Document:

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Exhibit 10.126
                               TAKEOVER AGREEMENT

         This TAKEOVER AGREEMENT (hereinafter, this "Agreement") is made and
entered into this 15th day of May, 2000, by and between BCC Development and
Management Co. (hereinafter, "Owner"), and St. Paul Fire and Marine Company and
its wholly owned subsidiary United States Fidelity & Guaranty Company
(hereinafter, collectively called "Surety").

                                    RECITALS

         A. On or about September 27, 1998, Owner entered into a Contract with
CCI Construction Company, Inc. (hereinafter, "Principal") for the construction
of an assisted living community known as Outlook Pointe at Westerville, located
in Westerville, Ohio (hereinafter, the "Project"). The construction contract
between Principal and Owner, together with all agreed upon Change Orders thereto
are collectively referred to as the "Contract."

         B. On or about September 27, 1998, Surety executed a Performance Bond
for the Project in the penal sum of $5,589,900 (hereinafter, the "Performance
Bond Penal Sum"). On or about September 27, 1998, Surety executed a separate
Payment Bond for the Project in the penal sum of $5,589,900 (hereinafter, the
"Payment Bond Penal Sum"). The Performance Bond and the Payment Bond are
collectively referred to as the "Bonds."

         C. On or about February 22, 2000, Principal voluntarily abandoned the
Project, admitting to Owner and Surety that it was in default under the Contract
and that it was financially incapable of completing its obligations under the
Contract. Shortly thereafter, and at the request of Surety, Owner acknowledged
that Principal was in default and that, in light of the default and abandonment
by Principal, Owner considered Principal as being terminated from the Project.

         D. On or about March 10, 2000, Owner made a formal written demand upon
Surety to cure all defaults and satisfy all obligations of Principal under the
Contract pursuant to Surety's obligations under the Bonds.

         E. As of the date of this Agreement, Principal and Owner have agreed
upon and finalized seven Change Orders for the Project, a listing of which is
attached hereto as Appendix A. Principal has submitted requests for additional
claims for extra work pursuant to which it may seek additional compensation
and/or time extensions.
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         F. In order to provide for completion of the Project by Surety pursuant
to the Bonds, Surety and Owner wish to enter into this Agreement.

                                    AGREEMENT

         NOW THEREFORE, in consideration of Surety agreeing to complete the Work
required by the Contract and for other good and valuable consideration, the
receipt of which is hereby acknowledged, Surety and Owner hereby agree as
follows:

         1. Surety's Agreement To Complete The Contract. Surety hereby agrees to
cause the performance of each and every one of the terms, covenants and
conditions of the Contract, including all modifications thereto, and agrees to
be bound by the Contract. Owner acknowledges that Surety, by its execution of
this Agreement, is acting in its capacity as the surety for the Principal in
making arrangements for the performance and completion of the Contract, and not
as a completing contractor, and that Surety is not assuming any obligation or
liabilities beyond those set forth in the Contract and/or Bonds.

         2. Surety's Right To Use Materials. Insofar as Owner has any right,
title or interest therein, Owner agrees that Surety, or a Construction Manager
completing for it, will have a right to use, without charge, any of the
equipment, materials, and appurtenances furnished or supplied to Principal which
may be stored on or about the premises of the Project or on which it may have
been fabricated for use in connection with the Project, whether or not presently
stored at the Project site.

         3. Current Status Of The Contract. Owner and Surety agree that as of
the date of this Agreement:

                  (a.)  The Contract Sum or Guaranteed Maximum Price under the
                        Contract, including all approved Change Orders is
                        $5,781,540.11.

                  (b.)  Pursuant to the Contract, Owner has paid Principal
                        amounts totaling $3,300,307.02.

                  (c.)  The difference between the amount in subsection (a.) and
                        subsection (b.) shall be hereinafter referred to as the
                        "Contract Balance," which as of the date of this
                        Agreement is $2,481,233.09. The Contract Balance shall
                        be increased or decreased, as provided for under the
                        terms of the Contract, as a result of certain pending
                        Change Orders to the Contract submitted by the Principal
                        and/or the Owner, and as a result of any Change Orders
                        for extra work (work that is different from, in excess

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                        of, or beyond the scope of the work required by the
                        Contract) requested or required by Owner after the date
                        of the execution of this Agreement.

