	 	 	35	 
	7.4 Exclusivity.
	 	 	36	 
	7.5 Notice of Prospective Breach.
	 	 	36	 
	7.6 Public Announcements.
	 	 	37	 
	7.7 Confidentiality.
	 	 	37	 
	7.8 Non-Compete Agreement.
	 	 	38	 
	7.9 Use of Name; Other Intellectual Property Rights.
	 	 	39	 
	7.10 New Management Agreements.
	 	 	40	 
	7.11 Bulk Sales.
	 	 	40	 
	7.12 Retention of Liabilities.
	 	 	40	 
	7.13 Assurances Company.
	 	 	40	 
	7.14 Accounts Receivable Adjustment.
	 	 	41	 
	7.15 Payment of Retained Liabilities and Accounts Payable.
	 	 	42	 
	7.16 Restriction on FCC Dissolution and Seller Distributions.
	 	 	42	 
	7.17 Fountains Foundation.
	 	 	42	 
	7.18 Audited Financial Statements.
	 	 	42	 
	7.19 Fiscal Year 2005 Capital Expenditures.
	 	 	43	 
	7.20 La Cholla Bonds.
	 	 	43	 
	7.21 Millbrook Gatehouse.
	 	 	43	 
	7.22 Letter of Credit Arrangements.
	 	 	44	 
	 
	 	 	 	 
	ARTICLE VIII EMPLOYEE MATTERS
	 	 	44	 
	8.1 Employees.
	 	 	44	 






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	8.2 Non-Solicitation of Hired Employees
	 	 	47	 
	 
	 	 	 	 
	ARTICLE IX TAX COOPERATION; ALLOCATION OF TAXES
	 	 	47	 
	9.1 Tax Definitions
	 	 	47	 
	9.2 Tax Cooperation; Allocation of Taxes
	 	 	47	 
	 
	 	 	 	 
	ARTICLE X CLOSING CONDITIONS
	 	 	48	 
	10.1 Conditions to Each Party’s Obligations to Consummate the Closing
	 	 	48	 
	10.2 Conditions to Obligations of Purchaser
	 	 	49	 
	10.3 Title Insurance and Survey
	 	 	51	 
	10.4 Conditions to Obligations of the Sellers and the Stockholder
	 	 	53	 
	 
	 	 	 	 
	ARTICLE XI INDEMNIFICATION
	 	 	54	 
	11.1 Survival of Representations and Warranties
	 	 	54	 
	11.2 Indemnification
	 	 	54	 
	11.3 Bulk Sales Laws
	 	 	57	 
	11.4 General Indemnification Procedures
	 	 	57	 
	11.5 Effect of Knowledge on Indemnification
	 	 	59	 
	11.6 No Duplication of Claims
	 	 	59	 
	11.7 Allocation of Indemnification Payments
	 	 	59	 
	11.8 Limitations on Indemnification
	 	 	59	 
	 
	 	 	 	 
	ARTICLE XII TERMINATION; EFFECT OF TERMINATION
	 	 	60	 
	12.1 Termination
	 	 	60	 
	12.2 Effect of Termination
	 	 	62	 
	12.3 Special Termination Right
	 	 	63	 
	 
	 	 	 	 
	ARTICLE XIII MISCELLANEOUS PROVISIONS
	 	 	63	 
	13.1 Amendment; Waiver
	 	 	63	 
	13.2 Entire Agreement
	 	 	63	 
	13.3 Severability
	 	 	63	 
	13.4 No Assignment; Parties in Interest
	 	 	64	 
	13.5 Fees and Expenses
	 	 	64	 
	13.6 Notices
	 	 	64	 
	13.7 Counterparts
	 	 	66	 
	13.8 Governing Law
	 	 	66	 
	13.9 Independence of Covenants and Representations and Warranties; Schedules
	 	 	66	 
	13.10 Interpretation, Construction
	 	 	66	 
	13.11 Resolution of Disputes
	 	 	67	 
	13.12 Appointment of Representative
	 	 	68	 
	13.13 Performance by Subsidiaries
	 	 	68	 
	13.14 Representation by Counsel
	 	 	68	 
	13.15 Passage of Title and Risk of Loss
	 	 	68	 
	13.16 Guarantee of Obligations of Purchaser
	 	 	68	 







iii









 








     The following is a list of Schedules and Exhibits to the Asset Purchase Agreement (other than
Schedule 7.13 which is attached hereto) that have been intentionally omitted. Sunrise Senior
Living, Inc. agrees to furnish supplementally a copy of any omitted Schedule or Exhibit upon
request of the Securities and Exchange Commission.



Exhibits




	 	 	 
	Exhibit 4.2(a)

	 	Bills of Sale
	Exhibit 4.2(b)

	 	Assignment and Assumption Agreement
	Exhibit 4.2(c)

	 	Assignments of Intellectual Property
	Exhibit 10.2(c)

	 	Opinion from Sellers’ Counsel
	 
	 	 
	Schedules
	 	 
	 
	 	 
	Schedule 1.1

	 	Purchased Assets
	Schedule 1.2

	 	Assets Not Being Transferred
	Schedule 2.1

	 	Assumed Liabilities
	Schedule 2.2

	 	Liabilities Not Being Assumed
	Schedule 4.2(e)

	 	Agreements to Be Terminated and/or Replaced
	Schedule 6.4

	 	Operating Licenses & Material Permits
	Schedule 7.8(a)

	 	Non-Competition Agreement
	Schedule 7.10

	 	Existing Management Agreements
	Schedule 7.20

	 	La Cholla Documents
	Schedule 7.22

	 	Letter of Credit Arrangements
	Schedule 8.1(j)

	 	Service Credit Exceptions
	Schedule 10.1(a)

	 	Material Regulatory Approvals
	Schedule 10.2(d)

	 	Third Party Consents
	Schedule 10.3(c)(ii)

	 	Maximum Purchase Price Adjustment Amounts
	Seller Disclosure Schedule






iv









 





     This ASSET PURCHASE AGREEMENT dated as of January 19, 2005, by and among Sunrise Senior Living
Investments, Inc., a Virginia corporation, (“Purchaser”), Fountains Continuum of Care,
Inc., a Delaware corporation (“FCC”), Fountains Retirement Communities, Inc., an Arizona
corporation and a directly wholly-owned subsidiary of FCC (“FRC”), Home & Hospital
Services, Inc., an Arizona corporation and a wholly-owned subsidiary of FCC (“FH&H”),
Fountains Home Care of Arizona, Inc., an Arizona corporation and a directly wholly-owned subsidiary
of FCC (“FHC-AZ”), Harvest Village Partners, L.L.C., an Oklahoma limited liability company
and an indirect wholly-owned subsidiary of FCC (“HVP”), Fountains Home Care of North
Carolina, Inc., a North Carolina corporation and a directly wholly-owned subsidiary of FCC
(“FHC-NC”), Fountains Home Care of Michigan, Inc., a Michigan corporation and a directly
wholly-owned subsidiary of FCC (“FHC-MI”), Fountains Home Care of Illinois, Inc., an
Illinois corporation and a directly wholly-owned subsidiary of FCC (“FHC-IL”), Fountains
Senior Properties of New York, Inc., a New York corporation and an indirectly owned subsidiary of
FCC (“FSP-NY”), Fountains Home Care of New York, Inc., a New York corporation and a
directly wholly-owned subsidiary of FCC (“FHC-NY”), Fountains Retirement Communities of
California, Inc., a California corporation and a wholly-owned subsidiary of FRC (“FRC-CA”),
Fountains Retirement Communities of Illinois, an Illinois corporation and a wholly-owned subsidiary
of FRC (“FRC-IL” and, together with “FCC,” “FRC”, FH&H, FHC-AZ, HVP, FHC-NC, FHC-MI, FHC-IL
and FSP-NY, the “Sellers”), and George B. Kaiser (the “Stockholder”).



PREAMBLE




     WHEREAS, the Stockholder owns all of the outstanding shares of common stock of FCC (“FCC
Stock”);



     WHEREAS, the Sellers and the Fountains Charitable Income Trust (the “Trust”), directly
and indirectly through their respective Subsidiaries, have been engaged in the business of owning,
managing and/or leasing Senior Living Facilities (as defined herein) and/or operating the Home Care
Business (as defined herein) (collectively, the “Business”);



     WHEREAS, certain of the Sellers, as part of the Business, directly and indirectly through one
or more Subsidiaries (as defined herein), have been operating, managing and/or leasing each of the
Senior Living Facilities set forth on Schedule 5.12(a) hereto (each a “Facility”
and collectively, the “Facilities”) (the “Management Business”);



     WHEREAS, certain of the Sellers, as part of the Business, through one or more Subsidiaries,
have been providing home care services in certain of the states in which Senior Living Facilities
are located (the “Home Care Business”);



     WHEREAS, certain entities that own the Facilities (collectively, the “Facility
Owners”), have agreed to sell all of their rights, title and interest in and to certain of the
Assets of the Facility Owners to the purchaser(s) of the Facilities pursuant to that certain
Purchase and Sale Agreement (the “Facilities Purchase and Sale Agreement”) dated as of the
date hereof by and among the Facility Owners and the other parties named therein (the “Facility
Sale Transaction”);



 









 





     WHEREAS, the Sellers desire to sell, convey, assign and/or transfer to Purchaser, and
Purchaser desires to purchase from the Sellers, certain Assets of the Sellers related to the
Management Business and the Home Care Business and certain real property owned by the Sellers,
subject to Purchaser’s assumption of certain specified liabilities of the Sellers related to the
Management Business and the Home Care Business, all on the terms and subject to the limitations,
exclusions and conditions contained in this Agreement;



     WHEREAS, the parties intend that prior to the Closing (as defined herein) FRC and each of the
other parties to an Existing Management Agreement (as defined herein) will enter into a new
management agreement for each of the Facilities, to become effective subject to and upon the
consummation of the Closing, in the form or forms to be provided by Purchaser to Sellers prior to
the Closing hereunder (the “New Management Agreements”) to replace each of the management
agreements listed on Schedule 7.10 (the “Existing Management Agreements”), as
contemplated in Section 7.10 of this Agreement, which New Management Agreements would be
assigned to and would be assumed by and would be binding on the purchaser(s) of the Facilities
pursuant to the Facilities Purchase and Sale Agreement;



     WHEREAS, the parties hereto desire to set forth certain representations, warranties and
covenants made by each to the other as an inducement to the consummation of the transactions
contemplated herein and certain additional agreements related thereto; and



     WHEREAS, certain capitalized terms used in this Agreement are defined on Annex I
attached hereto.



     NOW, THEREFORE, in consideration of the premises and the mutual representations, warranties
and covenants hereinafter set forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows.



ARTICLE I

PURCHASE AND SALE OF ASSETS




1.1 Transfer of Purchased Assets.




     (a) On the terms and subject to the conditions contained in this Agreement, at the Closing
each Seller shall sell, lease, convey, assign, license, transfer and deliver to Purchaser, free and
clear of all Encumbrances other than the Permitted Encumbrances identified on Schedule
5.10(b) hereto, and Purchaser shall purchase and acquire from each Seller, all of the right,
title and interest in, to and under the Assets included on Schedule 1.1, wherever located
(collectively, the “Purchased Assets”).



     (b) In the event the sale, lease, conveyance, assignment, license or transfer of any of the
Permits listed on Schedule 1.1 (collectively referred to herein as the “Assigned
Permits”) is unlawful or is not permissible under any agreement or under any Law, such terms
for the purposes of this Agreement with respect to any such Assigned Permits shall be deemed to
mean and require (i) the applicable Seller’s relinquishment of all of its right, title, benefit and
interest in and to and authority under, such Assigned Permits as of the Closing and (ii) the
issuance or



2









 





grant to Purchaser by the appropriate Governmental Entity or other third Person of a Permit
conferring upon Purchaser, as of the Closing, all right, title, benefit, interest and authority at
least equal to that relinquished by such Seller, as the case may be, including the right, authority
and approval for Purchaser to conduct the Management Business and the Home Care Business, as
applicable, from and after the Closing in the same manner as the Sellers prior to the Closing. For
clarification purposes, the parties acknowledge and agree that, to the extent permitted by Law,
Purchaser shall have the option to acquire or assume any Seller’s Medicare or Medicaid provider
numbers used in the Management Business or the Home Care Business, as applicable, or submit an
application for new Medicare and Medicaid provider numbers with respect to the operation of the
Facilities or the conduct of the Management Business or the Home Care Business, as applicable,
after the Closing.




1.2 Assets Not Being Transferred.




     Except for the Purchased Assets, on the Closing Date, the Sellers are not selling, leasing,
conveying, assigning, licensing, transferring or delivering to Purchaser, and Purchaser is not
purchasing or acquiring any other Assets of the Sellers, including any of the Assets listed on
Schedule 1.2.



1.3 Further Assurances.




     Each Seller shall and shall cause each Seller Subsidiary to, at any time and from time to time
during the period from and after the Closing until the later of (i) the fourth anniversary of the
Closing Date or (ii) such time as all consents of any Governmental Entity or other third Person to
the assignment of the Assigned Contracts and Assigned Permits have been obtained, upon the request
of Purchaser, do, execute, acknowledge and deliver, and cause to be done, executed, acknowledged
and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of
attorney or assurances as may be reasonably required to sell, lease, convey, assign, license,
transfer and deliver to Purchaser, or to aid and assist in the collection of or reducing to
possession by Purchaser, of the applicable Purchased Assets, or to vest in Purchaser good and
marketable title to the Purchased Assets, free and clear of any and all Encumbrances other than the
Permitted Encumbrances identified on Schedule 5.10(b).



1.4 Assignment of Contracts, Permits, Rights, Etc.




     (a) Notwithstanding anything to the contrary in this Agreement, this Agreement shall not
constitute an agreement or attempted agreement to transfer, sublease or assign any Assigned
Contract (as defined below), any Assigned Permit or Proceeding or right with respect to any benefit
arising thereunder or resulting therefrom, if an attempted transfer, sublease or assignment
thereof, without the required consent of any other party thereto or of any Governmental Entity or
other third Person, would constitute a breach thereof or in any way affect the rights of Purchaser
or any Seller thereunder or is unlawful or is not permissible under any agreement or under any Law.



     (b) The parties understand and agree that, without limiting any representation, warranty,
condition, or indemnification contained in this Agreement, if, as of the Closing, the Sellers shall
not have effectively obtained any or all consents of any third Person set forth on



3









 





Schedule 5.3 to the assignment of any of the New Management Agreements or any other
Contract that is listed on Schedule 1.1 as one of the Purchased Assets to be assigned to
Purchaser hereunder (collectively referred to herein as the “Assigned Contracts”), in
respect of which such third Person’s consent to assign is required in order to preserve the value
of such Assigned Contract for Purchaser or otherwise, then the assignment by the applicable Seller
and the assumption by Purchaser of such Assigned Contract shall, notwithstanding anything to the
contrary in this Agreement, not become effective at the Closing or thereafter until the applicable
Seller shall have obtained the requisite consent (which such Seller shall use Commercially
Reasonable Efforts to obtain, together with the cooperation of Purchaser), and such assignment and
assumption shall become effective as aforesaid subsequent to the Closing pursuant to such
documentation as shall be reasonably acceptable to Purchaser and the applicable Seller; and the
Sellers shall and shall cause their respective Seller Subsidiaries to not take or permit any action
which would impair the full force and effect of any such Assigned Contract, or otherwise cause or
permit the modification, amendment, or termination of any such Assigned Contract (except insofar as
consented to in writing by Purchaser, which consent shall not be unreasonably withheld or delayed)
until the effective assignment thereof as aforesaid. The parties understand and agree that the
Sellers, subsequent to the Closing, shall not be entitled to any of the rights and privileges under
any Assigned Contract, all of which shall accrue to the benefit of Purchaser, and the Sellers shall
be deemed to hold any Assigned Contracts subject to this Section 1.4(b) in trust for
Purchaser. To the extent, and only to the extent, that Purchaser is able to receive the economic
rights and privileges under an Assigned Contract, Purchaser shall be responsible for the Assumed
Liabilities, if any, arising under such Assigned Contract. To the extent any Seller is unable to
keep an Assigned Contract in full force and effect and to otherwise enable Purchaser to receive the
economic rights and privileges under an Assigned Contract in accordance with the foregoing because
the Sellers have transferred to Purchaser certain Assets that are reasonably necessary for the
performance by such Seller of such Assigned Contract, then Purchaser shall perform such Seller’s
obligations under such Assigned Contract using such Assets or otherwise as an independent
contractor to such Seller at no additional cost to such Seller. The Sellers shall jointly and
severally pay and discharge, and shall indemnify and hold harmless Purchaser from and against, any
and all costs, expenses and other Losses of seeking to obtain or obtaining any consent or approval
of any third Person set forth on Schedule 5.3, whether before or after the Closing Date.
Nothing in this Section 1.4 shall be deemed a waiver by Purchaser of its right to have
received at the Closing an effective assignment of all of the Assigned Contracts and other
Purchased Assets nor shall this Section 1.4 be deemed to constitute an agreement to exclude
from the Purchased Assets any of the Assets listed on Schedule 1.1.




ARTICLE II

ASSUMED OBLIGATIONS; EXCLUDED OBLIGATIONS




2.1 Liabilities Being Assumed at Closing.




     On the terms and subject to the conditions contained in this Agreement, simultaneously with
the sale, lease, conveyance, assignment, license, transfer and delivery to Purchaser of the
Purchased Assets at the Closing, Purchaser shall assume only the Liabilities of each of the Sellers
listed on Schedule 2.1 (collectively, the “Assumed Liabilities”).



4









 





2.2 Liabilities Not Being Assumed.




     NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT OR IN ANY RELATED DOCUMENT, EXCEPT
FOR THE ASSUMED LIABILITIES ASSUMED PURSUANT TO SECTION 2.1, PURCHASER SHALL NOT ASSUME,
PAY, BEAR, PERFORM OR DISCHARGE ANY LIABILITIES OF THE SELLERS OR ANY OF THEIR RESPECTIVE
AFFILIATES (INCLUDING ANY SELLER SUBSIDIARY OR THE STOCKHOLDER) WHETHER OR NOT ARISING OUT OF OR
RELATING TO THE PURCHASED ASSETS OR THE BUSINESS OR ANY OTHER BUSINESS OF THE SELLERS OR THEIR
RESPECTIVE AFFILIATES (INCLUDING ANY SELLER SUBSIDIARY OR THE STOCKHOLDER), AND WHETHER ARISING OR
ASSERTED BEFORE OR AFTER THE CLOSING, INCLUDING ANY OF THE LIABILITIES OR OBLIGATIONS LISTED ON
SCHEDULE 2.2, ALL OF WHICH LIABILITIES SHALL FROM AND AFTER THE CLOSING REMAIN THE
EXCLUSIVE RESPONSIBILITY OF THE SELLERS OR ANY OF THEIR RESPECTIVE AFFILIATES (INCLUDING ANY SELLER
SUBSIDIARY OR THE STOCKHOLDER), AS APPLICABLE.



ARTICLE III

PURCHASE PRICE




3.1 Purchase Price.




     The aggregate consideration to be paid by Purchaser to the Sellers for the Purchased Assets
(the “Purchase Price”) shall be (i) US$28,500,000.00 plus an amount equal to the Reserves
transferred to Purchaser on the Closing Date as contemplated in Section 5.12(b)
(collectively, the “Cash Payment”), subject to adjustment as provided in Sections 3.2,
3.3, 7.14, 10.3(c)(ii) and 10.3(e), plus (ii) the assumption of the Assumed Liabilities. The
Purchase Price will be paid as provided in Section 3.4.



3.2 Adjustments to the Purchase Price.




     (a) All income and expenses of the Sellers with respect to the Purchased Assets identified on
the Proration Schedule shall be prorated on a daily basis between the Sellers and Purchaser as of
11:59 p.m. on the Closing Date (the “Proration Time”). Such items to be pro rated shall
consist of: (i) payments under any Assigned Contract, if any, (ii) rents under the Leases and
monthly fees and other fees and charges under the Resident Agreements to which any Seller is a
party and other income, if any, including prepaid rents and other amounts, (iii) ad valorem real
and tangible personal property Taxes with respect to the Purchased Assets, (iv) utility charges, if
any, (v) insurance or other charges with respect to any of the Purchased Assets, or (vi) any other
items the parties mutually determine to be necessary. Purchaser and the Sellers shall prepare a
proposed schedule or schedules (the “Proration Schedule”) prior to the Closing, including
the items listed above and any other items the parties mutually determine to be necessary. The
Sellers and Purchaser shall use Commercially Reasonable Efforts to finalize and agree on the
Proration Schedule at least two Business Days prior to the Closing.



     (b) Any escrow accounts held by any utility companies or other third Persons, any cash
deposits made by or on behalf of any of the Sellers prior to the Closing to secure obligations



5









 





under any Assigned Contracts and any reserve funds which are on deposit for the states of
Florida or California, or any other states requiring such reserve deposits, and any funds held in
resident trust funds, shall be paid to the Sellers or, if assigned to Purchaser, the Sellers shall
receive a credit (i.e., an increase in the Purchase Price) in the amount thereof at the Closing.




     (c) The parties agree that any amounts that may become due under Section 3.2(a) or (b)
shall be paid at the Closing as can best be determined. A post-Closing reconciliation of pro-rated
items shall be made by the parties within 75 days after the Closing and any amounts due at that
time shall be promptly forwarded to Purchaser, on the one hand, or the Representative (as agent for
the Sellers), on the other hand, in a lump sum payment. Any additional amounts which may become
due after such determination shall be forwarded at the time they are received. Any amounts due
under Section 3.2(a) or (b) which cannot be determined within 75 days after the Closing
shall be reconciled as soon thereafter as such amounts can be determined. Subject to any
applicable privileges (including attorney-client privilege), (i) each of the Sellers and the
Stockholder agrees that Purchaser shall have the right to audit the applicable records of the
Sellers in connection with any such post-Closing reconciliation, and (ii) Purchaser agrees that the
Sellers shall have the right to audit the applicable records of Purchaser in connection with any
such post-Closing reconciliation.



     (d) The Sellers shall be responsible for all expenses of the Purchased Assets attributable to
the period prior to and including the Proration Time. For the avoidance of doubt, any Entrance
Fees or Resident Deposits received by Purchaser after the Closing Date, or Resident Deposits
received by Purchaser on or prior to the Closing Date, in either case pursuant to Resident
Agreements entered into by any Seller or any Affiliate of any Seller on or prior to the Closing
Date shall not be pro rated pursuant to Section 3.2(a) or otherwise subject to payment or
reimbursement to Sellers under any other provision of this Agreement (including Section
3.2(b)).



     (e) Purchaser shall receive all income from the Purchased Assets attributable to the period
after the Proration Time and shall, except as otherwise provided for in this Agreement, be
responsible for all expenses of the Purchased Assets attributable to the period after the Proration
Time. In the event any Seller receives any payment from a resident for rent due for any period
after the Proration Time, the Sellers shall promptly forward or cause to be forwarded such payment
to Purchaser. In addition, in the event any Seller has received any prepaid rent from a resident
for any period from and after the Proration Time, the Sellers shall promptly forward or cause to be
forwarded to Purchaser such prepaid rent.



     (f) Notwithstanding anything to the contrary in this Agreement, this Section 3.2 shall
not apply to any Purchased Accounts Receivable of the Sellers.



3.3 Purchased Real Property Adjustment.




     In the event that (i) there has been a material breach by any Seller or the Stockholder of any
representation, warranty, covenant or agreement set forth in this Agreement which is not cured by
such Seller or the Stockholder within 10 Business Days after notice thereof as contemplated in
Section 12.1(b), and (ii) such breach relates only to some or all of Purchased Real
Property hereunder and does not otherwise adversely affect the operation of the Management Business
or the Home Care Business at any of the Facilities, Purchaser shall have



6









 





the option either to (x) waive such breach and proceed to Closing with a reduction in the
Purchase Price for the affected Purchased Real Property equal to the lesser of the cost and expense
to cure such breach or the applicable amount set forth on Schedule 10.3(c)(ii) or (y)
proceed to Closing without acquiring the affected Purchased Real Property with a reduction in the
Purchase Price for the affected Purchased Real Property equal to the applicable amount set forth on
Schedule 10.3(c)(ii).




3.4 Payment of Purchase Price at Closing.




     At the Closing, subject to the satisfaction or waiver (to the extent permitted by applicable
Law) of the conditions to Closing set forth in Article X, and subject to and in accordance
with the other terms and conditions of this Agreement, an amount equal to the Cash Payment (plus or
minus the amount of any adjustments pursuant to Section 3.2, 3.3, 7.14, 10.3(c)(ii) or
10.3(e)) shall be paid by Purchaser to or for the benefit of the Sellers by wire transfer of
immediately available funds to the account designated in writing by the Representative at least
three Business Days prior to the Closing.



3.5 Allocation of Purchase Price.




     Purchaser shall prepare an allocation of the Purchase Price (and all other capitalized costs)
among the Purchased Assets in accordance with Code Section 1060 and the Treasury regulations
thereunder (and any similar provisions of state, local or foreign Law, as appropriate). Within 15
days of the determination of any adjustments pursuant to Section 3.2(c) or 7.14, Purchaser
shall deliver to the Sellers such allocation. The Sellers shall within 5 days after receipt of
such allocation give written notice to Purchaser of their agreement or disagreement with such
allocation. If the Sellers object to Purchaser’s allocation, the Sellers shall give Purchaser
written notice of the objections and the Sellers and Purchaser shall use Commercially Reasonable
Efforts to resolve the differences. If within 30 days after the date on which the Sellers have
given Purchaser notice of any objections, the parties have not adopted the allocation, any dispute
related thereto shall be referred to an accounting firm selected by Purchaser and the
Representative (or, if Purchaser and the Representative are unable to agree, an independent
accounting firm selected by Purchaser’s and the Sellers’ independent accounting firms) (such firm,
the “Accounting Firm”) and resolved within 30 days after such referral. The Accounting
Firm’s determination shall be final, binding and conclusive upon Purchaser, the Sellers, and their
respective Affiliates. The costs, expenses, and fees of the Accounting Firm shall be borne equally
by the parties. The resulting allocation, whether or not objected to by the Sellers or as
determined by the Accounting Firm, is referred to as the “Allocation Agreement”.
Purchaser, each of the Sellers, and their respective Affiliates shall be bound by the Allocation
Agreement and shall, as applicable, (a) complete and execute a Form 8594 Asset Acquisition
Statement under Code Section 1060 promptly upon receipt of such allocation, in a manner consistent
with the Allocation Agreement, (b) file a copy of such form with their respective tax returns for
the period which includes the Closing, and (c) act in accordance with such allocation in the
preparation of all financial statements and filing of all Tax Returns. None of the parties hereto
shall take any action or position or cause their Affiliates to take any action or position
inconsistent for tax or accounting purposes with the Allocation Agreement prepared in accordance
with this Section 3.5, unless otherwise required by the relevant taxing authority.



7









 





ARTICLE IV

THE CLOSING




4.1 The Closing.




     The closing (the “Closing”) of the transactions contemplated by this Agreement shall
take place at the offices of Hogan & Hartson L.L.P., 555 Thirteenth Street, N.W., Washington D.C.
20004, at 10:00 a.m. (Washington, D.C. time) on the last Business Day of the month in which the
fulfillment or waiver (to the extent permitted by applicable Law) of the conditions set forth in
Article X (other than those conditions which by their nature are intended to be fulfilled
at the Closing) occurs or such other place or time or on such other date as Purchaser and the
Representative may mutually agree in writing (the “Closing Date”).