                  (d.)  As of the date of the execution of this Agreement, Owner
                        represents and warrants that, according to the records
                        available to it, the Contract Balance as defined herein
                        is accurate. As of the date of the execution of this
                        Agreement, Surety also represents and warrants that the
                        Contract Balance as defined herein is accurate, and that
                        this representation is made based upon review of all
                        records and information available to Surety, including,
                        without limitation, all records of Principal for the
                        Project. The Parties reserve the right to verify the
                        accuracy of the Contract Balance. The sole remedy of the
                        Parties, should it later be determined that the Contract
                        Balance is inaccurate, is reformation of the Contract
                        Balance to the proper amount.

         4. Owner Agreement To Pay Surety. Owner agrees to pay Surety the total
amount of the Contract Balance (as may be adjusted from time to time pursuant to
Change Order) less a fixed sum of $70,000 (hereinafter, the "Offset"). The
Contract Balance less the Offset is referred to herein as the "Takeover
Agreement Balance." The Owner shall make monthly progress payments to Surety
based upon amounts of work completed by Surety, as provided for in the Contract,
up to a not-to-exceed total equal to the Takeover Agreement Balance. Owner shall
not offset monthly progress payments for any consequential damages other than
for the Offset as provided herein, but shall be entitled to withhold payments as
provided for in the Contract for defective work, incomplete work, retention and
satisfaction of liens on the Project. Additionally, Owner shall be entitled to
withhold amounts for damages or costs incurred by Owner for any breach by Surety
of any covenant or condition set forth in this Agreement including, without
limitation, Additional Withholding (as provided for and defined below).

         5. Acknowledgment Of Allfirst Bank Writs. Surety acknowledges that
Owner has been served with Writs of Execution and/or Attachment (the "Writs") by
Allfirst Bank which designate Owner as a garnishee to satisfy Principal's debt
to Allfirst Bank in the amount of $1,600,691.81. Notwithstanding the Writs,
Surety has demanded that Owner pay the Takeover Agreement Balance directly to
Surety as a condition to its performing under the Bonds. In lieu of initiating
an interpleader action and asking a court to adjudicate the respective rights of
Surety and Allfirst Bank to funds (if any) that may in the future become due and
payable under the terms of the Contract and/or the Bonds, Owner

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has agreed to pay money directly to Surety pursuant to the terms of this
Agreement; provided, however, that Owner's agreement to make such payments to
Surety is conditioned upon Surety's agreement to provide full indemnification
for all claims and damages as provided for in this Agreement.

         6. Indemnification By Surety. The Surety shall defend, indemnify and
hold harmless Owner and its respective past, present and future administrators,
officers, directors, shareholders, employees, predecessors, successors,
representatives, agents, attorneys, advisers, assigns, transferees, parents,
subsidiaries, partners, members, managers, affiliates and legal representatives
(hereinafter, collectively, "Indemnitees"), from and against any and all claims,
liabilities, damages, losses, costs and expenses (including, without limitation,
attorney's fees), arising out of or related in any way to the Writs and/or
payments by Owner to Surety pursuant to the terms of this Agreement.

         7. Conditions Of Indemnification. After receiving notice of any claim
for which Indemnification would be available under this Agreement ("Indemnified
Claim"), the Indemnitee shall, within a reasonable time period, give notice
thereof to Surety, provided that the giving of such notice shall not be a
condition of indemnification. After receipt of notice of an Indemnified Claim,
Surety agrees to bear all reasonable costs and expenses (including attorneys'
fees) incurred in connection with the investigation, negotiation, settlement or
defense of any Indemnified Claim, and further agrees to provide defense counsel
and directly pay all defense costs and damages as incurred. Surety shall have
the right to select counsel for defense of any Indemnified Claim, provided that
such counsel is reasonably acceptable to Owner. Surety further agrees to
indemnify the Indemnitees from and against any liability, damages, losses or
settlements which may be incurred as a result of an Indemnified Claim. The
Indemnitees agree to cooperate with Surety and provide Surety information
regarding the defense of any Indemnified Claims as reasonably required to keep
Surety apprised of the status of defense of such claims. The Indemnitees shall
at all times use reasonable diligence and prudence in the investigation,
settlement and defense of Indemnified Claims.

         8. Completion Contractor. Owner acknowledges that Surety will engage
the services of Paul C. Rizzo & Associates, Inc. (hereinafter, "Rizzo") for the
performance for the work under the Contract. The Surety shall be represented at
the Project by Rizzo. Rizzo will represent the Surety in dealing with the Owner
on day-to-day construction issues with respect to the Project. The Surety hereby
designates Rizzo to prepare and process monthly requisitions consistent with the
terms of the Contract and this

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Agreement. Payments from the Owner shall be made payable to the Surety at the
following address, unless and until the Owner is notified in writing of any
different addresses:

                  St. Paul Surety Claims
                  ATTN:  Gregory L. Daily, MC41
                  P.O. Box 1138
                  Baltimore, MD  21203-1138

Rizzo shall have, on behalf of the Surety, the authority to negotiate Change
Orders for extra work requested or required by the Owner. The Surety, not Rizzo,
must approve in writing all Change Orders regardless of the amount of such
Change Orders. Rizzo has no authority to negotiate deductive Change Orders,
credits, backcharges or net deductions from the Contract or the Contract Balance
of any nature whatsoever without the Surety's prior written approval. Any
agreements with respect to the warranty work of the Principal or corrective work
as a result of latent defects in the work performed by Principal shall require
the written approval of the Surety.