4.2 Closing Deliveries by the Sellers and the Stockholder.




     At the Closing, the Sellers and/or the Stockholder, as the case may be, shall deliver to
Purchaser:



     (a) one or more bills of sale for all of the Purchased Assets which are tangible personal
property in substantially the form attached hereto as Exhibit 4.2(a) (the “Bills of
Sale”), executed by each of the Sellers;



     (b) one or more assignments of all of the Purchased Assets which are intangible personal
property in substantially the form attached hereto as Exhibit 4.2(b), which assignment
shall also contain Purchaser’s undertaking and assumption of the Assumed Liabilities (the
“Assignment and Assumption Agreements”), executed by each of the Sellers;



     (c) (i) assignments of all registered and pending tradenames, trademarks and service marks,
patent applications and issued patents, and registered and pending copyrights included in the
Purchased Assets (collectively, “Registered Intellectual Property”), in substantially the
form attached hereto as Exhibit 4.2(c), executed by each of the Sellers; (ii) a valid and
enforceable written grant from Performance by Design, Inc. (“PBD”) to Purchaser of a
royalty-free, perpetual, irrevocable, non-exclusive right to use in connection with any or all of
Purchaser’s (and its Affiliates’) existing and future Assets and businesses, which license may be
assigned, without the need for consent of PBD, D. Barnes or any other Person, in connection with a
sale of all or substantially all of the Assets of Purchaser or of the business in connection with
which the software will be used, the proprietary software developed by PBD and/or David Barnes
(“D. Barnes”) currently licensed to FCC pursuant to that certain Development Agreement
dated August 1, 2003, as amended, between FCC and PBD, in such form as mutually agreed to in
writing by Purchaser and D. Barnes, on behalf of PBD; and (iii) sufficient documentation and
information (including, but not limited to, passwords) for Purchaser to effect transfer of the
Domain Names;



     (d) (i) such other deeds, bills of sale, assignments, certificates of title, title affidavits,
Documents and other instruments of transfer and conveyance as may reasonably be requested by
Purchaser, including warranty deeds with respect to the Purchased Real Property, each in form and
substance acceptable to Purchaser and its legal counsel (which acceptance shall not be unreasonably
withheld or delayed) and executed by each of the Sellers and, (ii) such landlord



8









 





estoppel certificates and property owner association estoppel certificates as Purchaser may
request, executed by the applicable landlord or property owner association, and, with respect to
The Fountains at Pacific Regent – Bellevue and The Fountains at Pacific Regent – La Jolla land
parcels included in the Purchased Real Property (as identified on Schedule 1.1), such
assignments of declarant rights and other assignments necessary to convey to Purchaser all of the
rights of the applicable Seller with respect to such land parcels and under the applicable
condominium documents, each in form and substance reasonably acceptable to Purchaser and its legal
counsel (which acceptance shall not be unreasonably withheld or delayed) and executed by FCC;




     (e) evidence that the agreements listed on Schedule 4.2(e) have been replaced with new
arrangements mutually acceptable to Purchaser and the other parties thereto, assigned to Purchaser
or terminated, as Purchaser shall direct;



     (f) A certificate of non-foreign status under Section 1445 of the Code, complying with the
requirements of the Income Tax Regulations promulgated pursuant to such Section from each Seller
conveying Purchased Real Property; and



     (g) the certificates, consents and other Documents referred to herein, including in
Section 10.2, as then deliverable by the Sellers and the Stockholder.



4.3 Closing Deliveries by Purchaser.




     At the Closing, Purchaser shall deliver to or for the benefit of the Sellers and/or the
Stockholder, as the case may be (unless otherwise noted):



     (a) an amount equal to the Cash Payment (plus or minus the amount of any adjustments pursuant
to Section 3.2, 3.3, 7.14, 10.3(c)(ii) or 10.3(e)), by wire transfer of immediately
available funds to the account designated pursuant to Section 3.4;



     (b) the Assignment and Assumption Agreements executed by Purchaser; and




     (c) the certificates, consents and other Documents referred to herein, including in
Section 10.4, as then deliverable by Purchaser.



ARTICLE V

REPRESENTATIONS AND WARRANTIES OF THE

SELLERS AND THE STOCKHOLDER




     Each Seller and the Stockholder hereby jointly and severally represents and warrants to
Purchaser (and, in the case of Sections 5.1, 5.2 and 5.4 only, D. Barnes severally, but not
jointly, represents and warrants to Purchaser) as follows:



5.1 Organization, Power, Authority and Good Standing.




     (a) Each Seller that is a corporation, is duly organized, and each Seller is validly existing
and in good standing under the Laws of its jurisdiction of incorporation or organization.



9









 





Each Seller has the necessary corporate, limited liability company or partnership power and
authority to execute, deliver and perform its obligations under this Agreement and each of the
Related Documents to which it is or will be a party and to consummate the transactions contemplated
hereby and thereby. Each Seller has all necessary corporate, limited liability company, or
partnership power and authority and all Permits required to own, lease and operate its Assets and
to carry on its business as currently conducted.




     (b) Each Seller is duly qualified and in good standing to transact business as a foreign
Person in those jurisdictions set forth opposite its name on Schedule 5.1(b), which
constitute all the jurisdictions in which the character of the property owned, leased or operated
by such Seller or the nature of the business or activities conducted by such Seller makes such
qualification necessary, except where the failure to be so qualified or in good standing would not
reasonably be expected to have a material adverse effect on the business, operations, Assets,
liabilities, financial condition or results of operations of such Seller.



     (c) The execution and delivery by each of the Sellers of this Agreement and each Related
Document to which it is or will be a party, the performance of its obligations hereunder and
thereunder and the consummation by it of the transactions contemplated hereby and thereby have been
duly and validly authorized and approved by all necessary action on the part of such Seller and the
stockholders, members or partners thereof, none of which actions have been modified or rescinded
and all of which actions remain in full force and effect. Each of the Stockholder and D. Barnes
has the full and unrestricted right, power and authority and the requisite capacity to execute and
deliver this Agreement and the Related Documents to which he is or will be a party, to perform his
obligations under this Agreement and any Related Document to which he is a party, and to consummate
the transactions contemplated hereby and thereby. This Agreement and each Related Document to
which any Seller, the Stockholder or D. Barnes is or will be a party has been or upon the execution
thereof will be, duly and validly executed and delivered by a duly authorized representative of
each Seller and by the Stockholder and D. Barnes, and constitutes, or upon its execution and
delivery will constitute, a valid and binding obligation of such Seller and the Stockholder and D.
Barnes, enforceable against such Seller and the Stockholder and D. Barnes in accordance with its
terms.



     (d) Each Seller has not, within the last five years, (i) used any trade names or assumed names
other than the trade names or assumed names set forth opposite its name on Schedule 5.1(d)
or (ii) operated any business other than the Business.



5.2 Authority; No Conflicts.




     Except as set forth on Schedule 5.2, neither the execution, delivery or performance by
any Seller or the Stockholder or D. Barnes of this Agreement and each Related Document to which it
or he is or will be a party, nor the consummation of the transactions contemplated hereby and
thereby by any Seller or the Stockholder or D. Barnes will (with or without notice or lapse of
time, or both): (i) breach or violate any provision of the certificate or articles of
incorporation, bylaws, operating agreement, partnership agreement or other organizational documents
of a Seller or any resolution adopted by the board of directors or a stockholder, member or partner
of such Seller; (ii) breach or violate any applicable Law; (iii) conflict with, result in a breach
of or constitute a default under, or give rise to any right of termination,



10









 





cancellation, modification or acceleration of, any Contract to which a Seller or any of its
Affiliates (including the Stockholder) is a party or by which any of their respective properties or
Assets may be bound or affected; or (iv) result in the imposition or creation of any Liability on
any Seller or any Seller Subsidiary or any Encumbrance upon or with respect to any of the Purchased
Assets, or result in or permit the acceleration of any indebtedness or other obligation of any
Seller or any of its Affiliates (including the Stockholder) pursuant to any of the foregoing.




5.3 Consents and Authorizations.




     Except as set forth on Schedule 5.3, any filings or approvals required under the
Hart-Scott-Rodino Act, and any filings or approvals listed on Schedule 6.4, no consent,
approval, Permit, Order, notification or authorization of, or any exemption from or registration,
declaration or filing with, any Governmental Entity or any other third Person is required in
connection with the execution, delivery and performance by each Seller and the Stockholder of this
Agreement or any Related Document to which it is or will be a party or the consummation of the
transactions contemplated hereby or thereby, including consents, approvals, notifications,
authorizations or determinations from parties to Contracts.



5.4 Ownership of the Sellers and Others.




     The Stockholder owns, beneficially and of record, all of the issued and outstanding shares of
FCC Stock. All purchases of FCC Stock made by the Stockholder or other transfers of FCC Stock to
the Stockholder within the 12 months immediately prior to the date of this Agreement were made in
accordance with applicable Law. Other than the issued and outstanding shares of FCC Stock owned by
the Stockholder, there are no outstanding Equity Interests of FCC. FCC owns, beneficially and of
record, all of the Equity Interests of each other Seller, other than HVP. FCC indirectly owns all
of the Equity Interests in HVP through its ownership of all of the Equity Interests of Harvill
Acquisition Two, Inc., an Oklahoma corporation which is the sole member of HVP. D. Barnes owns all
of the Equity Interests in FRC-AZ, FHC-MO and PBD.



5.5 Books and Records.




     The Books and Records are true and complete in all material respects and have been maintained
in accordance with sound business practices, and reasonably reflect, in reasonable detail, all
material transactions involving the Assets of the Sellers and any Seller Subsidiary, including the
Purchased Assets, the Assumed Liabilities and the Business. Each Seller and each Seller Subsidiary
has made and kept books, records and accounts which, in reasonable detail, accurately reflect, in
all material respects, its transactions and the disposition of its Assets to permit preparation of
financial statements in conformity with GAAP.



5.6 Financial Information.




     (a) Schedule 5.6(a) contains true, correct and complete copies of the following: (i)
the audited balance sheet of FCC and its consolidated Subsidiaries as of June 30, 2004, and the
related audited statements of operations and cash flows of FCC and its consolidated Subsidiaries
for the fiscal years then ended, including the footnotes thereto, as audited by (and together with
the report of their audit) Ernst & Young LLP (all of foregoing being hereinafter collectively
called the “Audited Seller Financial Statements”); (ii) the audited balance sheets of the
Cedar



11









 





Parke Facility as of March 31, 2004, and the related audited statements of operations and cash
flows of the Cedar Parke Facility for the fiscal years then ended, including the footnotes thereto,
as audited by (and together with the report of their audit) Ernst & Young LLP (all of foregoing
being hereinafter collectively called the “Audited Facility Financial Statements”); and
(iii) the unaudited balance sheet of FCC and its consolidated Subsidiaries as of October 31, 2004,
and the unaudited statements of operations and cash flows of FCC and its consolidated Subsidiaries
for the three months then ended (all of the foregoing being hereinafter collectively referred to as
the “Unaudited Seller Financial Statements” and, collectively with the Audited Seller
Financial Statements and the Audited Facility Financial Statements, the “Seller Financial
Statements”).




     (b) The Audited Seller Financial Statements fairly present the financial position of FCC and
its consolidated Subsidiaries as of the dates indicated and the results of operations of FCC and
its consolidated Subsidiaries for the periods indicated. The Audited Facility Financial Statements
fairly present the financial position of the Cedar Parke Facility as of the dates indicated and the
results of operations of the Cedar Parke Facility for the periods indicated. The Unaudited Seller
Financial Statements fairly present the financial position of FCC and its consolidated Subsidiaries
as of the dates indicated and the results of operations of FCC and its consolidated Subsidiaries
for the periods indicated. The Seller Financial Statements (x) have been prepared in accordance
with GAAP consistently applied throughout the periods covered thereby, subject, in the case of the
Unaudited Seller Financial Statements, to normal recurring year-end adjustments (the effect of
which will not, individually or in the aggregate, be significant) and the absence of notes (that,
if presented, would not differ materially from those included in the Audited Seller Financial
Statements) and (y) are complete and correct in all material respects and have been prepared in
accordance with the Books and Records of the Sellers.



     (c) The historical financial information for each Facility delivered to Purchaser and listed
on Schedule 5.6(c) presents fairly in all material respects the financial matters set forth
therein for the Facilities covered thereby; it being understood that such information is unaudited
and subject to normal recurring year-end adjustments (the effect of which will not, individually or
in the aggregate, be significant).



5.7 Absence of Undisclosed Liabilities.




     Except as set forth on Schedule 5.7, the Sellers have no material Liabilities, whether
accrued, contingent or otherwise (and to the knowledge of the Sellers, there are no threatened
charges, complaints, Proceedings or demands against any Seller giving rise to any Liability),
except for Liabilities disclosed or reserved against in the balance sheets included in the Seller
Financial Statements and current liabilities incurred in the ordinary course since the date of the
most recent balance sheet included in the Seller Financial Statements (none of which relates to any
breach of contract, breach of warranty, tort, infringement, or violation of Law, or arose out of
any charge, complaint, Proceeding or demand, or are, either individually or in the aggregate,
material).



12









 





5.8 Absence of Changes.




     Since June 30, 2004, except as set forth on Schedule 5.8 and except to the extent
expressly contemplated or required by this Agreement, the Sellers have operated the Business in the
ordinary course, consistent with past practice, and, subject to those exceptions, there has not
been:



     (a) any material adverse effect on the Assets, business, operations, financial condition or
results of operations of the Sellers or the Business;



     (b) any damage, destruction or loss (whether or not covered by insurance) with respect to any
material Assets of any of the Sellers;



     (c) any change by any of the Sellers in its accounting methods, principles or practices;




     (d) any redemption, purchase or other acquisition of any interests in any Seller or any
payment by a Seller to any of its Affiliates;



     (e) any increase in the benefits under, or the establishment or amendment of, any bonus,
insurance, severance, deferred compensation, pension, retirement, profit sharing, option (including
the granting of options, appreciation rights, performance awards or restricted stock or membership
awards), stock or membership purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to members, stockholders, managers, directors, officers
or employees of any Seller, except as set forth on Schedule 5.8 and except for increases in
salaries or wages payable or to become payable in the ordinary and usual course to employees of a
Seller who are not members, stockholders, managers, directors or officers of such Seller;



     (f) any transaction or Contract material to any Seller or any commitment for the same, entered
into by a Seller other than in the ordinary and usual course;



     (g) any transfer, Encumbrance or disposition by any Seller of any of its Assets, other than in
the ordinary and usual course and not material, either individually or in the aggregate;



     (h) any receipt by any Seller of written or, to the knowledge of the Sellers, oral, notice
that any Contract or arrangement to which such Seller is a party relating to the Purchased Assets,
the Assumed Liabilities or the Business has been or will be canceled;



     (i) any issuance by any Seller of any bond, note, option, warrant or other corporate security
or membership or partnership interest;



     (j) (i) any individual capital expenditure by any Seller in excess of $250,000 or (ii) any
individual commitment by any Seller to make any such capital expenditure in excess of $100,000, in
either case not included in the Sellers’ fiscal year 2005 capital expenditure budget attached to
Schedule 5.8 (the “Seller 2005 Capital Expenditure Budget”);



13









 





     (k) any payment of, or incurrence of liability to pay, any Taxes, other than those arising and
discharged or to be discharged in the ordinary and usual course;



     (l) any loans made by any Seller to any Person, including any Affiliate, member, stockholder,
manager, director, employee or officer of any Seller, in excess of $100,000 individually or
$250,000 in the aggregate;



     (m) any incurrence of indebtedness by any Seller for borrowed money or commitment by any
Seller to borrow money other than in the ordinary and usual course;



     (n) any payment of management fees to any Affiliate (other than in accordance with the terms
of the Existing Management Agreements as they exist on the date hereof); or



     (o) any authorization, approval, agreement or commitment by any Seller to take any action
described in subparagraphs (c) through (n) above.



5.9 Tax Matters.




     Except as set forth on Schedule 5.9,



     (a) All Taxes owed by the Sellers and the Seller Subsidiaries (whether or not shown on any Tax
Return) have been paid and will be paid for all periods ending on or prior to the Closing Date.
Each of the Sellers and their respective Seller Subsidiaries have properly and timely filed and
will, prior to the Closing, properly and timely file, all Tax Returns they were required to file.
None of the Sellers or any Seller Subsidiaries is the beneficiary of any extension of time within
which to file any Tax Return. No claim has ever been made by an authority in a jurisdiction where
the Sellers or the Seller Subsidiaries do not file Tax Returns that the Sellers or any Seller
Subsidiaries are or may be subject to taxation by that jurisdiction. There are no liens on any of
the Assets of the Sellers or any Seller Subsidiaries that arose in connection with any failure (or
alleged failure) to pay any Tax.



     (b) Each of the Sellers and the Seller Subsidiaries has withheld and paid all Taxes required
to have been withheld and paid in connection with any amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third Person, and all Forms W-2 and 1099
required with respect thereto have been properly completed and timely filed.



     (c) Neither the Stockholder nor any officer or director (or employee responsible for Tax
matters) of the Sellers or any Seller Subsidiaries expects any authority to assess additional Taxes
for any period for which Tax Returns have been filed. There is no dispute or claim concerning any
Tax Liability of the Sellers or any Seller Subsidiaries either (A) claimed or raised by any
authority in writing or (B) as to which the Stockholder or the directors and officers (and
employees responsible for Tax matters) of the Sellers or the Seller Subsidiaries has knowledge
based upon personal contact with any agent of such authority.



     (d) Neither the Sellers nor any Seller Subsidiaries has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency.



14









 





     (e) The unpaid Taxes of the Sellers and the Seller Subsidiaries (A) did not, as of the date of
the Unaudited Seller Financial Statements, exceed the reserve for Tax Liability (rather than any
reserve for deferred Taxes established to reflect timing differences between book and Tax income)
set forth on the face of the Unaudited Seller Financial Statements (rather than any notes thereto)
and (B) do not exceed that reserve as adjusted for the passage of time through the Closing Date in
accordance with past custom and practice of the Sellers and the Seller Subsidiaries in filing their
Tax Returns.



     (f) None of the Assumed Liabilities is an obligation to make a payment that is not deductible
under Code Section 280G. The Sellers have not been for any tax year for which the statute of
limitations is open a party to any Tax allocation or sharing agreement. The Sellers have not been
members of any Affiliated Group filing a consolidated federal income Tax Return (other than a group
the common parent of which was FCC) and have no Liability for the Taxes of any Person under
Treasury Regulation Section 1.1502-6 (or any similar provision of state, local, or foreign Law), as
a transferee or successor, by contract, or otherwise.



     (g) None of the Purchased Assets is “tax-exempt use property” within the meaning of Section
168(h) of the Code. None of the Sellers or any of Seller Subsidiary is a foreign person within the
meaning of Section 1.1445-2(b) of the Regulations under Section 1445 of the Code.



5.10 Title to Purchased Assets and Related Matters.




     (a) Except for the Assets identified on Schedule 5.10(a), the Purchased Assets
constitute all Assets that are necessary for the conduct of the Management Business and the Home
Care Business in the manner currently conducted by the Sellers.



     (b) Each of the Sellers has, and at the Closing Purchaser will receive, good and marketable
title to all of the Purchased Assets identified on Schedule 1.1 as owned by such Seller,
and the Purchased Assets are free and clear of all Encumbrances, except for Permitted Encumbrances
existing on the date hereof described on Schedule 5.10(b) and except with respect to those
Purchased Assets that constitute Purchased Real Property as to which Section 10.3 shall
apply. There are no outstanding rights, options, agreements or other commitments giving any Person
any current or future right to require any Seller or, following the Closing Date, Purchaser, to
sell or transfer to such Person or to any third Person any interest in any Seller or in any of the
Purchased Assets. All of the Purchased Assets which are material to the conduct of the Management
Business at any Facility or material to the conduct of the Home Care Business are in good operating
condition and repair (normal wear and tear excepted) and are suitable for the uses for which they
are used or intended to be used in the Management Business and the Home Care Business.



     (c) The tangible Purchased Assets are located in the States and at the addresses set forth on
Schedule 5.10(c).



5.11 Leases.




     Schedule 5.11 is a true and complete list of (i) all real property Leases under which
any of the Sellers is a lessor or lessee and (ii) all other Leases under which any of the Sellers
is a lessor or lessee (A) providing for annual lease payments to or by any Seller or Seller
Subsidiary



15









 





in excess of $100,000 or (B) for a term of more than one year and not terminable by such
Seller or Seller Subsidiary by notice of not more than 60 days for a cost of less than $25,000.
All such Leases are valid and binding and in full force and effect in accordance with the terms
thereof and, except as set forth on such Schedule 5.11, have not been modified, amended,
nor any provision thereof waived and constitute the entire agreement between the lessor and lessee
thereunder with respect to the premises demised thereunder. The lessors under the Leases are
holding security deposits in the amounts set forth on Schedule 5.11. None of the Sellers
is in default in any material respect under any such Lease, nor to the knowledge of the Sellers,
does any condition exist that, with or without notice or lapse of time or both, would constitute a
material default thereunder. To the knowledge of the Sellers, no other party to any such Lease (i)
is in default thereunder in any material respect or (ii) has threatened to cancel or otherwise
terminate any such Lease. All premises leased under the Leases are in appropriate condition and
repair and are suitable for the conduct of the Management Business or the Home Care Business
thereon (as the case may be). True and complete copies of all Leases listed on Schedule
5.11 shall have been furnished or made available to Purchaser during the Due Diligence Period.




5.12 Facilities; Management Agreements; Reserves.




     (a) Schedule 5.12(a) sets forth a true, correct and complete list of each Senior
Living Facility operated, managed or leased by the Sellers or any Seller Subsidiary, and indicates,
among other things, the ownership and location thereof as well as the number of units occupied /
unoccupied as of a recent date set forth on such Schedule, organized by unit type. Except for the
Existing Management Agreements and the New Management Agreements, as applicable, no Contract to
which a Seller or Seller Subsidiary is a party provides for the management or operation of any
Senior Living Facility by the Sellers or any Seller Subsidiary. There are no currently deferred or
accrued distributions or other amounts currently owing or due to any “licensee” under any Existing
Management Agreement or the “lessor” under the Cedar Parke Lease (as defined on Schedule
5.11) (whether such currently deferred or accrued distribution or other amounts currently
owning or due are payable now or at some future date).



     (b) Schedule 5.12(b) contains a list, as of a recent date set forth on such Schedule,
sorted by Facility (other than the Cedar Parke Facility), of all cash deposits or escrows
comprising reserves held or controlled by any Seller or any Seller Subsidiary on behalf of the
“licensees” of the Facilities (the “Reserves”). The Reserves as of the Closing shall be
maintained by Sellers and all cash deposits or escrows comprising the Reserves as of the Closing
shall be transferred to Purchaser on the Closing Date.



5.13 Assigned Contracts.




     (a) Schedule 5.13 is a true and complete list, as of the date hereof, of each of the
following Contracts relating to the Business to which any Seller or any Seller Subsidiary is a
party or by which any Seller (or any Seller Subsidiary) or any of its properties, rights or assets
is subject or by which any thereof is bound, other than the Leases and the Existing Management
Agreements (collectively, the “Seller Contracts”): (i) each Contract to which a Seller or
Seller Subsidiary is a party which (A) provides for aggregate annual payments or receipts by a
Seller or Seller Subsidiary of $100,000 or more or (B) is not terminable by such Seller or Seller
Subsidiary by notice of not more than 60 days for a cost of less than $25,000; (ii) each Contract



16









 





containing a covenant not to compete or other similar covenant restricting the ability of any
Seller or Seller Subsidiary to compete or conduct the Business in any manner or place; (iii) each
Contract under which a Seller or Seller Subsidiary has borrowed any money from, or issued any note,
bond, debenture or other evidence of indebtedness to, any Person or any other note, bond, debenture
or other evidence of indebtedness of such Seller or Seller Subsidiary in any such case which,
individually, is in excess of $100,000; (iv) each Contract under which (A) any person has directly
or indirectly guaranteed Liabilities of a Seller or Seller Subsidiary or (B) a Seller or Seller
Subsidiary has directly or indirectly guaranteed Liabilities of any Person; (v) each Contract
providing for (A) indemnification by a Seller or Seller Subsidiary of any current or former
employee, officer, director or consultant or (B) indemnification by a Seller or Seller Subsidiary
of any Person with respect to material Liabilities relating to any current or former business of a
Seller, Seller Subsidiary or any predecessor Person (other than, in the case of (B), contracts
providing for indemnification made in the ordinary course of business consistent with past
practice); (vi) each Contract for the purchase or sale of any real or material personal property;
(vii) each joint venture or partnership agreement or arrangement or other agreement or arrangement
involving the sharing of profits or losses; (viii) each health insurance benefit agreement with the
United States Department of Health and Human Services; (ix) each Medicare or Medicaid provider
agreement with respect to the Facilities; (x) each managed care or other third party payor Contract
(e.g., private insurance carriers or health maintenance organizations), in each case which provides
for aggregate payments or receipts in excess of $100,000 annually; (xi) each Contract with any
hospital, physician, nursing facility, home health entity, durable medical equipment provider or
pharmacy or any other Person involving patient care, including physical therapy and home care, in
each case which provides for aggregate payments or receipts in excess of $100,000 annually; (xii)
each Contract with any referral source; or (xiii) and any other Contract that is material to the
Management Business at any Facility or the Home Care Business.




     (b) Except as set forth on Schedule 5.13, all of the Assigned Contracts are duly and
validly executed by a Seller and have been executed by the other parties thereto, are in full force
and effect, constitute legal, valid and binding obligations of the respective parties thereto, and
are enforceable in accordance with their respective terms. Except as set forth on Schedule
5.13, each Seller (and any Seller Subsidiary party thereto) has in all material respects
performed all of the obligations required to be performed by it to date under each such Assigned
Contract. Except as set forth on Schedule 5.13, to the knowledge of the Sellers, no event
has occurred which, with or without notice or the passage of time or both, constitutes or would
constitute a material breach or default by a Seller or any other party under any Assigned Contract
or permit any other party to accelerate, terminate, cancel or modify such Assigned Contract.
Except as set for on Schedule 5.13, to the knowledge of the Sellers, there has been no
threatened cancellations by any third Person of any Assigned Contract. None of the parties to any
of the Assigned Contracts has a right to terminate the Assigned Contract prior to the expiration of
the current term thereof (other than as a result of the breach thereof occurring after the
Closing). True and complete copies of all Assigned Contracts, including all amendments, waivers
and modifications thereto, shall have been furnished or made available to Purchaser during the Due
Diligence Period.



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5.14 Resident Agreements.




     Schedule 5.14 sets forth a true and correct “rent roll” for each Facility
(collectively, the “Rent Roll”) as of the most recent practicable date (as identified on
Schedule 5.14). All Resident Agreements are evidenced by a written agreement either (i) in
one of the forms of resident agreement attached to Schedule 5.14 or (ii) containing terms
that are substantially similar to the terms set forth in one of the forms of resident agreement
attached to Schedule 5.14 and not containing provisions that impose any obligations on the
part of any Seller that differ in any material respect from the type or nature of the obligations
on the part of any Seller included in any of the forms of resident agreement attached to
Schedule 5.14. No Seller is in default under any of its obligations under any Resident
Agreement, except where such default would not have a material adverse effect on the Assets of such
Seller or the Business conducted by such Seller, and, except as set forth on the Rent Roll (or the
Closing Rent Roll, as defined in Section 10.2(m), as applicable), no Seller has any
knowledge of any material default on the part of any other party thereto. All of the Resident
Agreements identified on the Rent Roll are currently in full force and effect as of the date of the
Rent Roll or the Closing Rent Roll, as applicable.



5.15 Real Property.




     (a) Except for the real property listed on Schedule 1.1 as among the Purchased Assets
to be transferred to Purchaser hereunder (collectively referred to herein as the “Purchased
Real Property”), the Sellers and the Seller Subsidiaries do not own any interest in real
property. With respect to the Purchased Real Property, except as set forth on Schedule
5.15(a): (i) no portion thereof is subject to any pending condemnation, fire, health, safety,
building, environmental, hazardous substances, pollution control, zoning or other land use
regulatory Proceedings or Proceeding by any public or quasi-public authority and there is no
threatened condemnation or Proceeding with respect thereto which would have a material adverse
effect on the use and operation of any portion of the Purchased Real Property for its intended
purpose; (ii) there are no Contracts to which any of the Sellers or any of their Affiliates is a
party, granting to any party or parties except such Seller the right of use or occupancy of any
portion of the parcels of the Purchased Real Property, except for any Contracts useful in the
conduct of the Business and (A) for a term of less than one year or terminable by such Seller or
Seller Subsidiary by notice of not more than 60 days for a cost of not more than $25,000, or (B)
not relating to a portion of the parcels that is material to the principal use of such parcel, or
(C) not relating to any use or occupancy that could materially impair the use or occupancy of a
parcel by any Seller; (iii) there are no parties in possession of the Purchased Real Property
except the Sellers; (iv) no notice of any contemplated special assessment has been received by the
Sellers or the Stockholder and, to the knowledge of the Sellers, there is no threatened special
assessment pertaining to any of the Purchased Real Property and (v) none of the Sellers or the
Stockholder has received any notice of a violation or claimed violation of any Real Property Law.
All Permits, certificates, easements and rights of way, including proof of dedication, required
from all Governmental Entities having jurisdiction over the Purchased Real Property for the use and
operation of the Purchased Real Property as currently used and to ensure vehicular and pedestrian
ingress to and egress from the Purchased Real Property have been obtained. No portion of the
Purchased Real Property has suffered any material damage by fire or other casualty which has not
heretofore been repaired. Except as set forth on Schedule 5.15(a), (i) there are no
material physical or mechanical defects in any of the Purchased Real Property and



18









 





the Purchased Real Property is in good operating condition and repair, reasonable wear and
tear excepted; (ii) there are no unsatisfied requests for any material repairs, restorations or
improvements to the Purchased Real Property from any Person, including any Governmental Entity; and
(iii) there are no ongoing material repairs to the Purchased Real Property being made by or on
behalf of any of the Sellers.




     (b) Except as described on Schedule 5.15(b), each of the Fountains Resource Center,
the Cedar Parke Facility and the Millbrook Gatehouse is an independent unit which as of the date
hereof does not rely on any facilities (other than the facilities of public utility, sewer and
water companies) located on any property not included in the Fountains Resource Center, the Cedar
Parke Facility or the Millbrook Gatehouse, respectively, (i) to fulfill any zoning, building code,
or other municipal or governmental requirement, or (ii) for structural support or the furnishing of
any essential building systems or utilities, including, but not limited to, electric, plumbing,
mechanical, heating, ventilating and air conditioning systems. No building or other improvements
not included in the Fountains Resource Center, the Cedar Parke Facility and the Millbrook
Gatehouse, respectively, relies on any part of the Fountains Resource Center, the Cedar Parke
Facility or the Millbrook Gatehouse, respectively, to fulfill any zoning, building, code or other
municipal or governmental requirement or for structural support or the furnishing of any essential
building systems or utilities.



     (c) Each of the Fountains Resource Center, the Cedar Parke Facility and the Millbrook
Gatehouse has adequate water supply, storm and sanitary sewer facilities, adequate access to
telephone, gas (but only where such Purchased Real Property is served by a natural gas utility) and
electricity connections, adequate fire protection, drainage, means of ingress and egress to and
from public highways and, without limitation, other public utilities. The parking facilities
located on the Fountains Resource Center, the Cedar Parke Facility and the Millbrook Gatehouse meet
all applicable requirements imposed by applicable Law or requisite exceptions or variances to such
Laws. All such public utilities are installed and operating and all installation and connection
charges have been paid in full. All streets and roads necessary for access to and full utilization
of each of the Fountains Resource Center, the Cedar Parke Facility and the Millbrook Gatehouse, and
every part thereof, have been built, completed, dedicated and accepted for maintenance and public
use by the appropriate Governmental Entities or are otherwise owned and maintained by local
governments for public use. Seller has no knowledge of any fact or condition existing that would
result or could result in the termination or reduction of the current access from the Fountains
Resource Center, the Cedar Parke Facility or the Millbrook Gatehouse to the existing roads and
highways or to sewer or other utility services presently serving the Fountains Resource Center, the
Cedar Parke Facility or the Millbrook Gatehouse.



     (d) The current uses of each of the Fountains Resource Center, the Cedar Parke Facility and
the Millbrook Gatehouse are permitted under the applicable municipal zoning ordinances, or special
exceptions, variances, or conditions thereto, and the Fountains Resource Center, the Cedar Parke
Facility and the Millbrook Gatehouse comply, to the extent required (including any waiver or
grandfathering), with all conditions, restrictions and requirements of such zoning ordinances and
all amendments thereto.



     (e) With respect to the Fountains at Pacific Regent – Bellevue and the Fountains at Pacific
Regent – La Jolla land parcels included in the Purchased Real Property (as identified on



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Schedule 1.1), FCC is the holder of the rights of the declarant with respect to such
land parcels under the applicable condominium declarations and other Documents related to or
entered into pursuant to or in accordance with such condominium declarations, which rights may be
duly and validly assigned to Purchaser.




5.16 Intellectual Property.




     (a) Schedule 5.16(a) sets forth a true, correct and complete list of all issued
patents, patent applications, common law trademarks and service marks (including logos, designs and
trade dress), trademark and service mark applications and registrations, trade names, domain names, material copyrights (including proprietary software, templates and forms, manuals, and web site
content, architecture and underlying software), and copyright applications and registrations
included in Owned Requisite Rights, identifying the jurisdiction, application or serial number,
filing or issuance date and owner of record for any and all Registered Intellectual Property.
Except as set forth on Schedule 5.16(a), the Sellers have not licensed or granted any right
to use any Requisite Rights to any person.



     (b) Schedule 5.16(b) sets forth a true, correct and complete list of all Licensed
Requisite Rights (including licenses of the “Fountains” name and mark), identifying the licensor of
such Licensed Requisite Rights.



     (c) Without limiting any other representations and warranties contained in this Agreement,
each Seller owns all Owned Requisite Rights and has licenses to all Licensed Requisite Rights and
has full power and authority to make the assignments and to fulfill the obligations with respect to
the assignment and transfer of its right, title and interest in and to the Requisite Rights
pursuant to this Agreement. At the Closing Date, all of the Sellers’ right, title and interest in
and to the Requisite Rights shall transfer by the Sellers to Purchaser, free and clear of any and
all Encumbrances. The Requisite Rights constitutes all Intellectual Property needed, used or
useful for continued operation of the Management Business and the Home Care Business. Except as
set forth on Schedule 5.16(c), no consents or licenses are required from any Person for any
Seller to transfer to Purchaser all of its right, title and interest in and to the Requisite
Rights. No written notice or, to the knowledge of the Sellers, oral notice has been received by
the Sellers or any of their Affiliates, nor to the knowledge of the Sellers is any notice
anticipated, that any rights being transferred to Purchaser in the Requisite Rights are invalid or
unenforceable or that any infringement or misappropriation thereof, in whole or in part, by any
third Person has occurred. There are no claims, disputes, investigations or legal Proceedings with
respect to any Requisite Rights pending or, to the knowledge of the Sellers, threatened against any
Seller which, individually or in the aggregate, is or are likely to materially adversely affect any
Seller, the Purchased Assets or the continued operation of the Management Business or the Home Care
Business or which may involve or result in Damages or restrictions which in the aggregate or
individually is material.



5.17 Inventories.




     All items included in the Inventories that are material to the normal operation of the
Business consist of items of a quality usable or saleable in the ordinary course of the Business
consistent with past practices and are in quantities sufficient for the normal operation of the



20









 





Business in accordance with past practice. The Inventories set forth on the Seller Financial
Statements were properly stated therein at the lesser of cost or fair market value determined in
accordance with GAAP. Inventories now on hand that were purchased after September 30, 2004 were
purchased in the ordinary course of the Business at a cost not exceeding market prices prevailing
at the time of purchase. All of the Inventories are owned by the Sellers free and clear of all
Encumbrances.




5.18 Accounts Receivable.




     All Accounts Receivable that are reflected on the most recent balance sheet included in the
Seller Financial Statements, the Pre-Closing Accounts Receivable Schedule and the Final Accounts
Receivable Schedule (as such terms are defined in Section 7.14) represent or will represent
valid, bona fide obligations arising from sales actually made or services actually performed by
Seller, requiring no further act under any circumstances on the part of any Seller or any of its
Affiliates to cause such Accounts Receivable to be due and payable by the account debtor with
respect thereto, and arise from arm’s length transactions between unrelated parties in the ordinary
course of business of a Seller. No Seller has pledged any such Accounts Receivable, and each
Seller owns all of its Accounts Receivable free and clear of all Encumbrances. Except to the
extent paid prior to the Closing Date, each such Accounts Receivable is unconditionally owing to
the applicable Seller in the face amount thereof, is valid and enforceable against the applicable
account debtor and is not subject to any setoffs, discounts, allowances, claims, defenses,
counterclaims or disputes arising prior to the Closing. For the sake of clarity, the Sellers are
not making any representation or warranty as to the collectibility of the Accounts Receivable.



5.19 Litigation, Etc.




     Other than as set forth on Schedule 5.19, no Seller or any of its Affiliates is a
party to, and to the knowledge of the Sellers, is subject to, any Order arising out of, in
connection with, relating to or otherwise affecting the Business or the Purchased Assets,
including, any Order concerning or relating to any federal or state funded health care program, any
federal or state licensing Laws, or any federal or state Laws pertaining to the provision of
assisted living, skilled nursing, long-term care, home health and other related healthcare and
support services. Other than as set forth on Schedule 5.19, there is no litigation,
arbitration, or, to the knowledge of the Sellers, audit or other Proceeding by or before any
Governmental Entity or arbitrator pending or, to the knowledge of the Sellers, threatened against a
Seller or any of its Affiliates, which relates to the Purchased Assets, the Assumed Liabilities,
the Facility Sale Transaction, this Agreement, the Related Documents or the transactions
contemplated hereby or thereby. Other than as set forth on Schedule 5.19, no Governmental
Entity, or to the knowledge of the Sellers, any other Person, has at any time challenged,
questioned, or commenced or given notice of intention to commence any investigation relating to,
the legal right of the Sellers to conduct the Business as now or heretofore conducted by the
Sellers or any of the transactions contemplated under this Agreement or the Facility Sale
Transaction. Other than as set forth on Schedule 5.19, there is no litigation, arbitration,
or, to the knowledge of the Sellers, audit or other Proceeding or any claim alleging, with respect
to a Seller, the Business, the Purchased Assets or the Assumed Liabilities, any violation of any
Law.



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5.20 Compliance with Laws.




     The operation of the Business by the Sellers, the use of the Purchased Assets, and the Assumed
Liabilities have been and are in compliance in all material respects with all applicable Laws.
Except as set forth on Schedule 5.20, each of the Sellers has complied with all federal,
state and local Laws affecting the conduct of the Business, the ownership or operation of its
properties, and the sale or purchase of its properties, except any non-compliance which would not
have a material adverse effect on Purchaser’s ability to conduct the Business in the manner in
which it is currently conducted by the Sellers, on the ownership, possession or use of any of the
Purchased Assets, on the Assumed Liabilities, or on the consummation of the transactions
contemplated by this Agreement, and no Seller has received written notice, or, to the knowledge of
Sellers, oral notice, of any non-compliance. Each of the Sellers has filed all forms, reports,
statements and other Documents required to be filed with any Governmental Entity, including state
and federal health regulatory authorities, except where the failure to file such forms, reports,
statements or other Documents would not have a material adverse effect on the operation of the
Business, except for matters addressed in Section 5.9 (taxes), Section 5.23 (labor
relations), and Section 5.26 (environmental) hereof, which shall be governed by such
Section 5.9 (taxes), Section 5.23 (labor relations), and Section 5.26
(environmental), respectively.



5.21 Permits.




     Set forth on Schedule 5.21 is a true and complete description of all of the Operating
Licenses and other material required Permits owned or held by or issued to each Seller and all
Operating Licenses and other material required Permits owned or held by or issued to any other
Seller Subsidiary relating to the Business or the Purchased Assets, and such Operating Licenses and
such other material required Permits constitute all the Operating Licenses and other Permits
necessary for the conduct of the Management Business and the Home Care Business by the Sellers and
the use of the Purchased Assets. Each Seller is the duly authorized holder of all the Operating
Licenses and other material required Permits set forth under its name on Schedule 5.21, all
of which are in full force and effect and unimpaired. There is no pending or threatened action by
or before any Governmental Entity to revoke, cancel, rescind, modify or refuse to renew any of the
Operating Licenses or other material required Permits set forth on Schedule 5.21. Except
as otherwise noted on Schedule 5.21, true and complete copies of all the Operating Licenses
and other material required Permits set forth on Schedule 5.21 have been furnished to
Purchaser. None of the Sellers or any Seller Subsidiary has received written notice from any
Governmental Entity asserting the violation of the terms of any such Operating License or such
other material required Permit, or threatening to revoke, cancel, suspend or not renew the terms of
any such Operating License or other material required Permits. To the knowledge of the Sellers, no
Facility is operating in violation of any material required Permit or any terms or conditions
thereof, except for such violations as would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the operation of such Facility.



5.22 Insurance.




     Schedule 5.22 contains a true, correct and complete list of all policies of liability,
theft, fidelity, life, fire, product liability, workmen’s compensation, health and other forms of
insurance for the Business and the Purchased Assets (specifying the insurer, amount of coverage,



22









 





type of insurance, policy number, deductible or retention amount, premium, policy term and any
pending claims thereunder). The Sellers have furnished to Purchaser true, correct and complete
copies of the claims history relating to the Business for the five years prior to the date of this
Agreement.




5.23 Labor Relations: Employees.




     (a) Schedule 5.23(a)(i) sets forth a list of (i) all community-level employees of the
Sellers or any Seller Subsidiary or any other Affiliate of the Sellers relating to the Business
(collectively, the “Community Employees”) and (ii) all other employees (corporate and
regional employees) of the Sellers or any Seller Subsidiary or any other Affiliate of the Sellers
relating to the Business (collectively, the “Corporate and Regional Employees,” and
together with the Community Employees, the “Seller Employees”), together with their current
compensation (including salary, wages, bonuses and commissions) and the respective dates on which
they commenced employment. Each of the Corporate and Regional Employees is identified as such on
Schedule 5.23(a)(i). To the knowledge of the Sellers, none of the Seller Employees has any
plans or intends to terminate his or her employment or engagement and no former key employee has
left the service of any of the Sellers or any Seller Subsidiary or other Affiliate within the six
(6) months preceding the date of this Agreement. Except as set forth on Schedule
5.23(a)(ii), all such employees are employees at-will and none of the Sellers or any of their
respective Affiliates has any written employment agreement (including executive compensation,
severance or retention agreements) or oral employment arrangements with any such employees or with
any other Persons relating to the Business.



     (b) Except as set forth on Schedule 5.23(b): (i) each of the Sellers and their
respective Seller Subsidiaries generally enjoy good relations with their employees, and there is no
labor controversy, strike, dispute, disturbance, grievance, slowdown or stoppage actually pending,
anticipated by, or, to the knowledge of the Sellers, threatened against or involving the Sellers or
any Seller Subsidiary; (ii) none of the Sellers has any knowledge of any facts that would be likely
to give rise to such a controversy, strike, dispute, disturbance, grievance, slowdown or stoppage;
(iii) none of the Sellers or any Seller Subsidiary is a party to or bound by any collective
bargaining agreement or union contract; (iv) there is no collective bargaining or union contract
currently being negotiated by any of the Sellers or any Seller Subsidiary and (v) no labor union
has taken any action with respect to organizing employees of the Sellers or any Seller Subsidiaries
and, to the knowledge of the Sellers, there are no employees of any of the Sellers or any Seller
Subsidiary seeking union representation. The relations of the Sellers with their employees are
satisfactory, and none of the Sellers has knowledge of any facts that would be likely to adversely
affect such relations prior to the Closing Date.



5.24 Pension and Benefit Plans and Compliance with Employment Laws.




     (a) Except as set forth on Schedule 5.24(a), none of the Sellers or any Seller
Subsidiary (i) maintains or has ever maintained any Plan or Other Arrangement; (ii) is or has even
been a party to any Plan or Other Arrangement; or (iii) has any obligation under any Plan or Other
Arrangement.



23









 





     (b) The Sellers shall have furnished or made available to Purchaser during the Due Diligence
Period true and complete copies of each of the following documents for each Plan and Other
Arrangement, as applicable: (i) the documents setting forth the terms of each Plan and Other
Arrangement, and all amendments thereto; (ii) all related agreements, including trust agreements,
annuity agreements, insurance contracts (including policies), and any other funding document, and
agreements with service providers; (iii) the three most recent annual reports (Form 5500 series) on
each Plan that have been filed with any Governmental Entity, if any; (iv) the current summary plan
description and subsequent summaries of material modifications for each Plan; (v) the most recent
determination letter from the Internal Revenue Service for each Plan which is intended to be a
Pension Plan; and (vi) all correspondence within the last three years with any Governmental Body
with respect to any Plan or Other Arrangement. No Plan is or has been subject to Title IV of
ERISA.



     (c) The Sellers and any Seller Subsidiary, as applicable, have timely made all contributions
and other payments required by and due under the terms of each Plan and Other Arrangement.



     (d) The Sellers and any Seller Subsidiary, as applicable, have received a determination letter
from the Internal Revenue Service dated after December 31, 2001 that each Plan that is intended to
be a Pension Plan complies with the requirements of Section 401(a) of the Code.



     (e) None of the Sellers or any Seller Subsidiary has pending or, to the knowledge of the
Sellers, threatened claims arising under the Code, ERISA, the National Labor Relations Act, Title
VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Equal Pay Act of 1963, the Fair Labor Standards Act, or threatened unfair
labor practice charges, contract grievances under any collective bargaining agreement, other
administrative charges, claims, grievances or lawsuits, by or before any Governmental Entity or
arbitrator.



     (f) No ERISA Event has occurred or is reasonably expected to occur.



     (g) All Plans that are Welfare Plans that are subject to Section 4980B(f) of the Code and
Sections 601 through 609 of ERISA comply with and have been administered in material compliance
with the health care continuation-coverage requirements for tax-favored status under Section
4980B(f) of the Code, Sections 601 through 609 of ERISA, and all other applicable Laws regarding
continuation and/or conversion coverage. All Welfare Plans listed on Schedule 5.24(g) have, in all
material respects, been administered in accordance with their terms and are in material compliance
with ERISA, the Code and all other applicable Laws.



5.25 WARN Act.




     Schedule 5.25 lists the full name, job title, job site and unit, date of Employment
Loss, and type of Employment Loss (termination, layoff, or reduction in work hours) of each
employee of the Sellers or any Seller Subsidiary who has experienced an Employment Loss in the 90
days preceding the date of this Agreement. Except as set forth on Schedule 5.25 and except
as expressly contemplated in Section 8.1, the Sellers do not presently intend to take any
action that



24









 





would result in any Employment Loss by any employee of the Sellers between the date of this
Agreement and the Closing. “Employment Loss” for this purpose shall mean (a) an employment
termination, other than a discharge for cause, voluntary departure, or retirement, (b) a layoff
exceeding six (6) months or (c) a reduction in hours of work of more than fifty percent (50%), and
“Employee” shall mean any employee, including officers, managers and supervisors, but
excluding employees who are employed for an average of fewer than twenty (20) hours per week or who
have been employed for fewer than six (6) of the preceding twelve (12) months.




5.26 Environmental Matters.




     Except as set forth on Schedule 5.26, none of the Sellers has generated, stored or
disposed of any Hazardous Waste at any of the Purchased Real Property or any other real property
owned, operated or leased by any Seller or Seller Subsidiary (collectively, the
“Properties”) and the Sellers have no knowledge of any previous or present generation,
storage, disposal or existence of any hazardous waste at any of the Properties other than in
accordance with all applicable Laws. The term “Hazardous Waste” shall mean (a) “hazardous
waste,” “hazardous substances,” “pollutants or contaminants,” “chemical substances,” “solid waste”
or other similar or related terms as defined or used from time to time in the Environmental Laws;
(b) asbestos containing materials, polychlorinated biphenyls (“PCBs”) and petroleum or any
fraction thereof; and (c) any other material, substance or waste that is listed, regulated or
defined under any Environmental Law. “Environmental Law” means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Sections
9601, et seq.) (“CERCLA”), the Resource Conservation and Recovery Act, as
amended (42 U.S.C. Section 6901, et seq.), similar state Laws and any other Law or
common law ruling related to protection of human health or the environment. No Seller has filed
or, to the Sellers’ knowledge, been required to file any notice reporting a release of any
Hazardous Waste into the environment, and no notice pursuant to Section 103(a) or (c) of CERCLA or
any other applicable Environmental Law has been or was required to be filed. No Seller has
received any notice letter under CERCLA or any notice or claim under any Environmental Law, and
there is no investigation pending or to Sellers’ knowledge, threatened, to the effect that any
Seller is or may be liable under Environmental Law or for or as a result of the release or
threatened release of Hazardous Waste into the environment or for the suspected presence of any
Hazardous Waste thereon. There are no facts, circumstances or conditions existing, initiated or
occurring prior to the Closing that have resulted or will result in Liability of the Sellers or any
Seller Subsidiary under any Environmental Law. Except as set forth on Schedule 5.26, there
is no asbestos, fill, PCBs, lead paint, underground or above ground storage tanks or any wetlands
at any of the Properties. For sake of clarity and notwithstanding anything herein to the contrary,
mold is not included in the foregoing provisions of this Section 5.26. The Sellers hereby
represent and warrant that, except as set forth on Schedule 5.26, to the Sellers’
knowledge, there is no material mold at any of the Facilities.



5.27 Brokers.




     (a) No agent, broker, investment banker or other person or firm acting on behalf of or under
the authority of any of the Sellers or the Stockholder or any of their respective Affiliates is or
will be entitled to any broker’s or finder’s fee or any
other commission or similar fee, directly or indirectly, in connection with the transactions contemplated by this Agreement or the
Related Documents.



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     (b) David Freshwater, a director and/or officer of FCC and various of its Subsidiaries, is
licensed as a real estate broker in the State of Arizona. Mr. Freshwater is not and will not be
entitled to any broker’s or finder’s fee or any other commission or similar fee, directly or
indirectly, in connection with the transactions contemplated by this Agreement or the Related
Documents.



5.28 Suppliers and Vendors.




     Except as set forth on Schedule 5.28, in the ordinary course of business, no material
supplier or vendor used in connection with the Business and no Person providing maintenance
services to the Business has canceled or otherwise terminated within the two years preceding the
date of this Agreement or threatened within the two years preceding the date of this Agreement to
cancel or otherwise terminate, its relationship with any of the Sellers or the Business or has
during that period decreased, limited or otherwise modified, or, to the knowledge of the Sellers,
threatened to decrease, limit or otherwise modify, the services, supplies or materials it provides
to any of the Sellers.



5.29 Payments.




     To the knowledge of Sellers, no Seller, Affiliate of any Seller, or agent or representative of
any Seller or any Affiliate of any Seller has ever made, directly or indirectly, any contribution,
gift or payment in connection with the Business to any Person, which contribution, gift or payment
was in violation of applicable Law.



5.30 Seller Documents.




     No representation or warranty or other statement made by any Seller or the Stockholder in this
Agreement, the schedules hereto, or the Documents (including any certificates) executed and
delivered pursuant to this Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary in order to make any of the
statements contained herein or therein, in light of the circumstances in which it was made, not
misleading.



5.31 Solvency.




     (a) None of the Sellers or any Seller Subsidiary is now insolvent, and none of the Sellers or
any Seller Subsidiary will be rendered insolvent by any of the transactions contemplated hereby or
in any of the Related Documents. As used in this Section 5.31, “insolvent” means that the
sum of each Person’s existing and probable Liabilities do not and would not exceed the present fair
saleable value of such Person’s assets.



     (b) Immediately after giving effect to the consummation of the transactions contemplated by
this Agreement, (i) each of the Sellers and their respective Seller Subsidiaries will be able to
pay its Liabilities as they become due in the ordinary course of business, (ii) none of the Sellers
or any Seller Subsidiary will have unreasonably small capital with which to



26









 





conduct its present or proposed business, (iii) each of the Sellers and their respective Seller
Subsidiaries will have Assets (calculated at fair market value) that exceed its Liabilities and
(iv) taking into account all pending and threatened litigation, final judgments against such Person
in actions for money damages are not reasonably anticipated to be rendered at a time when, or in
amounts such that, such Person will be unable to satisfy any such judgments promptly in accordance
with their terms (taking into account the maximum probable amount of such judgments in any such
actions and the earliest reasonable time at which such judgments might be rendered) as well as all
other obligations of each such Person. The cash available to each of the Sellers and their
respective Seller Subsidiaries, after taking into account all other anticipated uses of the cash,
will be sufficient to pay all such debts and judgments promptly in accordance with their terms.




5.32 Health Regulatory Compliance.




     (a) Each Seller described as being so certified on Schedule 5.32(a) is certified for
participation in, and party to, valid provider agreements for payment by the Federal Medicare and
all applicable state Medicaid programs (the “Government Programs”) for the provision of
assisted living, Alzheimer’s care, skilled nursing, or home health care as reflected on
Schedule 5.32(a). All Government Programs in which any Seller or any Seller Subsidiary has
participated at any time during the last three years are listed on Schedule 5.32(a). True
and complete copies of all such provider agreements shall have been furnished or made available to
Purchaser during the Due Diligence Period. Each Seller and Seller Subsidiary is in good standing
in each Government Program and any third party payor program. Except as set forth on Schedule
5.32(a), none of the Sellers or any Seller Subsidiary has any liabilities to any third party
fiscal intermediary or carrier administering the Government Programs, directly to the Government
Programs or any Governmental Entity, or to any other third party payor for the recoupment of any
amounts previously paid to a Seller (or Seller Subsidiary) or any predecessor by any such third
party fiscal intermediary, carrier, Government Program or other third party payor. There are no
concluded or pending or, to the knowledge of the Sellers, threatened investigations, audits or
other actions by any third party fiscal intermediary or carrier administering the Government
Programs or any Governmental Entity, by the Department of Health and Human Services, any state
Medicaid agency, intermediary or carrier or any third party payor, to recoup, set-off, or suspend
payments to, or demand a refund from, or terminate the provider agreements with, or asserting any
claim, demand, penalty, fine, or other sanction with respect to any of the activities, practices,
policies or claims of, a Seller or any Seller Subsidiary, and there are no grounds to anticipate
any such audit, investigation or action. Neither the Sellers nor any Seller Subsidiary has at any
time since January 1, 2001 violated any condition for participation, or any rule, regulation,
policy or standard of, any Government Program which has not, as of the date hereof, been
satisfactorily cleared or resolved to the satisfaction of the Government Program, except for cited
deficiencies the time for resolution of which has not yet passed. All Medicare Cost Reports for
all periods since January 1, 2001 have been accurately completed in all material respects and
timely filed.



     (b) Since January 1, 2001, except as set forth on Schedule 5.32(b), neither the
Sellers nor any Seller Subsidiary, nor to the knowledge of the Sellers, any other Person (i) who
has a direct or indirect ownership interest (as those terms are defined in 42 C.F.R. Section
1001.1001(a)(2)) in a Seller, or (ii) who has an ownership or control interest (as defined in 42



27









 





C.F.R. Section 420.201) in a Seller, or (iii) who is an officer, director, manager, agent (as
defined in 42 C.F.R. Section 1001.1001(a)(2)) or managing employee (as defined in 42 C.F.R. Section
420.201) of a Seller, or (iv) who has an indirect ownership interest (as that term is defined in 42
C.F.R. Section 1001.1001(a)(2)) in a Seller, has submitted any claims which are cause for civil
penalties under, or mandatory or permissive exclusion from, Medicare, Medicaid, or any other State
Health Care Program or Federal Health Care Program (as those terms are defined in 42 C.F.R. §
1001.2), or has engaged in any activities which are prohibited by 42 U.S.C. Sections
1320a-7a(1)-(7), 1320a-7b(a)(1),(2), (3), and (5), 18 U.S.C. § 1347, 1035, 31 U.S.C. § 3729-3733
(known as the “Federal Civil False Claims Act”), 42 U.S.C. § 1320a-7b (the “Federal
Criminal False Claim Act”), Federal Ethics in Patient Referrals Act, 42 U.S.C. § 1395nn (known
as the “Stark Law”), the Federal Health Care Program Anti-Kickback Statute, 42 U.S.C §
1320a-7b(b) (known as the “Anti-Kickback Statute”), or the regulations promulgated pursuant
thereto or any comparable state Laws, or which are prohibited by an private accrediting
organization from which a Seller seeks accreditation or by generally recognized standards of care
or conduct, including not having engaged in, or experienced, any of the following:





     (i) a civil monetary penalty assessed against it under 42 U.S.C. Section 1320a-7a or
any applicable state Laws;




     (ii) been excluded from participation under Medicare, Medicaid or any other State
Health Care Program or Federal Health Care Program under 42 U.S.C. Sections 1320a-7 or
1320a-7a ,or any applicable state Laws, or any third-party payor program;




     (iii) been convicted (as that term is defined in 42 C.F.R. Section 1001.2) of any of
the offenses described in 42 U.S.C. Sections 1320a-7(a) and (b)(1), (2), (3),or any
applicable state Law, that could lead to a mandatory or permissive exclusion from any State
Health Care Program or Federal Health Care Programs;




     (iv) been suspended, debarred, or excluded from any federal program under 45 C.F.R.
Part 76 or from any state program under any applicable state Laws; and




     (v) been subject to any action or investigation under the Federal Criminal False Claim
Act or the Federal Civil False Claim Act, or any applicable state false claim or fraud Laws.



     (c) Each Seller, and each Seller Subsidiary, 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 with all applicable
regulations promulgated under HIPAA and, since January 1, 2001, all applicable state privacy Laws.



5.33 Subsidiaries; Affiliate Transactions.




     Except for the Sellers, the Facility Owners and the other Persons listed on Schedule
5.33 as “Other Companies”, no other Person is, or during the past six months, has been a
Subsidiary of FCC. Except as set forth on Schedule 5.33, none of the members,
securityholders, managers, directors, officers or employees of a Seller, or any Person controlled
by a Seller, or any such member, securityholder, manager, director, officer or employee, or any
member of the



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immediate family of any of the foregoing (a) has, or during the past 12 months has had, any
interest in any property (whether real, personal, or mixed and whether tangible or intangible) used
in or pertaining to the Business; (b) owns, of record or beneficially, or has owned, an Equity
Interest or other financial or profit interest in, or is an owner, sole proprietor, member,
securityholder, partner, director, officer, employee, provider, consultant or agent of, any Person
that has or, during the past 12 months, has had (i) business dealings or a material financial
interest in any transaction with any Seller (including as a consultant, lessor, lessee, customer or
supplier of goods or services) or (ii) engaged in competition with any Seller with respect to the
Business in any market presently served by any Seller, except for stock holdings not in excess of
ten percent (10%) held solely for investment purposes in securities which are listed on a national
securities exchange or which are regularly traded in the over-the-counter market, (c) is a party to
any Contract with, or has any claim or right against, any Seller; or (d) owns, directly or
indirectly, in whole or in part, any real property, leasehold interests, tangible property or
intangible property with a fair market value of $50,000 or more which any Seller currently uses in
the Business. As used in this Section 5.33, an individual’s immediate family shall mean
such individual’s spouse, parents, children, siblings, mothers and fathers-in-law, sons and
daughters-in-law and brothers and sisters-in-law.