         9. Surety's Limit Of Liability Under The Performance Bond. Except as
provided for in Paragraphs 6, 7 and 14, the total liability of the Surety under
this Agreement and the Performance Bond for completion of the Work under the
Contract and payment of all damages incurred by Owner as a result of the
defaults of Principal, shall not exceed the sum of (i) all amounts paid to
Surety by Owner pursuant to the terms of this Agreement, plus (ii) the Penal Sum
of the Performance Bond. All amounts in excess of amounts paid directly to
Surety by Owner, properly and reasonably expended to complete the Work under the
Contract or compensate Owner for damages resulting from Principal's defaults,
shall be credited to Surety against the Penal Sum of the Performance Bond.
Nothing in this Agreement constitutes a waiver of such penal sum or an increase
in the liability of the Surety under the Performance Bond.

         10. Notices Regarding Completion Of The Work. Owner agrees that it will
give Surety prompt notification of any problems, disputes, or claims that occur
in respect to the remaining work in the completion of the Contract.

         11. Substantial Completion. Surety agrees to achieve Substantial
Completion of the Project within 120 days after execution of this Agreement.

         12. Additional Withholding By BCC. In the event that Surety fails to
achieve Substantial Completion within 120 days after execution of this
Agreement, Owner shall be entitled to withhold additional amounts of the
Contract Balance equal to

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$1500 per day for every day that Surety is late in achieving Substantial
Completion (hereinafter "Additional Withholding"). This provision for Additional
Withholding is not intended as compensation for BCC's delay damages should
Surety fail to perform, but instead represents allowable withholding under this
Agreement whereby BCC shall act as a stakeholder of certain sums. As set forth
below, Owner expressly reserves its rights under the Contract, the Bonds and/or
this Agreement with respect to any and all damages.

         13. Surety's Obligation To Satisfy All Liens. Surety hereby agrees to
satisfy or bond off all currently known liens on the Project (a listing of which
is attached hereto as Appendix B) within fourteen (14) days of the execution of
this Agreement. Surety further agrees to keep the Project totally free and clear
of all liens and encumbrances that have been or may be asserted by any
contractor, subcontractor, supplier, or worker. In order to achieve Substantial
Completion, the Project must be free and clear of all liens and encumbrances.
Surety shall be liable to Owner for all damages incurred by Owner as a result of
encumbrances or liens on the Project.

         14. Surety's Limit Of Liability Under The Payment Bond. Except as
provided for in Paragraphs 7, 6, and 9, the total liability of Surety under this
Agreement and the Payment Bond, for payment of subcontractors and suppliers of
Principal and for satisfaction of labor and materialmen liens and payment of
other damages incurred by BCC as a result of non-payment of subcontractors and
suppliers, shall not exceed the Payment Bond Penal Sum. All amounts properly and
reasonably expended by Surety in order to satisfy payment obligations to
contractors, subcontractors, suppliers, etc. and otherwise fulfill its
obligations under the Payment Bond and Paragraph 13 of this Agreement, shall be
credited to Surety against the Penal Sum of the Payment Bond. Nothing in this
Agreement constitutes a waiver of such Penal Sum or an increase in the liability
of Surety under the Payment Bond.

         15. Surety's Warranty Obligations. Surety shall be obligated to perform
or cause to be performed all warranty work required under the terms of the
Contract, whether such work is required before or after achievement of Final
Completion. All such warranty obligations shall be coextensive with the warranty
obligations under the Contract.

         16. Effective Date: This Agreement is effective as of the date first
written above.

         17. Binding On Successors. This Agreement shall inure to the benefit of
and be binding upon the parties hereto, their

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successors and assigns. Owner and Surety do not intend by any provision of this
Agreement to create any rights in or increase the rights of any third-party
beneficiaries, nor to confer any benefits up or enforceable rights under this
Agreement or otherwise upon anyone other than Owner and Surety. Specifically,
Owner and Surety acknowledge that nothing in this Agreement shall extend or
increase the rights of any third-party claimants or the liabilities or
obligations of Surety under the Bonds.