ARTICLE VI

REPRESENTATIONS AND WARRANTIES OF PURCHASER




     Purchaser hereby represents and warrants to the Sellers as follows:



6.1 Organization; Corporate Authority.




     (a) Purchaser is a corporation duly organized, validly existing and in good standing under the
Laws of the Commonwealth of Virginia. Purchaser has the necessary corporate power and authority to
execute, deliver and perform its obligations under this Agreement and each of the Related Documents
to which it is or will be a party and to consummate the transactions contemplated hereby and
thereby.



     (b) The execution and delivery by Purchaser of this Agreement and each Related Document to
which it is or will be a party, the performance of its obligations hereunder and thereunder and the
consummation by it of the transactions contemplated hereby and thereby have been duly and validly
authorized and approved by all necessary action on the part of Purchaser, none of which actions
have been modified or rescinded and all of which actions remain in full force and effect. This
Agreement and each Related Document to which Purchaser is or will be a party has been or upon the
execution thereof will be, duly and validly executed and delivered by a duly authorized
representative of Purchaser, and constitutes, or upon its execution and delivery by Purchaser will
constitute, a valid and binding obligation of Purchaser, enforceable against Purchaser in
accordance with its terms.



6.2 Authority; No Conflicts.




     Neither the execution, delivery or performance by Purchaser of this Agreement and each Related
Document to which it is or will be a party, nor the consummation by Purchaser of the transactions
contemplated hereby and thereby will (with or without notice or lapse of time, or



29









 





both): (i) breach or violate any provision of the certificate of incorporation, bylaws, or
other organizational documents of Purchaser or any resolution adopted by the board of directors or
a stockholder of Purchaser; (ii) breach or violate any applicable Law; (iii) conflict with, result
in a breach of or constitute a default under, or give rise to any right of termination,
cancellation, modification or acceleration of, any Contract to which Purchaser is a party or by
which any of its properties or Assets may be bound or affected; or (iv) result in the imposition or
creation of any Liability on Purchaser or Encumbrance upon or with respect to any of the
Purchaser’s Assets, or result in or permit the acceleration of any indebtedness or other obligation
of Purchaser, in each case, which would prohibit Purchaser from consummating the transactions
contemplated hereby or performing any of its obligations hereunder.




6.3 Brokers.




     Purchaser has not employed any broker or finder or incurred any Liability for any brokerage
fees, commissions or finders’ fees in connection with the transactions contemplated hereby for
which any of the Sellers will have any Liability after the Closing.



6.4 Consents.




     Except as set forth on Schedule 6.4 and except for any filings or approvals under the
Hart-Scott-Rodino Act, no consent, approval, Permit, Order or authorization of, or any exemption
from registration, declaration or filing with, any Governmental Entity or any other third Person is
required for the execution, delivery and performance by Purchaser of this Agreement or the Related
Documents to which Purchaser is or will be a party or the consummation by Purchaser of the
transactions contemplated hereby or thereby.



ARTICLE VII

COVENANTS AND AGREEMENTS




7.1 Access to Records and Properties.




     (a) At all reasonable times during the period commencing on the date of this Agreement and
expiring at 5:00 P.M. California Time on the 60th calendar day thereafter (the “Due
Diligence Period”), Purchaser, its agents, and its representatives shall be entitled, at
Purchaser’s sole cost and expense, to: (i) enter onto the Facilities, during normal business hours
and upon reasonable advance notice to the Sellers, to perform any inspections, investigations,
studies and tests of the Facilities (including, without limitation, physical, structural,
mechanical, architectural, engineering, soils, geotechnical and environmental tests that Purchaser
deems reasonable); (ii) cause environmental assessments of the Purchased Real Property to be
performed, upon reasonable advance notice to the Sellers; (iii) review all Books and Records; and
(iv) investigate such other matters as Purchaser may request, including the Assets, liabilities,
prospects and business of the Sellers relating to the Purchased Assets, the Assumed Liabilities and
the Business (including future service obligations) and any regulatory, tax, environmental and/or
other legal matters. Purchaser’s entry onto and inspections of the Purchased Real Property in
accordance with the terms hereof shall not damage the Purchased Real Property. For the sake of
clarity and not as a limitation on any diligence review by Purchasers, Sellers shall present to
Purchaser at each Facility, as promptly as practicable following the date of this Agreement, a



30









 





copy of each the following contracts applicable to one or more Facilities: each managed care
or other third party payor Contract, each Contract or grant from any other governmental payment
program (e.g., assistance for the elderly or treatment of persons with AIDs), and each Contract
with any hospital, physician, nursing facility, home health entity, durable medical equipment
provider or pharmacy or any other Person involving patient care, including physical therapy and
home care. Any entry by Purchaser onto the Purchased Real Property shall be subject to, and
conducted in accordance with, applicable Law.




     (b) Purchaser shall exercise Commercially Reasonable Efforts to minimize, and if reasonably
practicable, to avoid interference with the occupancy and use of the Facilities by the Sellers,
invitees and lessees of the Sellers, and residents of the Facilities, and to minimize, and if
reasonably practicable, to avoid the disturbance of any of the residents or the Sellers’ employees
at the Facilities.



     (c) Purchaser shall not, except as may be required by Law, initiate any communications with
any Person who at the time of such communication is a resident (or their representatives) of any of
the Facilities without the prior authorization of Steve Berlin, Don Millican, David Freshwater, Tom
Danker or the Representative, which shall not be unreasonably withheld or delayed, but which may be
withheld by the Sellers until Purchaser shall have advised the Sellers that Purchaser has not yet
discovered or become aware of a Due Diligence Termination Event.



     (d) Subject to Section 11.5, the investigation contemplated by this Section
7.1 shall not affect or otherwise diminish or obviate in any respect any of the representations
and warranties or the indemnification rights of the Purchaser Indemnified Parties contained in this
Agreement.



     (e) If Purchaser or its representatives undertake any borings or other disturbances of the
soil of the Purchased Real Property, the soil shall, to the extent reasonably practicable, be
re-compacted to substantially the same condition as it was in immediately before any such borings
or other disturbances were undertaken.



     (f) Purchaser shall from the date of this Agreement through the Due Diligence Termination Date
(as hereafter defined) carry, and shall cause its agents and representatives to carry, general
liability insurance in the amount of $1,000,000 per occurrence, which insurance shall name the
Sellers as additional insured; and upon request, Purchaser shall provide the Sellers with proof of
such insurance prior to commencing Purchaser’s physical inspections of the Facilities.



     (g) Purchaser shall keep the Facilities free and clear of any mechanic’s or materialmen’s
liens arising out of any entry onto or inspection of the Facilities. Purchaser shall indemnify,
protect, defend and hold the Sellers (and the Sellers’ member, directors, partners, shareholders,
agents, employees and representatives) harmless from and against any and all Losses (including
claims for mechanic’s liens or materialmen’s liens) caused by or arising out of any inspections,
investigations, studies or tests carried on by or on behalf of Purchaser pursuant to the terms
hereof; provided, however, this indemnity shall not extend to protect the Sellers



31









 





from any pre-existing Liabilities for matters merely discovered by Purchaser (i.e., latent
environmental contamination).




     (h) In the event that this Agreement is terminated pursuant to Section 12.1(f), (i)
Purchaser shall repair any damage to the Purchased Real Property caused by its entry thereon and
restore the same, to the extent reasonably practicable, to substantially the same condition as it
was in immediately prior to such entry and (ii) Purchaser shall deliver to the Sellers, upon
request and without charge therefor, the results and copies of any and all third party inspections,
studies, tests, and surveys made by or for Purchaser with respect to the environmental or physical
condition of the Purchased Real Property, subject to any third party restrictions on such delivery.
Such delivery shall not constitute a representation or warranty of any kind or nature regarding
the accuracy or completeness or any other aspect of such inspections, studies, tests, or surveys.
The provisions of this Section 7.1(h) shall survive the termination of this Agreement.



     (i) For purposes of this Agreement, “Due Diligence Termination Date” shall mean the
date of expiration of the Due Diligence Period.



     (j) For purposes of this Agreement, “Due Diligence Termination Event” shall mean (i)
any facts, events or circumstances that have resulted in or are reasonably expected to result in
(A) a material impairment in the value of the Purchased Assets or a material increase in the amount
of the Assumed Liabilities, (B) a material impairment in Purchaser’s ability to operate either the
Management Business at any Facility or the Home Care Business, or (C) a material adverse change in
the nature of the Assumed Liabilities, (ii) any material Liability under any Environmental Law or
any condition relating to the Purchased Real Property or any Facility, including undisclosed
locations, types or levels of mold, that could result in material Liability to Purchaser or its
Affiliates, (iii) any material Liability under any of the Laws referenced in Section 5.32
that would reasonably be expected to adversely affect Purchaser, (iv) any actuarially estimated
future service obligation Liability (determined in accordance with customary actuarial standards
used in the senior living industry to estimate future service obligation Liability) not accurately
reflected in the forecasts or projections prepared by or on behalf of Sellers and provided to
Purchaser that causes such forecasts or projections to materially overstate forecasted or projected
net income, net operating income and/or future cash flows in any fiscal years included in such
forecasts or projections, (v) a reasonable determination by Purchaser that the Sellers have
unsatisfactory relationships with their employees which adversely and materially affect the value
of the Business, or (vi) a reasonable determination by Purchaser that the Sellers have
unsatisfactory relationships with their residents which adversely and materially affect the value
of the Business; it being understood that, to the extent any such impairments, increases in amount,
adverse effects or Liabilities are quantifiable, and the aggregate amount of all such quantifiable
impairments, increases in amount, adverse effects and Liabilities equals or exceeds the Termination
Threshold (as hereafter defined), such quantifiable impairments, increases in amount, adverse
effects and/or Liabilities shall collectively be considered a Due Diligence Termination Event for
purposes of this Agreement. No facts, events or circumstances specified on a Seller Disclosure
Schedule or on a “Seller Disclosure Schedule” to the Facilities Purchase and Sale Agreement (each
hereafter called an “Item”) shall be considered in making the determination whether a Due
Diligence Termination Event exists except (i) if an Item is marked with an asterisk on a Seller
Disclosure Schedule or on a “Seller Disclosure Schedule” to the Facilities Purchase and Sale
Agreement and the description of the



32









 





Item on such schedule does not specify an impairment or Liability amount with respect to such
Item, then that Item, including the full amount of any Liability or impairment with respect
thereto, may be considered in making a determination whether a Due Diligence Termination Event
exists or (ii) whether or not an Item is marked with an asterisk on a Seller Disclosure Schedule or
on a “Seller Disclosure Schedule” to the Facilities Purchase and Sale Agreement, if the description
of the Item on such schedule specifies an impairment or Liability amount with respect to such Item,
then that Item may be considered in making a determination whether a Due Diligence Termination
Event exists, but only to the extent the impairment or Liability amount that results therefrom or
is reasonably expected to result therefrom exceeds the amount of the impairment or Liability
specified on such schedule.




     (k) For purposes of this Agreement, the “Termination Threshold” means an amount equal
to $2.5 million.



     (l) Notwithstanding any other provision of this Agreement and the delivery of any Books and
Records as part of the Purchased Assets, after the Closing Date, Purchaser shall provide to the
Sellers and any of their Affiliates (subject to applicable restrictions imposed by Law), at no
expense to Purchaser, reasonable access during normal business hours and upon reasonable notice to
(i) such records included in the Purchased Assets as are reasonably requested by the Sellers or
such Affiliates in connection with billing issues, claims, lawsuits, governmental investigations
and similar matters (other than Tax matters, which are covered in Article IX) and (ii) the
Hired Employees who continue to be employed by Purchaser at such time for the purpose of discussing
such matters, in each case for a period of six years beginning on the Closing Date. During such
six-year period, Purchaser shall retain and preserve such records; provided that,
during such period (A) the Sellers and their Affiliates may copy and retain in connection with
billing issues, claims, lawsuits, governmental investigations and similar matters any Documents
which were delivered as part of the Purchased Assets or (B) Purchaser may elect to return all such
Documents to the Sellers at Purchaser’s expense.



7.2 Conduct Pending Closing.




     (a) From and after the date hereof until the earlier of the Closing or the termination of this
Agreement pursuant to Article XII, each Seller shall and shall cause its Seller
Subsidiaries, if any, to, except for those actions expressly contemplated or required to be taken
by this Agreement or as consented to by Purchaser in writing: (i) conduct or cause to be conducted
the Business as currently conducted and only in the ordinary course consistent with past practice;
(ii) use its best efforts to (A) keep available for Purchaser the services of the present officers,
employees, consultants, agents and representatives of the Sellers and the Seller Subsidiaries, and
(B) preserve the business organization, Assets, ongoing business and goodwill and keep its
relationships with its customers, suppliers, licensors, licensees, advertisers, contractors and
others having business relations with the Sellers in accordance with past practice; (iii) comply in
all material respects with all applicable Laws affecting or relating to the Business; and (iv)
maintain in good standing all Operating Licenses and other material required Permits held by such
Seller in respect of the Business on a timely basis.



     (b) From and after the date hereof until the earlier of the Closing or the termination of this
Agreement pursuant to Article XII, none of the Sellers shall, and the Sellers shall not
cause



33









 





or permit their respective Seller Subsidiaries to, except as expressly contemplated or
required by this Agreement or as consented to by Purchaser in writing: (i) take or omit to take any
action which would result in the representations and warranties contained in this Agreement or the
Related Documents being untrue in any material respect (or in the case of representations and
warranties which are qualified as to materiality, untrue in any respect) on the Closing Date; (ii)
by action or inaction, abandon, terminate, cancel, forfeit, waive or release any of any Seller’s
material rights, in whole or in part, with respect to the Purchased Assets, or sell, lease,
license, transfer or otherwise dispose of or mortgage, pledge or otherwise suffer to exist any
Encumbrance on any of the Purchased Assets other than the Permitted Encumbrances identified on
Schedule 5.10(b) hereto; (iii) modify, amend or terminate any Contract that is included in
the Purchased Assets or waive, release or assign any material rights or claims thereunder or permit
any of the foregoing to occur; (iv) effect any merger, business combination or similar transaction
or take any other action, corporate or otherwise, which might affect any Seller’s ability to
perform in accordance with this Agreement; (v) cancel or permit the cancellation or lapse of any
insurance coverage on the Purchased Assets or the Business; (vi) take any action or enter into any
agreement with any Governmental Entity, whether or not related to any Permits; (vii) settle any
dispute or threatened dispute with any Governmental Entity or party to any Assigned Contract;
(viii) except in the ordinary course of business, grant any increase in salary or benefits of any
officer, director, manager, or employee or pay any special bonus to any Person, enter into or
modify any employment offer, employment loss, employment status or severance agreement or grant any
severance or termination pay (other than pursuant to severance arrangements or policies as in
effect on the date of this Agreement), establish, adopt, enter into, amend or terminate any Plan or
any plan, agreement, program, policy, trust, fund or other arrangement that would be a Plan if it
were in existence as of the date of this Agreement except as required by applicable Law, but only
to the extent that any such action would affect Seller Employees, or make any loan or advance to,
or enter into any Contract with, any director, manager, officer, employee or consultant of any
Seller or Seller Subsidiary; (ix); make any material Tax election or settle or compromise any
material income Tax Liability; (x) change its practices, policies or procedures with respect to the
timing of the payment of accounts payable or the collection of accounts receivable; (xi) enter into
any tolling agreement to extend the statute of limitations with respect to any Liabilities of the
Sellers; (xii) modify, amend or terminate any Plan or Other Arrangement; (xiii) take any other
action which might affect an Assumed Liability; (xiv) make any alterations or improvements to the
Fountains Resource Center, the Cedar Parke Facility or the Millbrook Gatehouse or make any capital
expenditure with respect thereto in excess of $100,000 not included in the Seller 2005 Capital
Expenditure Budget; (xv) enter into any Resident Agreements outside the ordinary course of
business; or (xvi) agree or otherwise commit to take any of the actions set forth above.




     (c) The Stockholder shall not take any action or cause any of the Sellers or any of their
respective Seller Subsidiaries to take any action inconsistent with the purposes of Sections
7.2(a) and (b) above and Section 7.2(d) below.



     (d) Notwithstanding anything in Section 5.10(a) of the Agreement, to the extent that
any Seller Subsidiary that is not a party to this Agreement has any rights with respect to any
Assets that are used in the operation of the Facilities or the conduct of the Business (other than
intercompany accounts, whether or not represented by promissory notes), the Sellers shall cause



34









 





such Assets (and any related rights) to be transferred or conveyed as Purchased Assets
pursuant to this Agreement or the Facilities Purchase and Sale Agreement.




7.3 Efforts to Consummate.




     (a) Subject to the terms and conditions of this Agreement, each party shall use Commercially
Reasonable Efforts to take or cause to be taken all actions and do or cause to be done all things
required under all applicable Laws, in order to consummate the transactions contemplated hereby and
by the Related Documents.



     (b) From and after the date hereof until the earlier of the Closing or the termination of this
Agreement pursuant to Article XII, Purchaser, the Stockholder, and each Seller shall use
Commercially Reasonable Efforts to satisfy all of the conditions precedent to its obligations set
forth in Article X hereof and to cause the Closing to occur, including making any necessary
filings and submissions with all applicable Governmental Entities and other Persons, and procuring
written consents of all Persons necessary for the assignment to Purchaser of the Purchased Assets,
including the Assigned Permits, and shall reasonably cooperate with each other in connection
therewith; provided, however, that nothing in this Section 7.3 shall
require any such party to waive any conditions precedent to its obligations pursuant to Article
X or to amend this Agreement. Without limiting the foregoing, each of the Sellers and the
Stockholder shall execute and deliver each Related Document to which it is a party. In the event
the assignment or transfer of any of the Assigned Permits (other than those Assigned Permits that
are referenced on Schedule 10.1(a)) is unlawful or is not permissible under any agreement,
or under any Law, such terms for the purposes of this Agreement with respect to any such Assigned
Permit shall be deemed to mean and require (i) the Sellers’ relinquishment of all its right, title,
benefit and interest in and to and authority under, such Assigned Permits as of the Closing and
(ii) the issuance or grant to Purchaser by the appropriate Governmental Entity of an Assigned
Permit conferring upon Purchaser, as of the Closing, all right, title, benefit, interest and
authority at least equal to that relinquished by the Sellers, as the case may be.



     (c) In the event that any Permits required to be made or obtained prior to the Closing Date
from any Governmental Entities are not made or obtained at such time, but all other conditions set
forth in Article X are satisfied (other than (i) conditions which, by their nature, are to
be satisfied on the Closing Date, and (ii) Section 10.1(a)), the parties shall cooperate in
good faith with each other and use Commercially Reasonable Efforts in formulating and implementing
mutually acceptable alternatives (if any) that permit the consummation of the transactions
contemplated by this Agreement and the Related Documents in accordance with applicable Law in the
absence of such Permits.



     (d) In the event that the provisions of Section 7.3(d) of the Facilities Purchase and
Sale Agreement become applicable, each of the parties shall use its Commercially Reasonable Efforts
to develop and negotiate in good faith mutually acceptable modifications and amendments to this
Agreement and the Related Documents and any other appropriate arrangements (if any) to give effect
to any modifications or amendments to the Facilities Purchase and Sale Agreement entered into in
accordance with Section 7.3(d) of the Facilities Purchase and Sale Agreement.



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     (e) Nothing in this Section 7.3 shall require Purchaser to dispose of any of its
Assets or to limit its freedom of action with respect to any of its businesses, or to consent to
any disposition of any Seller’s Assets or limits on Purchaser’s freedom of action with respect to
the businesses of any Seller, or commit or agree to any of the foregoing, and nothing in this
Section 7.3 shall authorize the Sellers to commit or agree to any of the foregoing in order
to obtain any consents, approvals, permits or authorizations to remove any impediments to the
transactions contemplated hereby relating to the Hart-Scott-Rodino Act or other antitrust,
competition or trade regulation Law (“Antitrust Laws”) or to obtain any Operating Licenses
or other Permits or to avoid the entry of, or to effect the dissolution of, any injunction,
temporary restraining order or other Order in any Proceeding relating to the Antitrust Laws or any
Laws relating to the Operating License or any other Permits.



     (f) Purchaser, on the one hand, and Sellers, on the other hand, shall promptly notify, consult
with and keep the other advised as to the status of the matters referred to in this Section
7.3, including with respect to any material communication from the Federal Trade Commission,
the United States Department of Justice or any other Governmental Entity regarding any of the
transactions contemplated hereby.



7.4 Exclusivity.




     From the date hereof until the earlier of the Closing Date or the termination of this
Agreement pursuant to Article XII, Sellers and the Stockholder agree not to, and agree to
cause their respective directors, officers, Affiliates, employees, principals, agents,
representatives and advisors not to, directly or indirectly solicit, negotiate, participate or
continue any discussions or enter into any agreements, arrangements or understandings, relating to
any other proposal contemplating a merger, consolidation, business combination, liquidation, sale
or transfer of Assets or other similar action involving the Sellers, the Management Business, the
Home Care Business or the Purchased Assets, other than the transactions contemplated by this
Agreement and the Facilities Purchase and Sale Agreement, and further agrees not to encourage any
third Person to initiate any action to accomplish or facilitate any of the foregoing. The parties
recognize and acknowledge that a breach of this Section 7.4 will cause irreparable and
material loss and damage to Purchaser as to which it will not have an adequate remedy at law or in
equity. Accordingly, each party acknowledges and agrees that the issuance of an injunction or other
equitable remedy, without the necessity of posting a bond, cash or otherwise and without the
necessity of actual monetary loss being proved or the establishment of the inadequacy of any remedy
at Law, is an appropriate remedy for any such breach.



7.5 Notice of Prospective Breach.




     The Sellers shall give prompt written notice to Purchaser, and Purchaser shall give prompt
written notice to the Sellers, of (i) the occurrence, or failure to occur, of any event that would
be reasonably likely to cause any of their respective representations or warranties contained in
this Agreement to be untrue or inaccurate in any material respect at any time from the date hereof
to the Closing Date (or, in the case of any representation or warranty already qualified as to
materiality, untrue or inaccurate in any respect), and (ii) any failure on their respective parts
to comply with or satisfy, in any material respect, any covenant, condition or agreement to be
complied with or satisfied by any of them under this Agreement. The delivery



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of any notice pursuant to this Section 7.5 shall not, and shall not be deemed to,
modify, amend or supplement the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement or to prevent or cure any
misrepresentation, breach of warranty or breach of covenant.




7.6 Public Announcements.




     The initial press release to be issued with respect to the transactions contemplated by this
Agreement will be in the form agreed to by the parties prior to the execution and delivery of this
Agreement. Each party agrees that, except as otherwise required by Law or by obligations pursuant
to any listing agreement with any national securities exchange, it will not issue any reports,
statements or releases, in each case pertaining to this Agreement or the transactions contemplated
hereby, including any termination thereof, without the prior consent of Purchaser, on the one hand,
and Sellers, on the other hand. Consistent with the foregoing, the Sellers and the Stockholder
acknowledge and agree that, promptly following the execution and delivery of this Agreement by the
parties, Purchaser intends to file a current report on Form 8-K disclosing the execution and
delivery of this Agreement.



7.7 Confidentiality.




     (a) Subject to Section 7.7(c), Sellers and the Stockholder shall, and shall cause
their respective Affiliates (and their respective employees and representatives) to, keep
confidential and not to disclose to any Person (other than, with appropriate undertakings of
confidentiality, their respective employees, attorneys, accountants and other advisors with a
reasonable need to know such information) all Confidential or Proprietary Information relating to
Purchaser and its Affiliates obtained by it or them from Purchaser or its Affiliates in preparation
for or in connection with this Agreement, the Related Documents and the transactions contemplated
hereby and thereby, and shall use such information only in connection with this Agreement, the
Related Documents and such transactions.



     (b) Subject to Section 7.7(c), Purchaser shall, and shall cause its Affiliates (and
its employees and representatives) to, keep confidential and not to disclose to any Person (other
than, with appropriate undertakings of confidentiality, their respective employees, attorneys,
accountants and other advisors with a reasonable need to know such information) all Confidential or
Proprietary Information relating to the Sellers obtained by it or them from the Sellers or their
Affiliates in preparation for or in connection with this Agreement, the Related Documents and the
transactions contemplated hereby and thereby, and shall use such information only in connection
with this Agreement, the Related Documents and such transactions.



     (c) The obligations imposed by Sections 7.7(a) and 7.7(b) shall not apply, or
shall cease to apply to any Confidential or Proprietary Information when, and to the extent that,
such Confidential or Proprietary Information: (i) is required to be disclosed by Law or by
applicable legal process; (ii) is disclosed by Purchaser after the date of this Agreement to
vendors, regulators or other parties related to a Seller as part of an overall effort to facilitate
the transactions contemplated hereby and to better enable Purchaser to operate the Management
Business and the Home Care Business after the Closing; provided, however, that it is understood



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and agreed that if the transactions contemplated hereby are not consummated, Purchaser shall
no longer be permitted to disclose such information pursuant to this Section 7.7(c)(ii);
(iii) is necessary to be disclosed by Purchaser or its Affiliates to lenders and other financing
sources and their representatives as a means to facilitate the financing related to the
transactions contemplated hereby or in connection with the Facility Sale Transaction; (iv) is
necessary or advisable to be disclosed in order to comply with the Hart-Scott Rodino Act or any
other applicable Law, national listing exchange, financial accounting requirement or any
Governmental Entity requests for additional information or documents; or (v) the party to this
Agreement to which the Confidential or Proprietary Information relates expressly consents thereto
in writing.




     (d) If the transactions contemplated by this Agreement are not consummated, then upon the
request of either Purchaser or the Sellers, the other party shall, and shall cause its Affiliates
to, promptly return any written materials they have received from the requesting party and its
Affiliates in connection with this Agreement or the transactions contemplated hereby or thereby,
without retaining any copies, summaries or extracts thereof.



     (e) Without the prior written consent of Purchaser, the Sellers and the Stockholder shall
treat all confidential or proprietary information relating to the Management Business, the Home
Care Business or the Purchased Assets as confidential, preserve the confidentiality thereof, not
duplicate or use such information and instruct their respective employees and representatives who
have had access to such information to keep confidential and, from and after the Closing, not use
any such information for their own purposes or for the benefit of any Person except Purchaser or
any of its Affiliates.



7.8 Non-Compete Agreement.




     (a) Except as otherwise set forth on Schedule 7.20 of the Facilities Purchase and Sale
Agreement, as a necessary inducement for Purchaser to enter into this Agreement and consummate the
transactions contemplated hereby, the Sellers and the Stockholder agree that for a period of five
years commencing on the Closing Date (the “Noncompete Period”), the Sellers, the
Stockholder, David Freshwater and Mitch Pozez shall not, and shall not cause or permit any of the
Seller Subsidiaries or any other entity under any of their control to (each, a “Covered
Person”), engage directly or indirectly, in any capacity, in any activities that Compete with
the business of developing, owning, operating, leasing or managing a Senior Living Facility or
providing home care services within ten (10) miles of any Facility. For purposes of this
provision, “Compete” means (i) to, directly or indirectly, conduct, facilitate, participate
or engage in, or bid for or otherwise pursue a business, whether as a principal, sole proprietor,
partner, stockholder, or agent of, or consultant to or manager for, any Person or in any other
capacity, or (ii) to, directly or indirectly, have any ownership interest in any Person or business
which conducts, facilitates, participates or engages in, or bids for or otherwise pursues a
business, whether as a principal, sole proprietor, partner, stockholder, or agent of, or consultant
to or manager for, any Person or in any other capacity. Notwithstanding the foregoing, this
Section 7.8(a) shall not prohibit the following: (x) any activities of any Covered Person
at any of the Senior Living Facilities located within ten (10) miles of any Facility, as identified
on Schedule 7.8(a), (y) the ownership by a Covered Person of up to ten percent (10%) of the
outstanding Equity Interests of any Person, so long as such Covered Person does not control such



38









 





Person, or, (z) with respect to David Freshwater only, except as otherwise subsequently agreed
upon by Purchaser and Mr. Freshwater in a separate consulting, employment or other agreement, the
activities set forth on Schedule 7.8(a).




     (b) Each of the Sellers and the Stockholder agrees not to solicit, divert or accept business
from any customer, supplier, distributor or manufacturer of or to Purchaser or any Affiliate of
Purchaser to the detriment of Purchaser or any Affiliate of Purchaser, or otherwise interfere with
the relationship between Purchaser or any Affiliate of Purchaser and any customer, supplier,
distributor or manufacturer of or to Purchaser or any Affiliate of Purchaser to the detriment of
Purchaser or any Affiliate of Purchaser.



     (c) The parties recognize and acknowledge that a breach of this Section 7.8 by Sellers
or the Stockholder or any of their respective Affiliates will cause irreparable and material loss
and damage to Purchaser and hereby consent to the granting by any court of competent jurisdiction
of an injunction or other equitable relief, without the necessity of posting a bond, cash or
otherwise, and without the necessity of actual monetary loss being proved or Purchaser’s
establishing the inadequacy of any remedy at Law, and order that the breach or threatened breach of
such provisions may be effectively restrained.



7.9 Use of Name; Other Intellectual Property Rights.




     (a) As soon as reasonably practicable (and, in any event, within 10 days after the Closing),
each of the Sellers and D. Barnes shall, and shall cause any Seller Subsidiary or, in the case of
D. Barnes, any entity in which he holds Equity Interests (including Fountains Retirement
Communities of Arizona, Inc. (“FRC-AZ”) and Fountains Home Care of Missouri, Inc.
(“FHC-MO”) to, cease to use any written materials, including labels, packing materials,
letterhead, advertising materials and forms, in each case which include the words and phrases “The
Fountains,” “We’re Creating Extraordinary Communities Where People Choose to Be,” “The Best Move of
Your Life” and “Renaissance Community”. Each of the Sellers and D. Barnes acknowledges and agrees,
on behalf of itself and any Seller Subsidiary and, in the case of D. Barnes, any entity in which he
holds Equity Interests (including FRC-AZ and FHC-MO), that after the Closing, neither it nor any
Seller Subsidiary nor any such other entity shall have the right to use the words and phrases “The
Fountains,” “We’re Creating Extraordinary Communities Where People Choose to Be,” “The Best Move of
Your Life” and “Renaissance Community” in the conduct of its business without the prior written
consent of Purchaser.



     (b) As soon as reasonably practicable (and, in any event, within 30 days after the Closing),
each of the Sellers shall change, and shall cause any Seller Subsidiaries to change, and D. Barnes
shall cause FRC-AZ, FHC-MO and any other entity in which he holds Equity Interests to change, as
applicable, its corporate, limited liability company, limited partnership or other names, as the
case may be, to a name that does not include the words “The Fountains”. Immediately after such
name change, the Sellers and D. Barnes will deliver evidence thereof to Purchaser.



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7.10 New Management Agreements.




     Prior to the Closing, each of the Sellers shall cause each of the Existing Management
agreements listed on Schedule 7.10 to be replaced with the New Management Agreements in the
form or forms to be provided by Purchaser to Sellers prior to the Closing hereunder, consistent
with Schedule 7.20 of the Facilities Purchase and Sale Agreement. The New Management
Agreements shall become effective only subject to and upon the consummation of the Closing.
Promptly following the execution and delivery of the New Management Agreements by the parties
thereto, and in any event at or prior to the Closing, the Sellers shall provide fully-executed
copies of the New Management Agreements to Purchaser.



7.11 Bulk Sales.




     Purchaser and the Sellers hereby waive compliance with the bulk transfer provisions of the
Uniform Commercial Code (or any similar Law) (the “Bulk Sales Laws”) if and to the extent
applicable in connection with the sale of the Purchased Assets to Purchaser and other transactions
contemplated by this Agreement.



7.12 Retention of Liabilities.




     Any Liability of a Seller or its Affiliates other than the Assumed Liabilities shall, as
between them, on the one hand, and Purchaser and its Affiliates, on the other hand, continue to be
an obligation solely of, and shall solely be legally and financially borne by, Sellers and their
respective Affiliates. In furtherance (and not in limitation) of the foregoing, Purchaser is not,
and shall not be treated or viewed as, a successor employer or legal successor of any of the
Sellers as a matter of Law and each of the Sellers shall jointly and severally indemnify and hold
Purchaser harmless from and against any Losses arising as a result of any such treatment in
accordance with the provisions of Article XI.



7.13 Assurances Company.




     Contemporaneously with the Closing, the Stockholder shall organize and capitalize, or cause to
be organized and capitalized, an Oklahoma limited liability company (the “Assurances
Company”), having an operating agreement and other organizational documents reasonably
acceptable to Purchaser as contemplated on Schedule 7.13 and the capitalization described
on Schedule 7.13. As of the Closing, the Assurances Company will guarantee the timely
payment and performance of all obligations of the Seller and the other Seller Indemnifying Persons
pursuant to Article XI and other applicable provisions of this Agreement in accordance with
this Section 7.13 and Schedule 7.13. The obligations of the Assurances Company
hereunder and under Schedule 7.13 will be for the benefit of the Purchaser and the other
Purchaser Indemnified Persons and will not limit in any way the obligations of the Sellers and the
other Seller Indemnifying Persons or the rights and remedies of the Purchaser and the other
Purchaser Indemnified Persons in accordance with this Agreement. As contemplated on Schedule
7.13, the Assurances Company shall execute and deliver this Agreement solely for the purposes
of acknowledging and agreeing to this Section 7.13 (including Schedule 7.13) and
guaranteeing the obligations of Sellers and the other Seller Indemnifying Persons pursuant to
Article XI and other applicable provisions of this Agreement and the Facilities Purchase
and Sale Agreement.



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7.14 Accounts Receivable Adjustment.




     (a) Purchaser and the Sellers acknowledge and agree that all uncollected Accounts Receivable
of the Sellers arising out of services rendered, care provided, goods sold, or property leased by
the Sellers to or for the benefit of any residents of the Facilities prior to the Closing Date
shall be included in the Purchased Assets to be transferred to Purchaser at the Closing
(collectively, the “Purchased Accounts Receivable”).



     (b) The Sellers shall prepare and deliver to Purchaser two Business Days prior to the Closing,
a schedule of all Accounts Receivable of the Sellers expected to be included in the Purchased
Assets (including the aging of each such Accounts Receivable and such other information as
Purchaser shall reasonably request) which have been invoiced (the “Pre-Closing Accounts
Receivable Schedule”). The Cash Payment to be paid at Closing shall be increased by an amount
equal to the aggregate of (i) 72.5% of the invoice amount of all Accounts Receivable included on
the Pre-Closing Accounts Receivable Schedule that have been outstanding not more than 90 days as of
the Closing Date; and (ii) 0% of the invoice amount of all Accounts Receivable included on the
Pre-Closing Accounts Receivable Schedule that have been outstanding more than 90 days as of the
Closing Date (the “Estimated Accounts Receivable Adjustment Amount”).




     (c) As promptly as practicable, but in any event no later than 60 days after the Closing Date,
Purchaser shall prepare and deliver to the Representative a final schedule of all Purchased
Accounts Receivable as of the Closing Date (including the aging of each such Accounts Receivable
and such other information as Purchaser shall reasonably request) (the “Final Accounts
Receivable Schedule”). There shall be a post-Closing reconciliation of the Estimated Accounts
Receivable Adjustment Amount to the amount equal to the aggregate of (i) 72.5% of the invoice
amount of all Purchased Accounts Receivable included on the Final Accounts Receivable Schedule that
have been outstanding not more than 90 days as of the Closing Date; and (ii) 0% of the invoice
amount of all Purchased Accounts Receivable included on the Final Accounts Receivable Schedule that
have been outstanding more than 90 days as of the Closing Date (the “Final Accounts Receivable
Adjustment Amount”). Any amount by which the Final Accounts Receivable Adjustment Amount
exceeds the Estimated Accounts Receivable Adjustment Amount shall be promptly forwarded to the
Representative (as agent for the Sellers) by Purchaser in a lump sum payment. Any amount by which
the Estimated Accounts Receivable Adjustment Amount exceeds the Final Accounts Receivable
Adjustment Amount shall be promptly forwarded to Purchaser by the Sellers in a lump sum payment.
Subject to any applicable privileges (including attorney-client privilege), (i) each of the Sellers
agrees that Purchaser shall have the right to audit the applicable records of the Sellers in
connection with any such post-Closing reconciliation, and (ii) Purchaser agrees that the Sellers
shall have the right to audit the applicable records of Purchaser in connection with any such
post-Closing reconciliation.



     (d) In the event that any funds are paid to Purchaser on account of any Purchased Accounts
Receivable, and such payment is accompanied by an invoice or other Document specifying that such
payment is being made in respect of Purchased Accounts Receivable that were outstanding more than
90 days as of the Closing Date, or other documentation clearly establishes that such payment
relates to Purchased Accounts Receivable that were outstanding



41









 





more than 90 days as of the Closing Date or Purchaser otherwise determines in good faith that
such payment relates to Purchased Accounts Receivable that were outstanding more than 90 days as of
the Closing Date, Purchaser shall promptly remit such funds to the Representative (as agent for the
Sellers). In the event any funds are paid to the Sellers (or the Representative) on account of any
Purchased Accounts Receivable or any Accounts Receivable arising after the Closing Date and not
directly to Purchaser, and such payment is not accompanied by an invoice or other Document
specifying that such payment is being made in respect of Purchased Accounts Receivable that were
outstanding more than 90 days as of the Closing Date or the Sellers reasonably determine that such
payment relates to a Purchased Accounts Receivable outstanding for not more than 90 days as of the
Closing Date, the Sellers (or the Representative) shall promptly remit such funds to Purchaser.




7.15 Payment of Retained Liabilities and Accounts Payable.




     The Sellers shall pay, discharge or otherwise satisfy in full all Liabilities of the Sellers
(other than the Assumed Liabilities) and Accounts Payable on or prior to the Closing Date or as
soon as practicable after the Closing Date (i.e., at such time as a Liability becomes known),
except for such Liabilities or Accounts Payable which the Sellers in good faith dispute.
Notwithstanding anything to the contrary in this Agreement, immediately following the Closing, the
Sellers shall repay and discharge in full all of the Liabilities owed to Kaiser Capital Limited
Partnership (previously owed to, and described as the debt to Kaiser-Francis Oil Company and/or
Kaiser Energy Ltd.) and its Affiliates referenced or included in the Seller Financial Statements or
on Schedule 5.7.



7.16 Restrictions on FCC Dissolution and Seller Distributions.




     FCC shall not liquidate or dissolve and none of the Sellers shall make any distribution of the
proceeds received pursuant to this Agreement until the Sellers’ payment of, or until the Sellers
make adequate provision for the payment of, their respective obligations pursuant to Section
7.15 and Section 9.2(b).



7.17 Fountains Foundation.




     Sellers and the Stockholder shall use their Commercially Reasonable Efforts to cause any
Persons affiliated with Sellers serving on the board of directors, board of trustees or other
governing body or as an officer or member of Fountains Foundation to be replaced by Persons
designated by Purchaser, in its sole discretion, effective as of the Closing.



7.18 Audited Financial Statements.




     Upon Purchaser’s request, Sellers shall timely prepare and furnish to Purchaser (at Sellers’
expense, except to the extent that such financial statements requested exceed the cost and scope of
the type of financial statements prepared by the Sellers in accordance with Sellers’ practices
within the past 18 months, giving effect to any Asset transfers occurring within such period)
copies of (a) audited consolidated financial statements of the Sellers and audited unconsolidated
financial statements of any Seller for any annual period ending on or before the Closing Date and,
(b) unaudited consolidated financial statements of the Sellers and unaudited unconsolidated
financial statements of any Seller for any interim period ending on or before the



42









 





Closing Date, to the extent such financial statements are required to be filed by Purchaser
pursuant to the rules and regulations of the Securities and Exchange Commission. Sellers shall
prepare and furnish to Purchaser such financial statements so as to permit Purchaser to timely file
them with the Securities and Exchange Commission as required under applicable rules and regulations
of the Securities and Exchange Commission.




7.19 Fiscal Year 2005 Capital Expenditures.




     Sellers shall and shall cause their respective Seller Subsidiaries to use Commercially
Reasonable Efforts to complete, on or prior to June 30, 2005, all of the capital expenditures
budgeted for fiscal year 2005 as set forth in the 2005 Capital Expenditure Budget in accordance
with the 2005 Capital Expenditure Budget and consistent with the applicable Seller’s historical
budget approval process. For the sake of clarity, the Sellers shall not be deemed to have breached
this Section 7.19 if (i) Purchaser approves in writing a determination by the Sellers not
to pursue a particular budgeted capital expenditure, or (ii) the Sellers, in good faith and
consistent with historic practice, determine for valid business reasons, to complete an unbudgeted
capital expenditure project in lieu of completing a particular budgeted capital expenditure as long
as the substitution of capital expenditure projects does not result in a net reduction in the
aggregate amount reasonably expected to be expended by Purchaser on fiscal year 2005 capital
expenditure projects. Notwithstanding the foregoing, the Sellers agree to continue without
interruption the ongoing capital expenditures at the Washington House Facility and the Crystal Lake
Facility.



7.20 La Cholla Bonds.




     On or prior to the Closing Date, FCC shall use its Commercially Reasonable Efforts (i) to
cause those certain Variable Rate Demand Multifamily Housing Revenue Refunding Bonds (The Fountains
at La Cholla Apartments Project) Series 1996, issued by The Industrial Development Authority of the
County of Pima, in the outstanding principal amount of $12,705,000 (the “La Cholla Bonds”)
to be redeemed, paid, or otherwise satisfied in full, and (ii) to cause any related Liabilities of
FCC or any of its Affiliates (including Fountains La Cholla Limited Partnership) relating to the La
Cholla Bonds to have been paid, discharged or otherwise satisfied in full, including causing each
of the agreements set forth on Schedule 7.20 and any other agreements to which FCC or any
of its Affiliates is a party relating to the La Cholla Bonds (collectively, the “La Cholla
Documents”) to be terminated, effective prior to the Closing.



7.21 Millbrook Gatehouse.




     The parties acknowledge and agree that, (i) if the sale of the Millbrook Gatehouse is
consummated before the Closing, the Millbrook Gatehouse shall not be included as Purchased Real
Property under this Agreement, and (ii) if the sale of the Millbrook Gatehouse is not consummated
before the Closing, the Millbrook Gatehouse shall be included as Purchased Real Property under this
Agreement. If the Sellers renegotiate any of the terms of the Contract of Sale dated August 17,
2004 with Timothy J. Tice (the “Millbrook Contract of Sale”), or enter into negotiations
with another potential purchaser of the Millbrook Gatehouse for the sale of the Millbrook
Gatehouse, the Sellers agree to involve Purchaser in such negotiations for the purposes of
providing Purchaser the opportunity to obtain reasonable restrictions (in light of the



43









 





proximity and location of the Millbrook Gatehouse to the Millbrook Facility) with respect to
the ownership, operation and use of the Millbrook Gatehouse.




7.22 Letter of Credit Arrangements.




     The parties agree to implement the arrangements described on Schedule 7.22 with
respect to the letter of credit issued by JP Morgan Chase Bank relating to the $25 million original
principal amount of Variable Rate Demand Senior Redevelopment Revenue Bonds (Harvest Village
Project) Series 1999A issued by the Camden County Improvement Authority (the “Letter of Credit
Arrangements”). The parties shall cooperate in good faith with each other and use Commercially
Reasonable Efforts to complete the definitive documentation with respect to the Letter of Credit
Arrangements and to otherwise effectuate the Letter of Credit Arrangements substantially in
accordance with the terms set forth on Schedule 7.22 at or prior to the Closing.



ARTICLE VIII

EMPLOYEE MATTERS




8.1 Employees.




     (a) Until Closing, the Sellers shall use their best efforts to retain the services of the
Seller Employees. The Sellers shall not, and shall cause any Seller Subsidiary not to, at any time
within the 90-day period prior to the Closing Date, provide notice of or otherwise effectuate a
“Plant Closing” or “Mass Layoff”, as those terms are defined in the WARN Act or any similar Law,
affecting in whole or in part any facility, site of employment, operating unit or employee of the
Sellers or any Seller Subsidiary, without notifying Purchaser in advance and without complying with
the notice requirements and other provisions of the WARN Act and any similar Law.



     (b) Purchaser or one or more of its Affiliates shall, in accordance with this Section
8.1(b), offer employment to all of the Seller Employees, subject to and as of the Closing. The
terms of such offers of employment shall be with comparable positions and salaries consistent with
Purchaser’s management structure. Those Community Employees who accept such offers of employment
shall be new employees of Purchaser or its Affiliates, effective from and after the Closing, and
are hereafter referred to as the “Hired Community Employees”. Those Corporate and Regional
Employees who accept such offers of employment shall be new employees of Purchaser or its
Affiliates, effective from and after the Closing, and are hereafter referred to as the “Hired
Corporate and Regional Employees” (and together with the Hired Community Employees, the
“Hired Employees”). As soon as practicable following the acceptance or rejection of all
offers of employment by Purchaser or its Affiliates, but in any event not later than five Business
Days prior to the Closing, Purchaser shall advise Sellers of the names of the Hired Employees as of
such date. For purposes of this Agreement and the Related Documents only, any entity that is the
licensee of the Facilities known as Millbrook and RiverVue, located in New York, as contemplated on
Schedule 10.1(a), shall be deemed to be an Affiliate of Purchaser.



     (c) The Sellers shall, at the Closing, certify to Purchaser the total amount of the Sellers’
accrued expenses for holiday, vacation or other employee benefits, whether similar or dissimilar,
which have been earned by and are vested in the Hired Employees as of the Closing



44









 





Date (the “Sellers’ Benefit Payout Obligations”). The Sellers shall pay out the
Sellers’ Benefit Payout Obligations to the Hired Employees as promptly as practicable following the
Closing. In addition, the Sellers shall be responsible for paying any and all wages, benefits and
other amounts, including amounts due upon termination, owing to all employees of the Sellers
through the date immediately preceding the Closing Date (collectively, the “Sellers’ Employee
Obligations”). The Sellers shall jointly and severally indemnify and hold Purchaser harmless
from any Losses (including any tort or contract claims) arising out of any Sellers’ Benefit Payout
Obligations or Sellers’ Employee Obligations in accordance with the provisions of Article
XI.




     (d) Immediately prior to the Closing, all Seller Employees who are not Hired Employees, shall
be terminated by the Sellers on such terms and conditions as the Sellers, in their sole discretion,
shall deem appropriate. Purchaser and its Affiliates shall have no obligations with respect to any
employees of the Sellers or the Business who are not Hired Employees, including obligations with
respect to employment, termination of employment, severance, and unemployment benefits. The
Sellers shall jointly and severally indemnify, defend and hold harmless Purchaser and its
Affiliates from and against all Losses whatsoever with respect to past or present employees or
retirees of each Seller and any Affiliate of Sellers who are not Hired Employees, including Losses
arising by reason of the non-transfer of such employees contemplated by this Section
8.1(d). The parties agree that the employment relationship between the Hired Employees and
Purchaser or one of its Affiliates shall be a new employment relationship and that Purchaser is not
intended to be, and is not, a successor to any Seller in any legal sense with respect to the
employment relationships existing prior to the Closing between such Hired Employees and such
Seller. Purchaser and the Sellers shall cooperate with each other in connection with actions to be
taken with respect to the Hired Employees, including, consulting with each other with respect to
all communications to Hired Employees during the period from the date of the execution and delivery
of this Agreement until the Closing. In addition, in connection with this Section 8.1,
Sellers and Purchaser shall cooperate in the timely preparation and filing of all documentation
required to be filed with the Internal Revenue Service, the United States Department of Labor and
any other Governmental Entity.



     (e) All Hired Employees shall be employed by Purchaser strictly on an at-will basis; that is,
at all times during their employment, Hired Employees shall have the right to terminate their
employment and Purchaser or its Affiliates shall have the right to terminate their employment, with
or without notice, for any reason or for no reason at all. Nothing herein shall prevent Purchaser
or its Affiliates at any time after the Closing Date from terminating, reassigning, promoting,
demoting or taking any other employment action with respect to any employee or changing adversely
or favorably the titles, powers, duties, responsibilities, functions, locations, salaries, other
compensation, or the terms and conditions of employment of individual officers and employees of
Purchaser or any of its Affiliates. Nothing contained herein shall restrict in any way the right
of Purchaser or any of its Affiliates after the Closing Date to establish, amend or terminate any
employee benefit plan, arrangement, program, practice, policy or procedure, and Purchaser or any of
its Affiliates shall be free at all times to modify, add or eliminate any employee benefit plan,
arrangement, program, policy or procedure. Notwithstanding the foregoing, Purchaser (or any
Affiliate of Purchaser) shall pay to each Hired Corporate and Regional Employee (in accordance with
Purchaser’s or its Affiliate’s normal payroll practices or as a lump sum, as Purchaser or such
Affiliate may determine), other than any



45









 





Hired Corporate and Regional Employee who enters into a separate employment or consulting
agreement with Purchaser or one of its Affiliates, an amount equal to the salary of such Hired
Corporate and Regional Employee set forth opposite such Hired Corporate and Regional Employee’s
name on Schedule 5.23(a)(i) through the earlier of (i) December 31, 2005 or (ii) such Hired
Corporate and Regional Employee’s death, voluntary resignation from employment or termination of
employment for Cause (as defined below) by Purchaser or any of its Affiliates. Nothing herein
expressed or implied shall confer upon any Person (other than any of the Corporate and Regional
Employees who become Hired Employees, and only to the extent set forth in the immediately preceding
sentence) any right to employment by Purchaser or any of its Affiliates for any period or under any
particular terms and conditions or any third party beneficiary rights hereunder. For purposes of
this Section 8.1(e), “Cause” shall mean: (i) an employee’s conviction for (or pleading nolo
contendere to) (A) any felony or (B) a misdemeanor involving moral turpitude; (ii) willful
misconduct by the employee with regard to the Business, including dishonesty, misappropriation or
fraud; or (iii) the willful and continuing failure or habitual neglect by the employee to perform
the employee’s duties.




     (f) Except to the extent set forth on Schedule 1.1 or 2.1, Purchaser shall not assume
any Plans or Other Arrangements of the Sellers or any Seller Subsidiary or other Affiliate, any
Liabilities thereunder, or any related trust agreements, insurance contracts, or other agreements
made in connection with the Sellers’ or any Seller Subsidiary’s or other Affiliate’s Plans and
Other Arrangements.



     (g) Neither Purchaser nor any of its Affiliates or any of the benefit plans of Purchaser shall
have any Liabilities or responsibility for any benefit claim or Liability incurred by or pertaining
to any Seller Employee, former employee of the Sellers or any Seller Subsidiary or other Affiliate,
or retiree of Sellers or any Seller Subsidiary or other Affiliate prior to the Closing, except to
the extent expressly provided herein.



     (h) The Sellers and each Seller Subsidiary agree to furnish Purchaser and its Affiliates with
such information concerning employees, employee payroll and employee benefit plans, subject to
confidentiality and privacy considerations, as is necessary and appropriate to effect the
transactions contemplated hereby.



     (i) Prior to the Closing Date, the Sellers shall take all actions necessary and appropriate to
terminate any 401(k) Plans maintained by the Sellers (the “Sellers’ 401(k) Plans”),
effective as of the Closing Date. The Sellers shall take all actions necessary in connection with
the termination of the Sellers’ 401(k) Plans to ensure that such termination does not result in the
disqualification of the Sellers’ 401(k) Plans or the loss of tax-exempt status for any trust
related to the Sellers’ 401(k) Plans. Immediately prior to such termination, the Sellers shall
make all necessary payments to fund the contributions: (i) necessary or required to maintain the
tax qualified status of Sellers’ 401(k) Plans and (ii) for elective deferrals made pursuant to the
Sellers’ 401(k) Plans for the period prior to termination.



     (j) Purchaser shall assume the fully-insured welfare plans sponsored by Sellers listed on
Schedule 5.24(g), effective as of the Closing Date. To the extent Hired Employees become
participants in the employee benefit plans sponsored or maintained by Purchaser immediately prior
to the Closing Date, subject to the terms of such plans, and, except as set forth on Schedule




46









 





8.1(j), each such Hired Employee shall receive credit for all service with Sellers for
purposes of eligibility and vesting under such plans (and in the case of vacation plans, for the
purpose of determining the Hired Employee’s annual entitlement to vacation), except where such
credit would result in the duplication of benefits.




8.2 Non-Solicitation of Hired Employees.




     Except as set forth on Schedule 7.20 of the Facilities Purchase and Sale Agreement,
without the prior written consent of Purchaser, no Seller or any of its respective Affiliates
(including the Stockholder) shall, for a period of two years after the Closing Date, hire or
attempt to hire or solicit, induce or attempt to solicit or induce any Hired Employee to perform
work or services for any individual or entity other than Purchaser or any Subsidiary or Affiliate
of Purchaser. The foregoing obligations of Sellers and their respective Affiliates shall not apply
to employees who are terminated or given notice thereof by Purchaser or any of its Affiliates, as
the case may be.



ARTICLE IX

TAX COOPERATION; ALLOCATION OF TAXES




9.1 Tax Definitions.




     The following terms, as used herein, have the following meanings:



     “Apportioned Obligations” means all real property Taxes, personal property Taxes and
similar ad valorem obligations levied with respect to the Purchased Assets for a taxable period
which includes (but does not end on) the Closing Date.



     “Pre-Closing Tax Period” means (i) any Tax period ending on or before the Closing Date
and (ii) with respect to a Tax period that commences before but ends after the Closing Date, the
portion of such period up to and including the Closing Date.



     “Post-Closing Tax Period” means any Tax period after the Closing Date.



     “Transfer Taxes” means all excise, sales, use, value added, registration stamp,
recording, documentary, conveyancing, transfer, and similar Taxes, levies, charges and fees.



9.2 Tax Cooperation; Allocation of Taxes.




     (a) Purchaser and the Sellers agree to furnish or cause to be furnished to each other, upon
request, as promptly as practicable, such information and assistance relating to the Management
Business and the Home Care Business and the Purchased Assets and the Assumed Liabilities (including
access to books and records) as is reasonably necessary for the filing of all Tax Returns, the
making of an election relating to Taxes, the preparation of any audit by any Taxing Authority and
the prosecution or defense of any Proceeding relating to any Tax. Purchaser and the Sellers shall
retain all books and records with respect to Taxes for the Pre-Closing Tax Period pertaining to the
Purchased Assets and the Assumed Liabilities for a period of at least six (6) years following the
Closing Date. At the end of such period, each party shall



47









 





provide the other with at least 10 days prior written notice before destroying any such books
and records, during which period the party receiving such notice can elect to take possession, at
its own expense, of such books and records. Purchaser and the Sellers shall cooperate with each
other in the conduct of any audit or other Proceeding relating to the Taxes involving the Purchased
Assets or the Assumed Liabilities or the Management Business or Home Care Business.




     (b) All Apportioned Obligations shall be apportioned between Purchaser and the Sellers based
on the number of days of such taxable period included in the Pre-Closing Tax Period and the number
of days of such Post-Closing Tax Period. Each of the Sellers shall be liable for the proportionate
amount of such Taxes that is attributable to the Pre-Closing Tax Period, and Purchaser shall be
liable for the proportionate amount of such Taxes that is attributable to the Post-Closing Tax
Period. Upon receipt of any bill for real or personal property Taxes relating to the Purchased
Assets, the party that receives such bill shall present a statement to the other party setting
forth the amount of such Tax for which such other party is responsible, together with such
supporting evidence as is reasonably necessary to calculate the pro-rata amount. The pro-rata
amount shall be paid by the party owing it to the other party within 10 days after delivery of such
statement. In the event that either any Seller or Purchaser shall make any payment for which the
other party is responsible, such Purchaser or Seller shall be entitled to be reimbursed for the
amount of such payment and the other party shall make such reimbursement promptly but in no event
later than 10 days after the presentation of a statement setting forth the amount of reimbursement
to which the presenting party is entitled, together with such supporting evidence as is reasonably
necessary to calculate the amount of such reimbursement.



     (c) All Transfer Taxes incurred solely in connection with the sale of the Purchased Assets and
the assumption of the Assumed Liabilities at the Closing pursuant to this Agreement shall be borne
by Purchaser, on the one hand, and Sellers, on the other hand, in accordance with applicable local
custom for the jurisdictions in which the Purchased Assets are located. Purchaser and the Sellers
shall cooperate in providing each other with any appropriate resale exemption certifications and
other similar documentation. The party that is required by applicable Law to make the filings,
reports or returns with respect to any applicable Transfer Taxes shall do so, and the other Party
shall cooperate with respect thereto as necessary.



     (d) Purchaser and the Sellers agree to utilize, or cause their respective Affiliates to
utilize, the alternative procedure set forth in Revenue Procedure 2004-53 with respect to wage
reporting.



ARTICLE X

CLOSING CONDITIONS




10.1 Conditions to Each Party’s Obligations to Consummate the Closing.




     The respective obligations of each party to consummate the transactions contemplated by this
Agreement are subject to the satisfaction prior to or at the Closing of the following conditions
unless waived (to the extent such conditions can be waived) by the Sellers and Purchaser:



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     (a) The authorizations, consents, Permits, Orders or approvals of, or declarations or filings
with, or expiration of waiting periods of any Governmental Entity listed on Schedule
10.1(a) (each, a “Material Regulatory Approval”) shall have been obtained or made;
provided however that if, as contemplated in Section 7.3(c), the parties implement an
acceptable alternative that permits the consummation of the transactions contemplated by this
Agreement and the Related Documents in accordance with applicable Law in the absence of any such
Material Regulatory Approval, this condition shall be deemed satisfied to the extent of such
Material Regulatory Approval.



     (b) No temporary restraining order, preliminary or permanent injunction or other Order issued
by any Governmental Entity of competent jurisdiction nor other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby shall be in effect.



     (c) No Law shall have been enacted, promulgated or issued or deemed applicable to the
transactions contemplated by this Agreement or the Related Documents by any Governmental Entity
that would, in the reasonable judgment of Purchaser or the Sellers, (i) make the consummation of
the transactions contemplated hereby or thereby illegal or substantially delay the consummation of
any material aspect of the transactions contemplated hereby or thereby, (ii) render any party
unable to consummate the transactions contemplated hereby or thereby in any material respect or
(iii) adversely and materially affect the right of Purchaser to own the Purchased Assets, operate
the Management Business and/or operate the Home Care Business.



     (d) The Closing of the Facility Sale Transaction under the Facilities Purchase and Sale
Agreement shall have occurred.



     (e) The parties shall have executed and delivered the definitive documentation and taken such
other actions necessary to effectuate the Letter of Credit Arrangements substantially in accordance
with the terms set forth on Schedule 7.22.



10.2 Conditions to Obligations of Purchaser.




     The obligations of Purchaser to consummate the transactions contemplated by this Agreement are
subject to the satisfaction prior to or at the Closing of the following conditions unless waived
(to the extent such conditions can be waived) by Purchaser:



     (a) All of the representations and warranties made by the Sellers and the Stockholder in this
Agreement (i) shall be true and correct in all material respects (except those representations and
warranties which are qualified as to materiality, which shall be true and correct in all respects)
as of the date hereof and (ii) shall be repeated and shall be true and correct in all material
respects (except those representations and warranties which are qualified as to materiality, which
shall be true and correct in all respects) as of the Closing Date (except those representations and
warranties which are made expressly only as of another date) with the same effect as if such
representations and warranties had been made at and as of the Closing Date.



     (b) Each of the Sellers and the Stockholder shall have performed or complied in all material
respects with all obligations and covenants required to have been performed or



49









 





complied with respectively by them under this Agreement and the Related Documents prior to or
as of the Closing.




     (c) Purchaser shall have received an opinion dated the Closing Date from counsel for the
Sellers, in substantially the form set forth in Exhibit 10.2(c).



     (d) All required consents, approvals, Permits, Orders, notifications or authorizations set
forth on Schedule 10.2(d) shall have been made and/or obtained or shall have occurred and
Purchaser shall have received duly executed copies, in form and substance reasonably satisfactory
to Purchaser and its counsel, of any of the foregoing that Purchaser may reasonably request.



     (e) Since the date of this Agreement, there shall have been no material adverse change in the
Purchased Assets or the Assumed Liabilities or in the business, operations, financial condition,
operating results or prospects of any of the Sellers.



     (f) There shall not be any pending or threatened litigation, Proceeding or other event that
calls into question or challenges the validity of this Agreement, or that is reasonably likely to
impede or delay the Closing, or that is reasonably likely to materially adversely affect the
business, financial condition, operating results or prospects of any Seller, the Purchased Assets
or the Management Business or the Home Care Business, including matters arising out of third party
reimbursement policies, and all actual and potential claims against the Purchased Assets or the
Business arising therefrom shall have been settled, released and discharged or an adequate amount
shall have been reserved and set aside for their payment to Purchaser’s reasonable satisfaction.



     (g) (i) The Sellers and the other parties to the New Management Agreements shall have
executed and delivered the New Management Agreements, (ii) such New Management Agreements shall be
in full force and effect and shall not have been amended, and (iii) true and correct copies thereof
shall have been delivered to Purchaser.



     (h) Purchaser shall have received all of the other Documents required by Section 4.2
to be delivered to Purchaser.



     (i) Purchaser shall have received the following:




     (i) a certificate signed by an executive officer of each of the Sellers, dated as of
the Closing Date, and certifying as to (A) the incumbency and genuineness of the signatures
of each Person executing this Agreement and the Related Documents on behalf of such Seller;
(B) the genuineness of the resolutions (attached thereto) of the board of directors (or
other governing body) and stockholders (or partners, as the case may be) of each of the
Sellers authorizing the execution, delivery and performance of this Agreement and the
Related Documents to which such Seller is a party and the consummation of the transactions
contemplated hereby and thereby; (C) the accuracy of the representations and warranties of
such Seller contained herein, as contemplated by Section 10.2(a) hereof; (D) the
performance of the covenants of such Seller contained herein, as contemplated in Section
10.2(b) hereof; and (E) the accuracy of the Closing Rent Roll;



50









 






     (ii) a certificate of a duly authorized executive officer of each of the Sellers and by
the Stockholder, dated as of the Closing Date, certifying that none of the Sellers or the
Stockholder is a foreign person within the meaning of Section 1445 of the Code; and




     (iii) a certificate of the Stockholder, dated the Closing Date, and certifying as to
the accuracy of the representations and warranties of the Sellers and the Stockholder
contained herein, as contemplated by Section 10.2(a) hereof.



     (j) Purchaser shall have received a report in form and substance reasonably satisfactory to
Purchaser of ATC Associates, Inc., environmental consultants, with respect to the Purchased Real
Property.



     (k) Purchaser shall have obtained title insurance for all Purchased Real Property in form and
substance reasonably satisfactory to Purchaser and in accordance with Section 10.3 hereof.



     (l) Each Seller or Affiliate of any Seller that is not a Facility Owner shall have entered
into an appropriate assignment and assumption agreement(s), if and to the extent necessary,
providing for the assumption by the purchaser(s) of the Facilities under the Facilities Purchase
and Sale Agreement of the obligations of such Seller or Affiliate under any Resident Agreements
with residents at any of the Facilities listed on the Closing Rent Roll to which such Seller or
such Affiliate is a party.



     (m) Purchaser shall have received an updated “rent roll” for each Facility (collectively, the
“Closing Rent Roll”) as of a date within two Business Days of the Closing Date.



     (n) (i) The La Cholla Bonds shall have been redeemed, paid, or otherwise satisfied in full and
shall no longer be outstanding, (ii) any related Liabilities of FCC or any of its Affiliates
relating to the La Cholla Bonds shall have been paid, discharged or otherwise satisfied in full,
(iii) all of the La Cholla Documents shall have been terminated, effective prior to the Closing,
and (iv) and Purchaser shall have received evidence reasonably satisfactory to Purchaser of (i)
through (iii) above.



10.3 Title Insurance and Survey.




     (a) Within 10 Business Days after the execution and delivery of this Agreement, Purchaser, at
its expense, shall order commitments for owner’s policies of title insurance (the “Title
Commitment”) issued by First American Title Insurance Company or another nationally recognized
title insurance company selected by Purchaser as title insurer (“Title Insurer”) covering
fee simple title to the Purchased Real Property, in which the Title Insurer shall agree to insure,
in such amount as Purchaser deems adequate, merchantable title to such interests free from the
Schedule B standard printed exceptions and all other exceptions except for (i) exceptions which,
under applicable state rules and regulations, cannot be deleted or modified and (ii) Permitted
Exceptions (as defined below), with such endorsements as Purchaser shall reasonably require and
with insurance coverage over any “gap” period. Such Title Commitments shall have attached thereto
complete, legible copies of all instruments noted as exceptions therein.



51









 





     (b) Within 10 Business Days after the execution and delivery of this Agreement, Purchaser, at
Purchaser’s expense, shall order boundary surveys for the Purchased Real Property (the
“Survey” or “Surveys”) prepared by a registered land surveyor or surveyors
satisfactory to Purchaser. The Surveys shall (i) be completed in accordance with Purchaser’s
reasonable survey requirements, and shall be certified to Purchaser and the Title Insurer by such
surveyor; (ii) have one perimeter description for the Purchased Real Property on which the
Facilities are located; (iii) show all easements, rights-of-way, setback lines, encroachments and
other matters affecting the use or development of the Purchased Real Property; and (iv) disclose on
the face thereof the gross and net acreage of the Purchased Real Property. Upon receipt of the
Surveys by Purchaser, Purchaser shall promptly furnish a copy of same to the Representative.



(c) Purchased Real Property




          (i) If (x) any of the Title Commitments reflect any exceptions to title that would impair the
use and operation of any of the Purchased Real Property, adversely affect the value of any of the
Purchased Real Property or render title to any of the Purchased Real Property unmarketable, or (y)
the Survey delivered to Purchaser pursuant to Section 10.3(b) discloses any state of facts
that would impair the use and operation of any of the Purchased Real Property, adversely affect the
value of any of the Purchased Real Property or render title to any of the Purchased Real Property
unmarketable, or (z) at any time prior to the Closing, title to each Seller’s interests in any of
the Purchased Real Property is encumbered by any exception to title other than Permitted
Encumbrances, which was not on the initial Title Commitment for such Purchased Real Property and is
not acceptable to Purchaser in Purchaser’s sole discretion (any such exception or unacceptable
state of fact being referred to herein as a “Title Defect”), then Purchaser shall, on or
before 10 Business Days following the later of the receipt of the Title Commitment or the receipt
of the Survey for such Purchased Real Property, give the Representative, as agent for the Sellers,
written notice of such a Title Defect (the “Title Notice”). Such Title Notice shall
include a copy of the relevant Title Commitment and copies of the exceptions. The Sellers shall
have the right, but not the obligation, within 10 Business Days after receipt by the Representative
of any such Title Notice, to notify Purchaser that the Sellers will take the action necessary to
remove such Title Defect. If the Sellers elect to so notify Purchaser, then, on or before the
Closing, the Sellers shall provide Purchaser with reasonable evidence of such removal.




          (ii) In the event Purchaser timely gives a Title Notice to the Representative pursuant to this
Section 10.3(c)(i) and the Title Defects specified therein are not cured on or before the
date on which all other conditions to Closing have been satisfied or waived in writing by the
parties, Purchaser shall have the option to (x) waive any Title Defect and proceed to Closing with
a reduction in the Purchase Price for the applicable Purchased Real Property equal to the lesser of
the cost and expense to remove the Title Defect or the applicable amount set forth on Schedule
10.3(c)(ii) or (y) proceed to Closing without acquiring the applicable Purchased Real Property
with a reduction in the Purchase Price for the applicable Purchased Real Property equal to the
applicable amount set forth on Schedule 10.3(c)(ii). Any Title Defect that Purchaser
waives pursuant to this subparagraph shall be deemed a Permitted Exception.




     (d) Any exception to title that is (i) disclosed in the Title Commitment, or (ii) identified
on a Survey, which, in either case, is not identified as a Title Defect in a timely



52









 





delivered Title Notice, shall be deemed to be a “Permitted Exception” for purposes of this
Agreement.




     (e) Notwithstanding anything contained herein to the contrary, each Seller shall be obligated
(or shall cause its Affiliates) to expend whatever sums are reasonably required to cure the
following matters (the “Required Cure Items”) prior to, or at, the Closing (with the
Sellers having the right to apply the Purchase Price or a portion thereof for such purpose) whether
or not any of the following would constitute a Title Defect hereunder:



          (i) All mortgages, security deeds, other security instruments or other monetary liens;




          (ii) All past due ad valorem taxes and assessments of any kind, whether or not of record,
which constitute, or may constitute, an Encumbrance; and




          (iii) Judgments against the Sellers (which do not result from acts or omissions on the part of
Purchaser) which have attached to and become an Encumbrance.




If a Seller fails to cure a Required Cure Item by Closing, Purchaser shall have the right, in
addition to the rights described in the preceding sentence, to: (x) pay a sum necessary to cure the
Required Cure Items and deduct such amount from the Purchase Price, or (y) pursue any and all
remedies provided in Section 11.2 of this Agreement as a result of Seller’s default.




     (f) At Closing, the Title Insurer shall be prepared to issue a title insurance policy in
accordance with the Title Commitment, with all endorsements reasonably required by Purchaser and
with coverage over any “gap” period.



10.4 Conditions to Obligations of the Sellers and the Stockholder.




     The obligations of the Stockholder and the Sellers to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of the following additional conditions unless
waived (to the extent such conditions can be waived) by FCC (as agent for the Sellers and the
Stockholder):



     (a) All representations and warranties made by Purchaser in this Agreement (i) shall be true
and correct in all material respects (except those representations and warranties which are
qualified as to materiality, which shall be true and correct in all respects) as of the date hereof
and (ii) shall be true and correct in all material respects (except those representations and
warranties which are qualified as to materiality, which shall be true and correct in all respects)
as of the Closing Date (except those representations and warranties which are made expressly only
as of another date) with the same effect as if such representations and warranties had been made at
and as of the Closing Date.



     (b) Purchaser shall have performed or complied with in all material respects all obligations
and covenants required to have been performed or complied with by it under this Agreement and the
Related Documents prior to or as of the Closing Date.



53









 





     (c) Each of the Sellers shall have received all of the other Documents required by Section
4.3 to be delivered to such Persons.



     (d) The Sellers shall have received a certificate of a duly authorized executive officer of
Purchaser, dated as of the Closing Date, and certifying as to (i) the incumbency and genuineness of
the signatures of each Person executing this Agreement and the Related Documents on behalf of
Purchaser; (ii) the accuracy of the representations and warranties of Purchaser contained herein,
as contemplated by Section 10.4(a) hereof, and (iii) the performance of the covenants of
Purchaser contained herein, as contemplated in Section 10.4(b) hereof.



ARTICLE XI

INDEMNIFICATION




11.1 Survival of Representations and Warranties.




     The representations and warranties contained in or made pursuant to this Agreement, the
Related Documents or any certificate or other writing delivered in connection with this Agreement
or the Closing shall survive for a period of two years after the Closing, except that the
representations and warranties contained in Sections 5.1, 5.2, 5.4 and 5.10 shall remain in
full force and effect indefinitely and the representations and warranties dealing with Tax matters,
Medicare, Medicaid and other third party payor payment Liabilities, and environmental matters shall
remain in full force and effect until the expiration of the applicable statute of limitations. The
covenants and other agreements of the parties contained in this Agreement shall survive the Closing
Date until the expiration of the applicable statute of limitations. This Article XI shall
survive the Closing and shall remain in effect (a) with respect to Sections 11.2(a)(i) and
11.2(b)(i), so long as the relevant representations and warranties survive, (b) with
respect to Sections 11.2(a)(ii) and 11.2(b)(ii), so long as the applicable covenant
survives and (c) with respect to Sections 11.2(a)(iii) through (x) and Sections
11.2(b)(iii) and (b)(iv), indefinitely. If written notice of a Claim has been given
prior to the expiration of the applicable limitation period and such Claim is pending and
unresolved at the end of any applicable limitation period, such Claim shall continue to be covered
by this Article XI notwithstanding any applicable limitation period (which the Parties
hereby waive) until such matter is finally terminated or otherwise resolved by the parties pursuant
to Section 11.4 or by a court of competent jurisdiction and any amounts payable hereunder
are finally determined and paid. After the Closing, the rights set forth in this Agreement shall
be each party’s sole and exclusive remedies against the other parties hereto for misrepresentations
or breaches of representations, warranties or covenants contained in this Agreement, the Related
Documents and any certificate or other writing delivered in connection with this Agreement or the
Closing, except with respect to (i) actions based upon allegations of fraud or other intentional
misrepresentation or (ii) the ability of any party to seek injunctive relief or other appropriate
remedies with respect to a breach of any covenants hereunder or thereunder.



11.2 Indemnification.




     (a) Each of the Seller Indemnifying Persons, as the indemnifying party, shall, subject to the
provisions of Section 11.8, jointly and severally indemnify, defend and hold the Purchaser



54









 





Indemnified Persons, each as an indemnified party, harmless from and against any and all Losses
sustained, suffered or incurred by any Purchaser Indemnified Person relating to, resulting from or
arising out of any of the following (collectively, “Purchaser Claims”):





     (i) the untruth, inaccuracy or breach of any representation or warranty of the Sellers
or the Stockholder contained in this Agreement, any Related Document, or any certificate or
other writing delivered in connection with this Agreement or the Closing (or any facts or
circumstances constituting any such untruth, inaccuracy or breach), as of the date of this
Agreement or as of the Closing Date;




     (ii) the breach or nonperformance of any agreement or covenant of the Sellers or the
Stockholder contained in this Agreement or the Related Documents;




     (iii) any Liability of the Sellers or any Seller Subsidiary (or any of their respective
Affiliates) or any Liability of the Stockholder, other than the Assumed Liabilities, whether
or not disclosed to Purchaser pursuant to this Agreement or in the Schedules, including (A)
any claim or cause of action relating to the Purchased Assets or the Management Business or
Home Care Business arising out of, relating to, or resulting from, any action, inaction,
event, condition, facts or circumstances that occurred or existed prior to the Closing,
whether pending or threatened at the Closing Date or thereafter (including the matters
described on Schedule 5.19 (litigation)) and including any Liability for Taxes, (B)
any Liability for Taxes (other than any Transfer Taxes for which Purchaser is liable
pursuant to Section 9.2(c)) arising in connection with the consummation of the
transactions contemplated hereby, and (C) any Liability for the unpaid Taxes of any Person
under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or
foreign Law), as a transferee or successor, by contract or otherwise;




     (iv) the matters as to which Sellers have expressly agreed to indemnify Purchaser
described in Section 1.4(b) (consents or approvals), Section 7.12 (successor
liability), Section 8.1(c) and (d) (employees) and Section 11.3 (Bulk Sales
Laws);




     (v) any Liability under the WARN Act or any similar state or local Law that may result
from an “Employment Loss,” as defined by 29 U.S.C. Section 2101(a)(6), caused by any action
of the Sellers or any Seller Subsidiary prior to the Closing or Purchaser’s decision not to
hire previous employees of the Sellers or any Seller Subsidiary;




     (vi) activities in connection with any transfers or conveyances (including such
transfers and conveyances) of any Assets, Liabilities, operations, business, or income
effected or initiated by or on behalf of any of the Sellers or their respective Affiliates
prior to the date of this Agreement, including any Liability resulting from the failure to
obtain, or any delay in obtaining, required approvals from Governmental Entities in
connection with any such transfers or conveyances;




     (vii) any claims made by or on behalf of any former stockholder of FCC;



55









 






     (viii) any assessments, adjustments or offsets made against Purchaser in connection
with the recovery by any Governmental Entity or administrative agency or any third party
payor of any overpayments made to Sellers for services performed prior to the Closing Date;




     (ix) any Liability arising out of, relating to, or resulting from, any of the
arrangements referenced on Schedule 5.33 (Subsidiaries; Affiliate Transactions),
including any third party claims involving Fountains Retirement Communities of Arizona, Inc.
or any “Other Companies” identified on such Schedule 5.33; and




     (x) any claims made by a resident or former resident at the Millbrook Facility that the
Entrance Fee refund obligation originally owed to such resident was not reduced to 70% of
the original amount of such obligation (for the sake of clarity, this indemnification is
intended to cover the reduction contemplated by paragraph 4(C) of the Millbrook LLC Second
Amendment to Restated Offering Plan and the account balances reflected on the books of the
Sellers is 70% of such original Entrance Fee refund obligation).




     (b) Purchaser, as the indemnifying party, shall, subject to the provisions of Section
11.8, indemnify, defend and hold each of the Seller Indemnified Persons, each as the
indemnified party, harmless from and against any and all Losses sustained, suffered or incurred by
any such Seller Indemnified Person relating to, resulting from or arising out of any of the
following (collectively, “Seller Claims”; and, together with the Purchaser Claims, the
“Claims”):




     (i) the untruth, inaccuracy or breach of any representation or warranty of Purchaser
contained in this Agreement, any Related Document or any certificate or other writing
delivered in connection with this Agreement or the Closing (or any facts or circumstances
constituting any such untruth, inaccuracy or breach), as of the date of this Agreement or as
of the Closing Date;




     (ii) the breach or nonperformance of any agreement or covenant of Purchaser contained
in this Agreement or the Related Documents;




     (iii) any Assumed Liabilities and all Liabilities arising after the Closing from the
operation of the Management Business and the Home Care Business by Purchaser and its
Affiliates; and




     (iv) the matters as to which Purchaser has expressly agreed to indemnify the Sellers
described in Section 7.1(g) (due diligence).



     (c) Notwithstanding anything to the contrary contained herein or in any other Document,
Purchaser shall have full recourse and right of recovery (consistent with the limitations on
indemnification set forth in Section 11.8) at the option of Purchaser to (i) any Assets of
the Sellers or (ii) any Assets of the Assurances Company as contemplated in Section 7.13,
in either such case, for payment of any Claims of Purchaser brought pursuant to this Article
XI.



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     (d) For purposes of this Agreement, a Claim that involves continuing behavior or a series of
events, accidents or occurrences shall be deemed to “occur” on the first day of any alleged event,
circumstance, or omission (“EC&O”), so long as any subsequent alleged EC&O is substantially
similar in nature and/or directly related to or an unambiguous result of the first EC&O. Any other
EC&O shall constitute a new EC&O.



     (e) The indemnification obligations of this Article XI shall apply to any successor in
interest, legal representative, heir, devisee or legatee of the Stockholder to the same extent that
they would have applied to the Stockholder were he alive.



11.3 Bulk Sales Laws.




     Each of the Sellers and the Stockholder shall jointly and severally indemnify Purchaser and
its Affiliates from and hold them harmless against any Losses resulting from or arising out of (i)
Sellers’ failure to comply with the Bulk Sales Laws in any jurisdiction in respect of the
transactions contemplated by this Agreement, or (ii) any action brought or levy made as a result
thereof, other than those Liabilities which have been expressly assumed, on such terms as expressly
assumed, by Purchaser pursuant to this Agreement.



11.4 General Indemnification Procedures.




     (a) Third Party Claims.




     (i) The indemnified party shall give written notice to the indemnifying party of any
Claim or Claims asserted against the indemnified party by any third Person within 30 days
after obtaining actual knowledge thereof, stating the nature and basis of such Claim and the
amount thereof, in reasonable detail, to the extent then known by the indemnified party.
Failure to provide such notice shall not act as a waiver of the indemnified party’s rights
with respect to such Claim unless, and only to the extent that, such failure materially
adversely affects the indemnifying party’s ability to defend against, minimize or eliminate
Losses arising out of such Claim. In the event of any litigation or Proceeding by or with
any third Person, the indemnified party shall keep the indemnifying party informed and,
unless the indemnifying party exercises the right of control set forth in Section
11.4(a)(ii) below, shall use all reasonable efforts to defend such claim, litigation,
investigation or proceeding with its or his own legal counsel and present any defense
reasonably suggested by the indemnifying party or its or his counsel.




     (ii) The indemnifying party shall have the right to participate in such third party
claim or litigation, at its or his own expense, and, upon notice to the indemnified party,
to assume and control, at its or his own expense, the defense or prosecution thereof, as the
case may be, with counsel approved by the indemnified party (which approval shall not be
unreasonably withheld or delayed). Notwithstanding the foregoing, the indemnified party
shall have the right to assume control of such defense or prosecution if and only if (A) the
assumption or control of such defense or prosecution by the indemnified party has been
authorized in writing by the indemnifying party, (B) the indemnified party has reasonably
concluded that there may be legal defenses available to it that are different from or in
addition to those available to the indemnifying party or



57









 






(C) the indemnifying party has not in fact employed counsel to assume the defense or
prosecution of such action promptly after receiving notice of the commencement thereof, in
each of which cases the reasonable fees and expenses of counsel will be paid by the
indemnifying party, and the indemnified party shall assume and control the defense or
prosecution of such action, and the indemnifying party shall reimburse or pay such
reasonable fees and expenses as they are incurred. If the indemnifying party assumes such
defense or prosecution in accordance with this Section 11.4(a)(ii), it shall have no
liability for any legal or other expenses subsequently incurred by the indemnified party in
connection with such litigation or Proceeding (other than the reasonable out-of-pocket costs
and attorneys’ fees of investigation and cooperation with the indemnifying party that may be
requested by the indemnifying party in such defense or prosecution and as contemplated in
Section 11.4(a)(iii)) but the indemnifying party shall thereafter indemnify and hold
the indemnified party and its Affiliates harmless from and against all Losses with respect
to such litigation or Proceeding in accordance with the terms of this Agreement.




     (iii) The indemnified party shall have the right to participate, and cooperate, in the
defense of a Claim for which the indemnifying party has assumed control pursuant to
Section 11.4(a)(ii) and may retain separate co-counsel at its sole cost and expense
(except that the indemnifying party shall be responsible for the fees and expenses of the
separate co-counsel to the extent the indemnified party concludes reasonably that the
counsel the indemnifying party has selected has a conflict of interest).




     (iv) The indemnified party shall not make, or offer to make, any settlement of any
litigation or Proceeding which might give rise to a right of indemnification from the
indemnifying party without the consent of such indemnifying party, which consent shall not
be unreasonably withheld or delayed; provided that the indemnified party may
do so without such consent if it elects to waive its right of indemnification with respect
to the amount of such settlement in connection with such litigation or Proceeding and/or
fails to or declines to defend the indemnified party in such litigation or Proceeding. The
indemnifying party shall not consent to the entry of any judgment with respect to the
matter, or enter into any settlement, which does not include a provision whereby the
plaintiff or claimant in the matter releases the indemnified party from all Liability with
respect thereto, without the prior written consent of the indemnified party, which consent
shall not be unreasonably withheld or delayed.



     (b) Direct Claims.




     (i) In the event of any Claim for indemnification under this Article XI other
than a third-party claim under Section 11.4(a) hereof, the indemnified party shall
give written notice thereof (a “Direct Claim Notice”) to the indemnifying party
within 30 days after obtaining actual knowledge thereof, stating the nature and basis of
such Claim for indemnification and the amount thereof, in reasonable detail. Failure to
provide such Direct Claim Notice within such 30 day period shall not act as a waiver of the
indemnified party’s rights with respect to such Claim for indemnification unless, and only
to the extent that, such failure materially adversely affects the indemnifying party’s
ability to defend against, reduce or eliminate Losses arising out of such Claim.



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     (ii) After delivery of the Direct Claim Notice, the parties shall then meet in an
attempt to agree upon a resolution of such Claim. If the parties have not resolved any such
Claim within 45 days after the date that the Direct Claim Notice is delivered, then either
party shall have the right to pursue any and all remedies available at law or in equity with
respect to such Claim.



11.5 Effect of Knowledge on Indemnification.




     Notwithstanding anything contained in this Agreement to the contrary, under no circumstances
shall any Seller or Stockholder be liable to Purchaser for any breach of Section 11.1(a)(i)
to the extent such breach relates to representations or warranties addressing the quality or
condition of the Facilities or the physical assets included in the Purchased Assets if the
documents photocopied by Purchaser, environmental reports obtained by Purchaser, or other written
reports, investigations or studies performed or obtained by or on behalf of Purchaser prior to the
Closing disclose the condition, the misrepresentation or the breach of the representation or
warranty upon which such a Purchaser’s Claim would be based. Except as provided in the preceding
sentence, (i) the right to indemnification, reimbursement or other remedy based upon any
representations, warranties, covenants and agreements set forth in this Agreement shall not be
affected by any investigation conducted with respect to, or any knowledge acquired (or capable of
being acquired ) at any time, whether before or after the execution and delivery of this Agreement,
with respect to the accuracy or inaccuracy of or compliance with any such representation, warranty,
covenant or agreement and (ii) the waiver of any condition based upon the accuracy of any
representation or warranty, or on the performance of or compliance with any covenant or obligation,
will not affect the right to indemnification, reimbursement or other remedy based upon such
representations, warranties, covenants or obligations.



11.6 No Duplication of Claims.




     Any liability for indemnification under this Article XI shall be determined without
duplication for recovery because of the state of facts giving rise to the Losses constitute a
breach of more than one representation, warranty, covenant or agreement hereunder.



11.7 Allocation of Indemnification Payments.




     The parties hereto agree that any indemnification payment pursuant to this Agreement shall be
treated as an adjustment to the Purchase Price.



11.8 Limitations on Indemnification.




     (a) In no event shall any Seller Indemnifying Person have any indemnification obligation with
respect to any given Claim pursuant to Section 11.2(a)(i) or (ii) (x) unless the amount for
which indemnity would otherwise be payable by the Seller Indemnifying Persons with respect to such
Claim exceeds $25,000 (“Seller Included Claims”) and (y) unless the cumulative amount of
all Seller Included Claims plus all “Seller Included Claims” pursuant to the Facilities Purchase
and Sale Agreement exceeds $5.0 million, and in such event, the Seller Indemnifying Persons shall
be responsible for only the amount in excess of $5.0 million; provided, however, that the
limitations of this Section 11.8(a) shall not apply to indemnification



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by the Seller Indemnifying Persons pursuant to Section 11.2(a)(i) insofar as arising
from a breach of Sections 5.1 (power and authority), 5.2 (no conflicts), 5.4 (ownership of
Sellers) and 5.10 (title) or pursuant to Section 11.2(a)(ii) arising from a breach of
Section 9.2(b) (taxes). The amount and extent of any Losses for Claims under Section
11.2(a)(i) or (ii) shall be calculated without giving effect to any concept of materiality (or
correlative meaning) qualifications included in the representations, warranties and covenants of
Sellers (or portions thereof) and, for purposes of calculating the amount and extent of Losses
only, each of such representations, warranties and covenants is deemed given as though there were
no materiality qualification.




     (b) In no event shall Purchaser have any indemnification obligation with respect to any given
Claim pursuant to Section 11.2(b)(i) or (ii) (x) unless the amount for which indemnity
would otherwise be payable by Purchaser with respect to such Claim exceeds $25,000 (“Purchaser
Included Claims”) and (y) unless the cumulative amount of all Purchaser Included Claims plus
all “Purchaser Included Claims” pursuant to the Facilities Purchase and Sale Agreement exceeds $5.0
million, and in such event, Purchaser shall be responsible for only the amount in excess of $5.0
million; provided, however, that the limitations of this Section 11.8(b) shall not apply to
indemnification by Purchaser pursuant to Section 11.2(b)(i) insofar as arising from a
breach of Sections 6.1 (power and authority) and 6.2 (no conflicts) or pursuant to
Section 11.2(b)(ii) arising from a breach of Section 9.2(b) (taxes). The amount
and extent of any Losses for Claims under Section 11.2(b)(i) or (ii) shall be calculated
without giving effect to any concept of materiality (or correlative meaning) qualifications
included in the representations, warranties and covenants of Purchaser (or portions thereof) and,
for purposes of calculating the amount and extent of Losses only, each of such representations,
warranties and covenants is deemed given as though there were no materiality qualification.



ARTICLE XII

TERMINATION; EFFECT OF TERMINATION




12.1 Termination.




     This Agreement may be terminated at any time prior to the consummation of the Closing by:



     (a) the mutual written consent of FCC (as agent for the Sellers and the Stockholder) and
Purchaser;



     (b) Purchaser, if there has been a material breach by the Stockholder or any of the Sellers of
any representation, warranty, covenant or agreement set forth in this Agreement which is not cured
by such Seller or the Stockholder within 10 Business Days after notice thereof (provided, however
that, Purchaser is not then in willful and material breach of any representation, warranty or
covenant contained in this Agreement); provided, however, that, notwithstanding the foregoing, if
such breach is not timely cured, Purchaser shall not have the right to terminate this Agreement
pursuant to Section 12.1(b) if either (A) such breach relates only to some or all of the
Purchased Real Property hereunder and does not otherwise adversely affect the operation of the
Management Business or the Home Care Business at any of the Facilities, in which case the
provisions in Section 3.3 shall apply and result in an adjustment to



60









 





the Purchase Price hereunder, or (B) such breach relates only to four or fewer Facilities and
in the case of each such Facility Material Regulatory Approval has not been obtained or deemed
obtained (as contemplated in Section 10.1(a) of the Facilities Purchase and Sale Agreement); or




     (c) any of the Sellers, if there has been a material breach by Purchaser of any
representation, warranty, covenant or agreement set forth in this Agreement which is not cured by
Purchaser within 10 Business Days after notice thereof (provided,
however, that, none of the Sellers
or the Stockholder is then in willful and material breach of any representation, warranty or
covenant contained in this Agreement); or



     (d) Purchaser, if the conditions set forth in Sections 10.1 or 10.2 shall not
have been satisfied or waived on or prior to March 31, 2005 (the “Outside Termination
Date”), or by Sellers, if the conditions set forth in Sections 10.1 or 10.4
shall not have been satisfied or waived on or prior to the Outside Termination Date;
provided, however, that the Outside Termination Date may be extended by Purchaser
or the Sellers (upon delivery of written notice thereof to the Representative or Purchaser, as
applicable) to June 30, 2005 in the event that all of the authorizations, consents, Permits, Orders
or approvals of, or declarations or filings with, or expiration of waiting periods of any
Governmental Entity required to consummate the transactions contemplated hereby as listed on
Schedule 10.1(a) shall not have been obtained or made (or deemed satisfied in accordance
with Section 10.1(a)) on or prior to March 31, 2005 (for the sake of clarity, nothing in
this Section 12.1(d) is intended to or shall provide Purchaser with a right to terminate
this Agreement for breaches of representations, warranties or covenants if Purchaser does not
otherwise have the right to terminate this Agreement for such breaches of representations,
warranties or covenants under Section 12.1(b) because of the limitation set forth in the
proviso to Section 12.1(b)); or



     (e) Purchaser, or any of the Sellers, if any permanent injunction or other Order of
Governmental Entity preventing the Closing shall have become final and nonappealable;



     (f) Purchaser, in the event that (A) Purchaser shall have discovered or shall have become
aware of a Due Diligence Termination Event, (B) Purchaser shall have given the Sellers notice of
the Due Diligence Termination Event (including a reasonable description thereof and the amounts of
any quantifiable impairments, increases in amount, adverse effects and/or Liabilities and
Purchaser’s calculation of the Termination Threshold, if applicable, as referenced in Section
7.1(k), on or prior to the Due Diligence Termination Date, and (C) the Sellers shall have
failed to (I) cure such Due Diligence Termination Event (if capable of being cured) to the
reasonable satisfaction of Purchaser within 20 Business Days of such notice or (II) provide
assurances to Purchaser satisfactory to Purchaser, in its sole discretion, within 20 Business Days
of such notice, that such Due Diligence Termination Event will be cured prior to the Closing and
cause such Due Diligence Termination Event to be cured to the reasonable satisfaction of Purchaser
by the date of cure specified by the Sellers; it being understood, that any determination of
Purchaser not to exercise, or the failure of Purchaser to timely exercise, its right to terminate
this Agreement pursuant to this Section 12.1(f) shall in no way affect any other
termination or other rights of Purchaser under this Agreement; or



     (g) Purchaser or any Seller, if the Facilities Purchase and Sale Agreement shall have been
terminated.



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provided, however, that none of the Sellers or Purchaser shall be entitled to
terminate this Agreement pursuant to clause (b) through (d) above if such party’s breach of this
Agreement has been a principal cause for the failure of the condition referred to in said clause.
Any termination pursuant to this Section 12.1 (other than a termination pursuant to
Section 12.1(a)) shall be effected by written notice from the party or parties so
terminating to the other parties hereto, which notice shall specify the Section of this Agreement
pursuant to which this Agreement is being terminated.




12.2 Effect of Termination.




     (a) In the event of the termination of this Agreement as provided in Section 12.1,
this Agreement shall be of no further force or effect, except for Section 7.6, Section
7.7, Section 12.2(a), Section 12.2(c) and Article XIII, each of which
shall survive the termination of this Agreement, and Section 12.2(b), which shall survive
the termination of this Agreement for a period of one year; provided that, except
as set forth in Section 12.2(c), if this Agreement is terminated by Purchaser, on the one
hand, or any Seller or the Stockholder, on the other hand, because of a willful failure by the
other party to perform or comply with any covenant or obligation herein (following a demand for
cure thereof and failure to timely cure) or because one or more of the conditions to such party’s
obligations hereunder is not satisfied as a result of the other party’s willful failure to comply
with its obligations under this Agreement, it is expressly agreed and understood that the
terminating party’s (or parties’) rights to pursue all legal and equitable remedies for breach of
contract or otherwise, including Losses relating thereto, shall also survive such termination
unimpaired.



     (b) In the event of the termination of this Agreement as provided in Section 12.1 or
Section 12.3, at any time during the one year period following such termination, without the
prior written consent of FCC, Purchaser shall not, (a) offer employment to, discuss potential
employment with, or hire any person who at the time of such discussion or offer is an employee of
any Seller or any Seller Subsidiary; provided, however, that this prohibition shall not apply to
any non-targeted advertisement or solicitation addressed to the public or a broad public group or
to any employee of any Seller of any Seller Subsidiary who contacts Purchaser on his or her own
initiative; or (b) solicit any person who at the time of such solicitation is a resident of any
Facility to become a resident of any Senior Living Facility not owned by FCC or its Affiliates;
provided, however, that this prohibition shall not apply to any non-targeted advertisement or
solicitation addressed to the public or a broad public group.



     (c) Notwithstanding anything to the contrary in this Agreement, the parties acknowledge and
agree that, in the event the Facilities Purchase and Sale Agreement is terminated under
circumstances in which the Investor Commitment Escrow (excluding any interest thereon) is paid to
or for the benefit of the sellers under the Facilities Purchase and Sale Agreement pursuant to
Section 12.3(b) or Section 12.3(c) of the Facilities Purchase and Sale Agreement,
and this Agreement is terminated, neither the Sellers nor the Stockholder shall have any rights to
pursue legal or equitable remedies for breach of contract or otherwise, including Losses related
thereto, against Purchaser or any of its Affiliates in connection with or as a result of such
termination of this Agreement or the Facilities Purchase and Sale Agreement.



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12.3 Special Termination Right.




     Notwithstanding anything to the contrary in this Agreement, this Agreement may be terminated
by Purchaser at any time prior to 11:59 P.M. (McLean, Virginia time) on February 2, 2005 upon
notice to the Representative, in the event that, following further review of the Seller Disclosure
Schedules and the “Seller Disclosure Schedules” as defined under the Facilities Purchase and Sale
Agreement, Purchaser has determined not to proceed with the transactions contemplated by this
Agreement. In the event of such termination, this Agreement shall be of no force or effect except
for this Section 12.3, Sections 7.6 and 7.7, which shall survive the termination of
this Agreement, and Section 12.2(b), which shall survive the termination of this Agreement
for a period of one year.



ARTICLE XIII

MISCELLANEOUS PROVISIONS




13.1 Amendment; Waiver.




     This Agreement may be modified or amended only by agreement in writing of all of the parties
hereto. At any time prior to the Closing, Purchaser, on the one hand, and the Sellers and the
Stockholder, on the other hand, may (a) extend the time for the performance of any of the
obligations or other acts of the other party or parties hereto, (b) waive any inaccuracies in the
representations and warranties of the other party or parties contained herein or in any Document
delivered by any such other party pursuant hereto or (c) waive compliance with any of the
agreements of such other party or conditions to its own obligations contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing signed by the
party or parties to be bound thereby. Waiver of any term or condition of this Agreement by a party
shall not be construed as a waiver of any subsequent breach or waiver of the same term or condition
by such party, or a waiver of any other term or condition of this Agreement by such party. The
failure of any party to assert any of its rights hereunder shall not constitute a waiver of any
such rights.



13.2 Entire Agreement.




     This Agreement and the Related Documents constitute the entire agreement among the parties
pertaining to the subject matter hereof and supersede all prior agreements and understandings of
the parties with respect to the subject matter hereof, written or oral, including that certain
Confidentiality and Due Diligence Agreement dated as of September 24, 2004 by and between FCC and
Purchaser.



13.3 Severability.




     It is the desire and intent of the parties that the provisions of this Agreement be enforced
to the fullest extent permissible under the Law and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, in the event that any provision of this Agreement would
be held in any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such provision in any



63









 





other jurisdiction. Notwithstanding the foregoing, if such provision could be more narrowly
drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to
such jurisdiction, be so narrowly drawn by either a court of competent jurisdiction or the parties
hereto, without invalidating the remaining provisions of this Agreement or affecting the validity
or enforceability of such provision in any other jurisdiction.




13.4 No Assignment; Parties in Interest.




     Neither this Agreement nor any rights and obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other parties hereto, except that Purchaser may,
without the consent of the other parties hereto, assign any or all of its rights and interests
hereunder to any Affiliate of Purchaser or any lender providing financing to Purchaser (which
assignment shall not relieve Purchaser of its obligations hereunder). Any attempted assignment in
violation of this Section 13.4 shall be null and void and of no force and effect. Subject
to the foregoing, all of the terms and provisions of this Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and permitted assigns,
including, in the case of the Stockholder, any successor in interest, legal representative, heir,
devisee or legatee of the Stockholder, and (except for the rights expressly created in favor of the
Seller Indemnified Persons and Purchaser Indemnified Persons pursuant to Article XI)
nothing in this Agreement, express or implied, is intended to confer upon or give any other Person
any rights or remedies of any nature whatsoever under or by reason of this Agreement. Nothing in
this Agreement is intended to relieve or discharge the obligation of any third Person to any party
to this Agreement.



13.5 Fees and Expenses.




     Except as otherwise expressly provided in this Agreement, whether or not the transactions
contemplated by this Agreement are consummated, the parties hereto shall each bear their own
expenses incurred in connection with this Agreement and the Related Documents and the parties shall
each bear one-half of the filing fees incurred in relation to all filings required under the
Hart-Scott-Rodino Act in connection with the purchase of the Purchased Assets and the assumption of
the Assumed Liabilities hereunder.



13.6 Notices.




     All notices or other communications pursuant to this Agreement shall be in writing and shall
be deemed to be sufficient if delivered personally or by facsimile, sent by nationally-recognized,
overnight courier or mailed by registered or certified mail (return receipt requested), postage
prepaid, to the parties or other Persons specified below at the following addresses (or at such
other address for a party as shall be specified by like notice):



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	 	(a)  	if to any Seller, the Stockholder or the Representative, to:
	 
	 	   	Steven R. Berlin

Kaiser-Francis Oil Company

P.O. Box 21468

Tulsa, OK 74121-1468

Telephone No.: 918-491-4532

Facsimile No.: 918-491-4694
	 
	 	   	with a copy (which shall not constitute notice) to:
	 
	 	   	Frederic Dorwart, Lawyers

Old City Hall

124 East Fourth Street

Tulsa, OK 74103-5010

Attention: Frederic Dorwart

Telephone No.: (918) 583-9945

Facsimile No.: (918) 583-8251

	 
	 	(b)  	if to Purchaser, to:
	 
	 	   	Sunrise Senior Living Investments, Inc.

7902 Westpark Drive

McLean, VA 22102

Attention: Bradley B. Rush

Telephone No.: (703) 744-1890

Facsimile No.: (703) 744-1645
	 
	 	   	with a copy (which shall not constitute notice) to:
	 
	 	   	Sunrise Senior Living, Inc.

7902 Westpark Drive

McLean, VA 22102

Attention: John F. Gaul, Esq.

Telephone No.: (703) 744-1710

Facsimile No.: (703) 744-1990
	 
	 	   	and
	 
	 	   	Hogan & Hartson L.L.P.

555 Thirteenth Street, N.W.

Washington, D.C. 20004

Attention: Robert J. Waldman, Esq.

Telephone No.: (202) 637-5600

Facsimile No.: (202) 637-5910.





65









 





All such notices and other communications shall be deemed to have been given and received and shall
be effective (i) in the case of personal delivery, on the date of such delivery, (ii) in the case
of delivery by facsimile, when transmitted (if sent during normal business hours on a Business Day,
or one Business Day after the date sent if not sent during normal business hours on a Business Day)
to the applicable number so specified herein and an appropriate confirmation of transmission is
received, (iii) in the case of overnight delivery by nationally recognized, overnight courier, one
Business Day following the date of dispatch, and (iv) in the case of mailing, on the third Business
Day following the date of deposit in the mail.




13.7 Counterparts.




     This Agreement may be executed in any number of counterparts, and each such counterpart shall
be deemed to be an original instrument, but all such counterparts together shall constitute one
agreement. This Agreement may be delivered by facsimile or electronic transmission.



13.8 Governing Law.




     This Agreement will be governed by and construed in accordance with the Laws of the State of
Delaware, without giving effect to any choice of law or conflicting provision or rule (whether of
the State of Delaware or any other jurisdiction) that would cause the Laws of any jurisdiction
other than Delaware to be applied. In furtherance of the foregoing, the Law of Delaware will
control the interpretation and construction of this Agreement, even if under such jurisdiction’s
choice of law or conflict of law analysis, the substantive Law of some other jurisdiction would
ordinarily apply.



13.9 Independence of Covenants and Representations and Warranties; Schedules.




     All covenants hereunder shall be given independent effect so that if a certain action or
condition constitutes a default under a certain covenant, the fact that such action or condition is
permitted by another covenant shall not affect the occurrence of such default, unless expressly
permitted under an exception to such initial covenant. In addition, all representations and
warranties hereunder shall be given independent effect so that if a particular representation or
warranty proves to be incorrect or is breached, the fact that another representation or warranty
concerning the same or similar subject matter is correct or is not breached shall not affect the
incorrectness of or a breach of the particular representation and warranty hereunder. Any fact or
item which is clearly disclosed on any schedule to this Agreement referenced in Article V (each, a
“Seller Disclosure Schedule”) or on any “Seller Disclosure Schedule” to the Facilities
Purchase and Sale Agreement (as defined in the Facilities Purchase and Sale Agreement) shall be
deemed to be disclosed on all Seller Disclosure Schedules, notwithstanding the omission of a
reference or cross-reference thereto, and the “Seller Disclosure Schedules” to the Facilities
Purchase and Sale Agreement (as defined in the Facilities Purchase and Sale Agreement) shall be
deemed incorporated by reference into this Agreement for this purpose.



13.10 Interpretation, Construction.




     The term “Agreement” means this agreement together with all schedules and exhibits
hereto (which are incorporated herein by reference), as the same may from time to time be



66









 





amended, modified, supplemented or restated in accordance with the terms hereof. Unless the
context otherwise requires, words importing the singular shall include the plural, and vice versa.
As used in this Agreement, the term “knowledge” when used to refer to the knowledge of a
Seller shall mean and apply to the actual knowledge of the representatives of the Sellers named in
this paragraph and not to any other persons or parties, it being understood and acknowledged that
such representatives shall make a good faith inquiry of the other officers, directors, partners,
key employees and professional advisers of the Sellers who could reasonably be expected to have
actual knowledge of the matters in question, including the executive director of each Facility.
The designated representatives of Sellers for purposes of this Section 13.10 only are:
George B. Kaiser, David Freshwater, Thomas Danker and Steven R. Berlin. The use in this Agreement
of the term “including” means “including, without limitation.” The words
“herein”, “hereof”, “hereunder”, “hereby”, “hereto”,
“hereinafter”, and other words of similar import refer to this Agreement as a whole,
including the schedules and exhibits, as the same may from time to time be amended, modified,
supplemented or restated, and not to any particular article, section, subsection, paragraph,
subparagraph or clause contained in this Agreement. All references to articles, sections,
subsections, clauses, paragraphs, schedules and exhibits mean such provisions of this Agreement and
the schedules and exhibits to this Agreement, except where otherwise stated. Each schedule and
exhibit delivered pursuant to the terms of this Agreement shall be in writing and shall constitute
a part of this Agreement, although the schedules referenced in Article V, Article
VI and Article X of this Agreement need not be attached to each copy of this Agreement.
The title of and the article, section and paragraph headings in this Agreement are for convenience
of reference only and shall not govern or affect the interpretation of any of the terms or
provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also
denote the other forms, as in each case the context may require. Accounting terms used but not
otherwise defined herein shall have the meanings given to them under GAAP. Any instrument or Law
defined or referred to herein means such instrument or Law as from time to time amended, modified
or supplemented, including (in the case of instruments) by waiver or consent and (in the case of
any Law) by succession of comparable successor Laws and includes (in the case of instruments)
references to all attachments thereto and instruments incorporated therein.




13.11 Resolution of Disputes.




     All Proceedings relating to or arising under or in connection with this Agreement or any
Related Document (collectively, the “Litigation”) shall be brought only in the federal or
state courts located in the State of Delaware, which shall have exclusive jurisdiction to resolve
any Litigation, which each Party irrevocably consents to the jurisdiction thereof for any
Litigation. THE PARTIES IRREVOCABLY WAIVE TRIAL BY JURY IN ANY LITIGATION INCLUDING ANY
COUNTERCLAIM WITH RESPECT THERETO. To the extent that any Party has or hereafter may acquire any
immunity from jurisdiction of any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with
respect to itself or its property, such Party hereby irrevocably waives such immunity in respect of
its obligations under this Agreement. Each Party irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it may now or hereafter
have to the laying of venue of any Litigation in any Delaware court. Each Party hereby irrevocably
waives, to the fullest extent permitted by



67









 





applicable Law, the defense of any inconvenient forum to the maintenance of such Litigation in
any such court.




13.12 Appointment of Representative.




     Each of the Sellers and the Stockholder hereby appoint Steven R. Berlin as its exclusive agent
to act on its behalf as the “Representative” under and for the purposes specified in this
Agreement. In the event Steven R. Berlin is unable or unwilling to serve in such capacity and the
Sellers fail to timely appoint a substitute Representative, then the Stockholder shall be the
“Representative”.



13.13 Performance by Subsidiaries.




     Each party hereto agrees to cause its Subsidiaries to comply with any obligations hereunder
relating to such Subsidiaries and to cause its Subsidiaries to take any other action which may be
necessary or reasonably requested by the other parties hereto in order to consummate the
transactions contemplated by this Agreement; provided however, that this Section 13.13
shall not require any party to take any actions with respect to its Subsidiaries that would not be
required by such party pursuant to Section 7.3.



13.14 Representation by Counsel.




     The parties each acknowledge that each party has been represented by counsel in connection
with this Agreement and the transactions contemplated hereby. Accordingly, any rule of Law or any
legal decision that would require interpretation of any claimed ambiguities in any portions of this
Agreement against the party that drafted it has no application and is expressly waived. If any
provision of this Agreement is, in the judgment of the trier of fact, ambiguous or unclear, that
provision shall be interpreted in a reasonable manner to effect the intent of the parties.



13.15 Passage of Title and Risk of Loss.




          Legal and equitable title to, and risk of loss with respect to, the Purchased Assets shall not
pass to Purchaser until the Closing occurs.



13.16 Guarantee of Obligations of Purchaser.




     Sunrise Senior Living, Inc. hereby guarantees the timely payment and performance of all
obligations of Sunrise Senior Living Investments, Inc. arising under this Agreement and the Related
Documents, including, but not limited to, Sunrise Senior Living Investments, Inc.’s representations
and warranties pursuant to Article VI.



[Signatures begin on next page.]




68









 








     IN WITNESS WHEREOF, the parties hereto have executed and delivered this Agreement as of the
date first written above.



	 	 	 	 	 
	 	 	SELLERS:
	 
	 	 	 	 
	 	 	FOUNTAINS CONTINUUM OF CARE, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	FOUNTAINS RETIREMENT COMMUNITIES, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	HOME & HOSPITAL SERVICES, INC.
	 
	 	 	 	 
	

	 	By:
	 	  /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	FOUNTAINS HOME CARE OF ARIZONA, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	HARVEST VILLAGE PARTNERS, L.L.C.
	 
	 	 	 	 
	 	 	By: Fountains Retirement Communities, Inc., its Manager
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President






69









 






	 	 	 	 	 
	 	 	FOUNTAINS HOME CARE OF NORTH
 CAROLINA, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	FOUNTAINS HOME CARE OF MICHIGAN, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	FOUNTAINS HOME CARE OF ILLINOIS, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	FOUNTAINS SENIOR PROPERTIES OF NEW YORK, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President
	 
	 	 	 	 
	 	 	FOUNTAINS HOME CARE OF NEW YORK, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: President






70









 






	 	 	 	 	 
	 	 	FOUNTAINS RETIREMENT COMMUNITIES
 OF CALIFORNIA, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	FOUNTAINS RETIREMENT COMMUNITIES OF ILLINOIS, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ David Freshwater
	

	 	 	 	 
	

	 	 	 	Name: David Freshwater
	

	 	 	 	Title: Vice President






71









 






	 	 	 	 	 
	 	 	PURCHASER:
	 
	 	 	 	 
	 	 	SUNRISE SENIOR LIVING INVESTMENTS, INC.
	 
	 	 	 	 
	

	 	By:
	 	   /s/ Bradley B. Rush
	

	 	 	 	 
	

	 	 	 	Name: Bradley B. Rush
	

	 	 	 	Title: Vice President
	 
	 	 	 	 
	 	 	SUNRISE SENIOR LIVING, INC. (for purposes of
 Section
13.16 only)
	 
	 	 	 	 
	

	 	By:
	 	   /s/ Bradley B. Rush
	

	 	 	 	 
	

	 	 	 	Name: Bradley B. Rush
	

	 	 	 	Title: Chief Investment Officer






72









 






	 	 	 	 	 
	 	 	D. BARNES (for purposes of Sections 4.2(c),
5.1,
 5.2, 5.4 and 7.9 only):
	 
	 	 	 	 
	 	 	   /s/ David Barnes
	 	 	 
	 	 	David Barnes






73









 






	 	 	 	 	 
	 	 	STOCKHOLDER:
	 
	 	 	 	 
	 	 	   /s/ George B. Kaiser
	 	 	 
	 	 	George B. Kaiser







74









 








ANNEX I




DEFINITIONS




     “Accounting Firm” has the meaning set forth in Section 3.5.



     “Accounts Payable” shall mean all of a Seller’s obligations for the payment of goods
sold or leased or for services rendered to one or more of the Sellers in connection with the
Business, billed or unbilled.



     “Accounts Receivable” shall mean all accounts receivable, book debts and other forms
of obligations belonging or owing to a Seller arising out of services rendered, care provided,
goods sold or property leased by such Seller in connection with the Business, billed or unbilled,
and all monies due or to become due to a Seller under all Contracts for the performance of services
or the sale of goods or both by such Seller, billed or unbilled, including such obligations which
remain outstanding at the time of determination reflected in the Seller Financial Statements, such
obligations as of the date hereof listed on Schedule 5.18, and such obligations existing as
of the Closing Date or that arise in the ordinary course of business after the Closing Date on
account of the conduct of the Business prior to the Closing Date.



     “Affiliate” shall mean, with respect to any specified Person, another Person which,
directly or indirectly controls, is controlled by or is under common control with, the specified
Person. The term “Affiliate” shall include all Subsidiaries of a Person. For the avoidance of
doubt, the Stockholder, the Trust, FCC and their respective Subsidiaries shall be deemed to be
Affiliates of each other and all Sellers shall be deemed Affiliates of each other for purposes of
this Agreement (including Article XI).



     “Affiliated Group” means any affiliated group within the meaning of Code Section
1504(a) or any similar group defined under a similar provision of state, local or foreign Law.



     “Agreement” has the meaning set forth in Section 13.10.



     “Allocation Agreement” has the meaning set forth in Section 3.5.



     “Anti-Kickback Statute” has the meaning set forth in Section 5.32(a).



     “Antitrust Laws” has the meaning set forth in Section 7.3(e).



     “Apportioned Obligations” has the meaning set forth in Section 9.1.



     “Assets” means, with respect to any Person, all of the assets, rights, interests and
other properties, real, personal and mixed, tangible and intangible, owned by such Person.



     “Assigned Contracts” has the meaning set forth in Section 1.4(b).



     “Assigned Permits” has the meaning set forth in Section 1.1(b).



     “Assignment and Assumption Agreements” has the meaning set forth in Section
4.2(b).



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     “Assumed Liabilities” has the meaning set forth in Section 2.1.



     “Assurances Company” has the meaning set forth in Section 7.13(a).



     “Audited Facility Financial Statements” has the meaning set forth in Section
5.6(a)(ii).



     “Audited Seller Financial Statements” has the meaning set forth in Section
5.6(a)(i).



     “Bills of Sale” has the meaning set forth in Section 4.2(a).



     “Books and Records” shall mean all books of account and other books, accounts
receivable information, credit history, customer records, medical records of patients, personnel
records, financial records, inspection records and other business records of every kind whatsoever
pertaining to the Business, the Assets or any of the employees of the Sellers or any Seller
Subsidiary.



     “Bulk Sales Laws” has the meaning set forth in Section 7.11.



     “Business” has the meaning set forth in the recitals hereto.



     “Business Day” means the period from 9:00 a.m. to 5:00 p.m. on any day that is not a
Saturday, Sunday or a day on which banking institutions in New York, New York are not required to
be open.



     “Cash Payment” has the meaning set forth in Section 3.1.



     “Cedar Parke Facility” means that property located at 114 Hayes Mill Road, Winslow
Township, New Jersey 08004 as more fully described on Exhibit A-5 to Schedule 1.1.



     “Cedar Parke Lease” has the meaning set forth in Section 5.12(a).



     “CERCLA” has the meaning set forth in Section 5.26.



     “Claims” has the meaning set forth in Section 11.2(b).



     “Closing” has the meaning set forth in Section 4.1.



     “Closing Date” has the meaning set forth in Section 4.1.



     “Closing Rent Roll” has the meaning set forth in Section 10.2(m).



     “Code” shall mean the Internal Revenue Code of 1986, as amended.



     “Commercially Reasonable Efforts” means as to a party, an undertaking by such party to
perform or satisfy an obligation or duty or otherwise act in a manner reasonably calculated to
obtain the intended result by action or expenditure not disproportionate or unduly burdensome in
the circumstances, which means, among other things, that such party shall not be required
to, (i) except with respect to the amendment of the Existing Management Agreements as contemplated
in Section 7.10, expend funds other than for the payment of the reasonable and customary
costs



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and expenses of employees, counsel, consultants, representatives or agents of such party in
connection with the performance or satisfaction of such obligation or duty or other action, (ii)
institute litigation or arbitration as a part of its Commercially Reasonable Efforts or (iii)
amend, waive or modify a term or condition of, or grant any concessions under or with respect to,
or pay or commit to pay any amount under or with respect to, any Contract or relationship with
respect to which an approval, consent or waiver is sought or any other agreement or relationship
with such person (other than nominal filing and application fees).




     “Community Employees” has the meaning set forth in Section 5.23(a).



     “Compete” has the meaning set forth in Section 7.8(a).



     “Confidential or Proprietary Information” means all information, materials and
documents relating to a Person’s and its Subsidiaries’ business, Assets, financial condition,
operations and prospects, including all Intellectual Property Rights, other than information,
materials and documents which (x) were lawfully in the recipient’s possession prior to any
disclosure by such Person, (y) are or become generally available to the public other than as a
result of disclosure by the recipient, its Affiliates or its or their respective employees, agents,
representatives or others acting on its behalf, or (z) become available to the recipient or its
Affiliates on a non-confidential basis from a source other than such Person, its Affiliates or its
or their respective employees, agents, representatives or others acting on its behalf.



     “Contract” means any loan or credit agreement, note, bond, mortgage, indenture, lease,
sublease, indemnity, indenture, undertaking, promise, purchase order or other agreement,
commitment, instrument, or concession (whether oral or in writing).



     “Corporate and Regional Employees” has the meaning set forth in Section
5.23(a).



     “Covered Person” has the meaning set forth in Section 7.8(a).



     “D. Barnes” has the meaning set forth in Section 4.2(c).



     “Direct Claim Notice” has the meaning set forth in Section 11.4(b)(i).



     “Documents” shall mean any paper or other material (including computer storage media)
on which is recorded (by letters, numbers or other marks) information that may be evidentially
used, including legal opinions, mortgages, indentures, notes, instruments, leases, agreements,
insurance policies, reports, studies, financial statements (including the notes thereto), other
written financial information, schedules, certificates, charts, maps, plans, photographs, letters,
memoranda and all similar materials.



     “Domain Names” shall mean any top level domain name registrations used in the Business
or that incorporate any tradenames, trademarks or service marks used in the Business.



     “Due Diligence Period” has the meaning set forth in Section 7.1(a).



     “Due Diligence Termination Date” has the meaning set forth in Section 7.1(i).



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     “Due Diligence Termination Event” has the meaning set forth in Section 7.1(j).



     “EC&O” has the meaning set forth in Section 11.2(d).



     “Employee” has the meaning set forth in Section 5.25.



     “Employment Loss” has the meaning set forth in Section 5.25.



     “Encumbrance” shall mean any security interest, mortgage, lien, pledge, claim, lease,
agreement, right of first refusal, option, limitation on transfer or use or assignment or
licensing, restrictive easement, charge or any other restriction of any kind with respect to any
Assets, including any restriction on the ownership, use, voting, transfer, possession, receipt of
income or other exercise of any attributes of ownership of such Assets.



     “Entrance Fees” shall mean the entrance fee, membership fee, return of capital, life
estate purchase price, unit purchase price or similar payment (whether refundable or nonrefundable)
made by residents on or prior to the Closing Date under Resident Agreements entered into on or
prior to the Closing Date.



     “Environmental Law” has the meaning set forth in Section 5.26.



     “Equity Interests” means (i) with respect to a corporation, any and all shares,
interests, participation or other equivalents (however designated) of corporate stock, including
all common stock and preferred stock, or warrants, options or other rights to acquire any of the
foregoing and (ii) with respect to a partnership, limited liability company or similar Person, any
and all units, interests, rights to purchase, warrants, options or other equivalents of, or other
ownership interests in, any such Person.



     “ERISA” shall mean the Employee Retirement Income Security Act of 1974 and all rules
and regulations promulgated thereunder.



     “ERISA Affiliate” as applied to any Person, shall mean (a) any corporation which is,
or was at any time, a member of a controlled group of corporations within the meaning of Section
414(b) of the Code of which that Person is, or was at any time, a member, (b) any trade or business
(whether or not incorporated) which is, or was at any time, a member of a group of trades or
businesses under common control within the meaning of Section 414(c) of the Code of which that
Person is, or was at any time, a member and (c) any member of an affiliated service group within
the meaning of Section 414(m) or (o) of the Code of which that Person, any corporation described in
clause (a) above or any trade or business described in clause (b) above is, or was at any time, a
member.



     “ERISA Event” shall mean (a) a “reportable event” within the meaning of Section 4043
of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those
for which the provision for 30-day notice to the PBGC has been waived by regulation), (b) the
failure to meet the minimum funding standard of Section 412 of the Code with respect to any Pension
Plan (whether or not waived in accordance with Section 412(d) of the Code) or the failure to make
by its due date a required installment under Section 412(m) of the Code with respect to any Pension
Plan or the failure to make any required contribution to a Multiemployer



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Plan, (c) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of
ERISA of a notice of intent to terminate such plan in a distress termination described in Section
4041(c) of ERISA, (d) the withdrawal by a Seller or any ERISA Affiliate of a Seller from any
Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan
resulting in liability pursuant to Sections 4063 or 4064 of ERISA, (e) the institution by the PBGC
of Proceedings to terminate any Pension Plan, or the occurrence of any event or condition which
might constitute grounds under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan, (f) the imposition of liability on a Seller or any ERISA Affiliate
of a Seller pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section
4212(c) of ERISA, (g) the withdrawal by a Seller or any ERISA Affiliate of a Seller in a complete
or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any
Multiemployer Plan if there is any potential liability therefor, or the receipt by Seller or any
ERISA Affiliate of a Seller of notice from any Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has
terminated under Section 4041A or 4042 of ERISA, (h) the written assertion of a material claim
(other than routine claims for benefits) against any Plan other than a Multiemployer Plan or the
Assets thereof, or against a Seller or any ERISA Affiliate of a Seller in connection with any such
Plan, (i) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan
that is intended to be qualified under Section 401(a) of the Code to qualify under Section 401(a)
of the Code, or the failure of any trust forming part of any such Pension Plan to qualify for
exemption from taxation under Section 501(a) of the Code or (j) the imposition of a lien pursuant
to Section 401(a)(29) or 412(n) of the Code or pursuant to ERISA with respect to any Pension Plan.




     “Estimated Accounts Receivable Adjustment Amount” has the meaning set forth in
Section 7.14(b).



     “Existing Management Agreements” has the meaning set forth in the recitals hereto.



     “Facility” has the meaning set forth in the recitals hereto.



     “Facility Owners” has the meaning set forth in the recitals hereto.



     “Facilities Purchase and Sale Agreement” has the meaning set forth in the recitals
hereto.



     “Facility Sale Transaction” has the meaning set forth in the recitals hereto.



     “FCC” has the meaning set forth in the preamble hereto.



     “FCC Stock” has the meaning set forth in the recitals hereto.



     “Federal Civil False Claims Act” has the meaning set forth in Section 5.32(a).



     “Federal Criminal False Claims Act” has the meaning set forth in Section
5.32(a).



     “FHC-AZ” has the meaning set forth in the preamble hereto.



     “FHC-IL” has the meaning set forth in the preamble hereto.



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     “FHC-MI” has the meaning set forth in the preamble hereto.



     “FHC-MO” has the meaning set forth in Section 7.9(a).



     “FHC-NC” has the meaning set forth in the preamble hereto.



     “FHC-NY” has the meaning set forth in the preamble hereto.



     “FH&H” has the meaning set forth in the preamble hereto.



     “Final Accounts Receivable Adjustment Amount” has the meaning set forth in Section
7.14(c).



     “Final Accounts Receivable Schedule” has the meaning set forth in Section
7.14(c).



     “Fountains Foundation” means the Fountains Foundation, a public foundation that is tax
exempt under Code Sections 509 (a) (1) and 170(b)(1)(A)(vi).



     “Fountains Resource Center” means that property located at 2001 W. Rudasill Road,
Tucson, Arizona 85704 as more fully described on Exhibit A-4 to Schedule 1.1.



     “FRC” has the meaning set forth in the preamble hereto.



     “FRC-AZ” has the meaning set forth in Section 7.9(a).



     “FRC-CA” has the meaning set forth in the preamble hereto.



     “FRC-IL” has the meaning set forth in the preamble hereto.



     “FSP-NY” has the meaning set forth in the preamble hereto.



     “GAAP” means U.S. generally accepted accounting principles, applied on a consistent
basis.



     “Government Programs” has the meaning set forth in Section 5.32(a).



     “Governmental Entity” means federal, state, municipal, local or foreign government and
any court, tribunal, arbitral body, administrative agency, department, subdivision, entity,
commission or other governmental, government appointed, quasi-governmental or regulatory authority,
reporting entity or agency, domestic, foreign or supranational.



     “Hazardous Waste” has the meaning set forth in Section 5.26.



     “HIPAA” has the meaning set forth in Section 5.32(b).



     “Hired Community Employees” has the meaning set forth in Section 8.1(b).



     “Hired Employees” has the meaning set forth in Section 8.1(b).



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     “Hired Corporate and Regional Employees” has the meaning set forth in Section
8.1(b).



     “Home Care Business” has the meaning set forth in the recitals hereto.



     “HVP” has the meaning set forth in the preamble hereto.



     “Intellectual Property Rights” means all intellectual property rights, including
issued patents, patent applications, common law trademarks and service marks (including logos,
designs and trade dress), trademark and service mark applications and registrations, trade names,
s and the goodwill connected with the foregoing, domain names, copyrights (including proprietary
software, templates and forms, written policies and manuals, and web site content, architecture and
underlying software), copyright applications and registrations, know-how, trade secrets,
inventions, processes and formulae, confidential information, , franchises, licenses, marketing
materials and all documentation and media constituting, describing or relating to the foregoing
intellectual property rights, including memoranda and records.



     “Inventories” means all inventories of the Sellers, wherever located, including all
finished goods, work in process, raw materials, spare parts and other materials and supplies to be
used or consumed by the Sellers in the production of finished goods.



     “La Cholla Bonds” has the meaning set forth in Section 7.20.



     “La Cholla Documents” has the meaning set forth in Section 7.20.



     “Law” means any applicable foreign, federal, state or local law (including common
law), statute, treaty, rule, directive, regulation, ordinances and similar provisions having the
force or effect of law or an Order of any Governmental Entity (including all Environmental Laws).



     “Leases” means all lease agreements and other agreements for the lease, use or
occupancy of, or of space in, certain facilities, buildings, offices, warehouses, structures,
improvements, appurtenances, personal property, equipment, and fixtures used by a Seller in
connection with the Business.



     “Letter of Credit Arrangements” has the meaning set forth in Section 7.22.



     “Liability” means any liability or obligation, whether known or unknown, asserted or
unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated and whether
due or to become due, regardless of when asserted.



     “Licensed Requisite Rights” means all Intellectual Property Rights for which the
Seller purports to have a valid license (or sublicense) to use and which are used in, held for use
in or otherwise relating to the Business.



     “Litigation” has the meaning set forth in Section 13.11.



     “Losses” means any and all losses (including, but without duplication, a diminution in
value of Assets or Equity Interests), injuries, claims (including notices of violation or potential
responsibility from any Governmental Entity), shortages, fines, penalties, damages (including



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consequential, special, punitive, exemplary or incidental damages), Liabilities, expenses
(including reasonable fees and expenses of attorneys and accountants, experts and other
professionals and including costs and expenses relating to any investigation or any defense or
prosecution of any Proceedings), assessments, and Taxes (including interest or penalties thereon).




     “Management Business” has the meaning set forth in the recitals hereto.



     “Material Regulatory Approval” has the meaning set forth in Section 10.1(a).



     “Millbrook Contract of Sale” has the meaning set forth in Section 7.21.



     “Millbrook Gatehouse” means that property located at 79 Flint Road, Millbrook, New
York 12545, as more fully described on Exhibit A-6 to Schedule 1.1.



     “Multiemployer Plan” shall mean a “multiemployer plan” as such term is defined in
section 3(37) of ERISA.



     “New Management Agreements” has the meaning set forth in the recitals hereto.



     “Noncompete Period” has the meaning set forth in Section 7.8(a).



     “Operating Licenses” means the Permits required by state health departments or
comparable Governmental Entities in order to operate Senior Living Facilities, and all certificates
of need or certificates of authority required by state health planning agencies or comparable
Governmental Entities to operate Senior Living Facilities.



     “Order” means any judgment, writ, decree, award, compliance agreement, injunction or
judicial or administrative order and determination of any Governmental Entity or arbitrator.



     “Other Arrangement” shall mean a program, policy, practice or agreement (including
without limitation employment agreements) providing for bonuses, incentive compensation, vacation
pay, severance pay, insurance, restricted stock, stock options, stock purchase rights, deferred
compensation, employee discounts, company cars, tuition reimbursement or any other perquisite or
benefit (including any fringe benefit under Section 132 of the Code) to employees, officers,
directors or independent contractors that is not a Plan.



     “Outside Termination Date” has the meaning set forth in Section 12.1(d).



     “Owned Requisite Rights” means all Intellectual Property Rights purported to be owned
by the Sellers and which are used in, held for use in or otherwise relating to the Business.



     “PBD” has the meaning set forth in Section 4.2(c).



     “PBGC” shall mean the Pension Benefit Guaranty Corporation, or any successor thereto.



     “PCBs” has the meaning set forth in Section 5.26.



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     “Pension Plan” shall mean an “employee pension benefit plan” as such term is defined
in Section 3(2) of ERISA.



     “Permits” means all permits, licenses, authorizations, registrations, franchises,
approvals, certificates, variances and similar rights obtained, or required to be obtained, from
Governmental Entities.



     “Permitted Encumbrances” means: (a) any statutory lien that secures a governmentally
required payment not yet due that arises, and is customarily discharged, in the ordinary course of
the Sellers’ business, (b) zoning regulations and restrictive covenants and easements of record
that do not detract in any material respect from the present use of the Purchased Real Property and
do not materially and adversely affect, impair or interfere with the use of any property affected
thereby, (c) public utility easements of record, in customary form, to serve the Purchased Real
Property, (d) any matter that becomes a Permitted Exception pursuant to Section 10.3(c) and
(e) any Encumbrance with respect to Assets other than the Purchased Real Property that does not
singly or in the aggregate with other such items materially detract from the value of the property
subject thereto or materially detract from or interfere with the use of property subject thereto in
the ordinary conduct of the Management Business or the Home Care Business, as applicable.



     “Permitted Exception” has the meaning set forth in Section 10.3(c).



     “Person” shall be construed broadly and shall include an individual, a partnership, a
corporation (stock or non-stock, membership or non-membership), a limited liability company, an
association, a joint stock company, a trust, a joint venture, an unincorporated organization or a
Governmental Entity.



     “Plan” shall mean any plan, program or arrangement, whether or not written, that is or
was an “employee benefit plan,” as such term is defined in Section 3(3) of ERISA and (a) which was
or is established or maintained by a Seller or any of its Affiliates, (b) to which a Seller or any
of its Affiliates contributed or was obligated to contribute or to fund or provide benefits, or (c)
which provides or promises benefits to any Person who performs or who has performed services for a
Seller or any of its Affiliates and because of those services is or has been (i) a participant
therein or (ii) entitled to benefits thereunder.



     “Post-Closing Tax Period” has the meaning set forth in Section 9.1.



     “Pre-Closing Accounts Receivable Schedule” has the meaning set forth in Section
7.14(b).



     “Pre-Closing Tax Period” has the meaning set forth in Section 9.1.



     “Proceedings” means any claim, action, suit, hearing, investigation or proceedings
before any Governmental Entity or arbitrator.



     “Properties” has the meaning set forth in Section 5.26.



     “Proration Schedule” has the meaning set forth in Section 3.2.



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     “Proration Time” has the meaning set forth in Section 3.2.



     “Purchase Price” has the meaning set forth in Section 3.1.



     “Purchased Accounts Receivable” has the meaning set forth in Section 7.14(a).



     “Purchased Assets” has the meaning set forth in Section 1.1.



     “Purchased Real Property” has the meaning set forth in Section 5.15.



     “Purchaser” has the meaning set forth in the preamble hereto.



     “Purchaser Claims” has the meaning set forth in Section 11.2(a).



     “Purchaser Included Claims” has the meaning set forth in Section 11.8(b).



     “Purchaser Indemnified Persons” means and includes Purchaser and its Affiliates, and
each of their permitted successors and assigns, and the respective officers, directors, employees,
members, stockholders, partners and agents of each of the foregoing.



     “Real Property Law” means building, subdivision, zoning, environmental and other Laws
applicable to real property.



     “Registered Intellectual Property” has the meaning set forth in Section
4.2(c).



     “Related Documents” means, collectively, the Bills of Sale and the Assignment and
Assumption Agreements.



     “Rent Roll” has the meaning set forth in Section 5.14.



     “Representative” has the meaning set forth in Section 13.12.



     “Required Cure Item” has the meaning set forth in Section 10.3(e).



     “Requisite Rights” means, collectively, the Owned Requisite Rights and the Licensed
Requisite Rights.



     “Reserves” has the meaning set forth in Section 5.12(b).



     “Resident Agreements” means any occupancy, residency, lease, tenancy and similar
written agreements entered into in the ordinary course of business with residents of the
Facilities, and all amendments, modifications, supplements, renewals, and extensions thereof.



     “Resident Deposits” means any refundable entrance fee deposits, reservation fee
deposits, purchase price deposits or other similar deposits made by residents under Resident
Agreements on or prior to the Closing Date.



     “Seller Claims” has the meaning set forth in Section 11.2(b).



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     “Seller Contracts” has the meaning set forth in Section 5.13.



     “Seller Disclosure Schedule” has the meaning set forth in Section 13.9.



     “Seller Employees” has the meaning set forth in Section 5.23(a).



     “Seller Financial Statements” has the meaning set forth in Section
5.6(a)(iii).



     “Seller Included Claims” has the meaning set forth in Section 11.8(a).



     “Seller Indemnified Persons” means and includes the Stockholder, the Sellers and D.
Barnes and their respective successors and assigns.



     “Seller Indemnifying Persons” means the Stockholder (and his successors in interest,
legal representatives, heirs, devisees or legatees in accordance with Section 11.2(e)) and
the Sellers (and the Sellers’ respective successors and assigns).



     “Seller Subsidiary” shall mean any Subsidiary of any of the Sellers or any Subsidiary
of such Subsidiary.



     “Seller 2005 Capital Expenditure Budget” has the meaning set forth in Section
5.8(j).



     “Sellers” has the meaning set forth in the preamble hereto.



     “Sellers’ Benefit Payout Obligations” has the meaning set forth in Section
8.1(c).



     “Sellers’ Employee Obligations” has the meaning set forth in Section 8.1(c).



     “Sellers’ 401(k) Plans” has the meaning set forth in Section 8.1(i).



     “Senior Living Facility” shall mean any retirement or senior living facility or
community, including independent and/or assisted living facilities, nursing homes, congregate care
facilities, continuing care retirement communities and other health care facilities providing full
time residential, recreational, personal care, home care, assisted living, nursing care, other
health care and like services, in any combination, to senior citizens.



     “Source Document” has the meaning set forth in Section 7.1(j).



     “Stark Act” has the meaning set forth in Section 5.32(a).



     “Stockholder” has the meaning set forth in the preamble hereto.



     “Subsidiary” of any Person shall mean and include (i) any corporation more than 50% of
whose stock of any classes having by the terms thereof ordinary voting power to elect a majority of
the directors of such corporation (irrespective of whether or not at the time stock of any class or
classes of such corporation shall have or might have voting power by reason of the happening of any
contingency) is at the time owned by such Person directly or indirectly through Subsidiaries, (ii)
any partnership, limited partnership, limited liability company, association, joint venture or
other entity (other than a corporation) in which such Person directly or indirectly



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through Subsidiaries, has more than a 50% equity interest, and (iii) any corporation not
having stock but a majority of whose directors, managers, general partners or executive officers
are elected by such Person though the holding of membership interests, contractual rights or
otherwise.




     “Survey” has the meaning set forth in Section 10.3(b).



     “Taxes” means, with respect to any Person, (A) all income taxes (including any tax on
or based upon net income, or gross income, or income as specially defined, or earnings, or profits,
or selected items of income, earnings or profits) and all gross receipts, sales, use, ad valorem,
transfer, franchise, license, withholding, payroll, employment, excise, severance, occupation,
premium, property or windfall profits taxes, real property tax, alternative or add-on minimum
taxes, customs duties or other taxes, fees, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts imposed by any
Governmental Entity and (B) any Liability for the payment of any amount of the type described in
the immediately preceding clause (A) as a result of (i) being a “transferee” (within the meaning of
Section 6901 of the Code or any other applicable Law) of another Person or a member of an
affiliated or combined group, (ii) being a member of an affiliated, consolidated or combined group
with any other competitors or (iii) a contractual obligation or otherwise.



     “Taxing Authority” means any Governmental Entity with the power to impose Taxes.



     “Tax Return” means any return, declaration, report, claim for refund, or information
return or statement relating to Taxes, including any schedule or attachment thereto, and including
any amendment thereof.



     “Termination Threshold” has the meaning set forth in Section 7.1(k).



     “Title Commitment” has the meaning set forth in Section 10.3(a).



     “Title Defect” has the meaning set forth in Section 10.3(c)(i).



     “Title Insurer” has the meaning set forth in Section 10.3(a).



     “Title Notice” has the meaning set forth in Section 10.3(c)(i).



     “Transfer Taxes” has the meaning set forth in Section 9.1.



     “Trust” has the meaning set forth in the recitals hereto.



     “Unaudited Seller Financial Statements” has the meaning set forth in Section
5.6(a)(iii).



     “WARN Act” shall mean the Worker Adjustment and Retraining Notification Act of 1988,
as amended.



     “Welfare Plan” shall mean an “employee welfare benefit plan” as such term is defined
in Section 3(1) of ERISA.



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Schedule 7.13




Assurances Company




          The Assurances Company (as defined in Section 7.13 of the Agreement) shall be organized
contemporaneously with the Closing on the following terms and conditions:




	(1)  	The Assurances Company shall be organized under the Oklahoma Limited Liability Company Act.
	 
	(2)  	The Articles of Organization of the Assurances Company shall be the same in form and content
as Exhibit A to this Schedule 7.13.
	 
	(3)  	The Articles of Organization of the Assurances Company shall not be amended without the prior
written consent of Purchaser, which Purchaser may grant or deny in its sole discretion.
	 
	(4)  	The sole member of the Assurances Company shall be George B. Kaiser.
	 
	(5)  	The Operating Agreement of the Assurances Company shall be the same in form and content as
Exhibit B to this Schedule 7.13.
	 
	(6)  	The single manager of the Assurances Company shall be Don Millican or such person as George
B. Kaiser may designate from time to time.
	 
	(7)  	The Operating Agreement of the Assurances Company shall not be amended without the prior
written consent of Purchaser, which Purchaser may grant or deny in its sole discretion.
	 
	(8)  	The Assurances Company shall be capitalized at Closing by the contribution of a number of
 shares of Common Stock of BOK Financial Corporation (the “BOKF Stock”), free and clear of all
liens, having an aggregate Value (as defined below) at least equal to $75 million plus the
amount of all liabilities of the Assurances Company as of the Closing Date (as determined in
accordance with generally accepted accounting principles) (the “Assurances Amount”). The
“Value” of a share of BOKF Stock shall mean the average of the last reported sales price of
the BOKF Stock, as reported on the NASDAQ National Market System, at the end of each trading
day during the six-month period ending at the end of the month immediately preceding the month
in which the Closing Date occurs.
	 
	(9)  	Consistent with the Articles of Organization and the Operating Agreement, the Assurances
Company shall engage in no business other than to guarantee the obligations of the Sellers and
the other Seller Indemnifying Parties arising under Article XI and other applicable provisions
of the Agreement as provided in Section 7.13 of the Agreement and arising under Article XI and
other applicable provisions of the Asset Purchaser Agreement as provided in Section 7.13 of
the Asset Purchase Agreement.
	 
	(10)  	The Assurances Company shall have the right to substitute shares of BOKF Stock for other
collateral (the “Substitute Collateral”) by distributing shares of BOKF Stock to the sole
member in exchange for the Substitute Collateral on the following terms and conditions:






	 	(a)  	The Substitute Collateral shall be free and clear of all liens and
shall have, at the time of the substitution, a value at least equal to the
then-current fair market value of the BOKF Stock being distributed.





Page 1 of Schedule 7.13




 









 






	 	(b)  	The Substitute Collateral shall consist of:






	 	(i)  	securities issued by governmental agencies
backed by the full faith and credit of the United States
government;
	 
	 	(ii)  	deposits with, and certificates of deposit
issued by, commercial banks or primary financial institutions
with capital in excess of $500 million, the unsecured debt of
which is rated A-1 or better by Standard & Poors;
	 
	 	(iii)  	shares listed for trading on an exchange (as
defined in the Securities Exchange Act of 1934) which are rated
A-1 or better by Standard & Poors or recommended for purchase
or hold by Smith Barney; and/or;
	 
	 	(iv)  	such securities as Purchaser may approve which
approval shall not be unreasonably withheld.






	(11)  	The Assurances Company shall execute and deliver the Agreement and the Asset Purchase
Agreement solely for the purposes of guaranteeing the obligations of Sellers and the other
Seller Indemnifying Persons pursuant to Article XI and other applicable provisions of the
Agreement and the Asset Purchase Agreement.
	 
	(12)  	On or before the 45th day following the end of each calendar quarter, the Assurances Company
shall prepare and deliver to Purchaser calendar quarter unaudited financial statements
prepared in accordance with the tax (accrual) basis of accounting.
	 
	(13)  	The Assurances Company will keep the BOKF Stock and any other Substitute Collateral free and
clear of all liens.
	 
	(14)  	Subject to this paragraph 14, Purchaser’s rights under paragraphs 3 and 7 above, as well as
the obligations of George B. Kaiser and the Assurances Company set forth on this Schedule
shall expire on September 15, 2012 (the “Expiration Date”); it being understood that the
expiration of such rights and obligations shall not affect the obligations of the Sellers or
the other Seller Indemnifying Persons under Article XI and other applicable provisions of the
Agreement or the Asset Purchase Agreement. Notwithstanding the foregoing, to the extent any
Purchaser Claims are pending on the Expiration Date, until such Purchaser Claims are paid in
full or otherwise finally settled or adjudicated and no longer subject to appeal of further
proceedings, (i) shares of BOKF Stock or Substitute Collateral having a value at least equal
to the lesser of the then-current value of the BOKF Stock or Substitute Collateral or the
aggregate amount of such Purchaser Claims (the “Pending Claims Amount”) shall remain in the
Assurances Company and (ii) the obligations of George B. Kaiser and the Assurances Company,
and the rights of Purchaser, hereunder shall continue to apply subject to this paragraph 14.
	 
	(15)  	On the second anniversary of the Closing Date, the parties to the Agreement hereby agree to
negotiate in good faith whether there is a need to increase (but not decrease) the value of
the BOKF Stock or the Substitute Collateral then included in the Assurances Company, and to
implement any mutually agreed-upon changes resulting from such negotiations.
	 
	(16)  	George B. Kaiser shall be jointly and severally liable with the Assurances Company for any
breach or default by the Assurances Company of any of its obligations set forth on this
Schedule.





* * *




Page 2 of Schedule 7.13




 









 





     The following is a list of Exhibits to Schedule 7.13 that have been intentionally omitted.
Sunrise Senior Living, Inc. agrees to furnish supplementally a copy of any omitted Exhibit upon
request of the Securities and Exchange Commission.



Exhibits




	 	 	 
	Exhibit A

	 	Articles of Organization of Assurances Company L.L.C.
	Exhibit B

	 	Operating Agreement of Assurances Company L.L.C.