         18. Modifications. This Agreement may not be amended or altered in any
way except in writing executed by both the parties hereto.

         19. Governing Law. This Agreement shall be governed and controlled by
the laws of the State of Ohio.

         20. Entire Agreement. This Agreement, together with the Contract and
the Bonds, constitute the whole of the understanding, discussions and agreements
by and between Owner and Surety. The terms and provisions of this Agreement are
contractual and not mere recitals. Owner and Surety acknowledge that there have
been no oral, written or other agreements of any kind as a condition precedent
to or to induce the execution and delivery of this Agreement Any written or oral
discussion conducted prior to the effective date of this Agreement shall not in
any way vary or alter the terms of this Agreement.

         21. Notices. Any notices which are required to be given by the terms of
this Agreement, the Contract or the Bonds shall be made in writing as follows:

         As to Owner:

         Robin L. Barker, Esquire
         Balanced Care Corporation
         1215 Manor Drive
         Mechanicsburg, PA  17055

              and

         George B. Foster, Esquire
         Kirkpatrick & Lockhart LLP
         Henry W. Oliver Building
         535 Smithfield Street
         Pittsburgh, PA  15222 - 2312

         As to Surety:

         St. Paul Surety Claims
         Gregory L. Daily, MC41

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         P.O. Box 1138
         Baltimore, MD  21203 - 1138

         22. Interpretation. It is understood and agreed by Owner and Surety
that this Agreement shall be construed without regard to any presumption or
other rule requiring construction against the party causing this Agreement to be
drafted.

         23. Surety's Reservation Of Rights. Surety expressly reserves all
rights, claims or causes of action that it may have against Principal and/or
Owner under the Contract, this Agreement and/or the Bonds to seek recovery of
any damages incurred by Surety as a result of defaults or breaches by Principal
and/or Owner under the Contract and/or this Agreement. Surety also expressly
reserves all prior rights, equitable liens and rights to subrogation that would
be the Principal's, the laborers' or materialmen's or the Contractor's under the
Contract or at law or equity, as well as its own rights dating back to the
execution of the Bonds, including but not limited to those rights and remedies
that may accrue during the completion of the Contract. No waiver of such rights
is agreed to or implied or intended regardless of any provisions of this
Takeover Agreement to the contrary.

         24. Owner's Reservation Of Rights. Owner expressly reserves all rights,
claims and causes of action that it may have against Principal and/or Surety
under the Contract, this Agreement and/or the Bonds to seek recovery of any and
all damages incurred by Owner as a result of defaults under and/or breaches of
the Contract, this Agreement and/or the Bonds. The rights, claims and causes of
action reserved by Owner shall include, without limitation, claims for all
damages incurred by Owner as a result of Principal's and/or Surety's defaults.
Notwithstanding any language in the Contract to the contrary, the making of
payments to Surety as provided for herein shall not constitute a waiver of any
rights or claims for damages resulting from breaches of the Contract. By paying
the Takeover Agreement Balance to Surety, Owner is merely (i) acknowledging
completion of the construction work as required by the Contract (to the extent
of the payments) and (ii) allowing Surety to act as the stakeholder of disputed
amounts under the Contract. Surety hereby acknowledges that BCC has reserved its
rights with respect to damages incurred as a result of defaults of Principal and
that BCC has the right to and may assert claims against Surety and/or Principal
to recover all such damages.

         25. Contract Unaffected. All terms and condition of the Contract shall
be and remain the same.

         26. No Third Party Rights. Other than as set forth below in this
paragraph, the parties hereto do not intend by any

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provision of this Agreement to create any third-party beneficiaries nor to
confer any benefit upon or enforceable rights or otherwise upon anyone other
than the parties hereto. The parties do acknowledge and agree that HCN BCC
Holdings, Inc. may select to have the Owner's benefits and rights under this
Takeover Agreement in the manner set forth in the Collateral Assignment of
Takeover Agreement attached hereto as Appendix C.

         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first written above, and each of the undersigned
personally represent and warrant that they have the full right, power and
authority to execute this Agreement on behalf of the respective parties.

                                       Owner

                                       By:  /s/ Robin L. Barber
                                       Name:    Robin L. Barber
                                       Title:   V.P. and Secretary

                                       Surety

                                       By:  /s/ Gregory L. Daily
                                       Name:    Gregory L. Daily
                                       Title:   Surety Claims Manager

                                       9<PAGE>   1
Exhibit 10.127
                              COMPLETION AGREEMENT

         This Completion Agreement ("Agreement") is made and entered into this
day of June, 2000, by and between BCC Development and Management Company
("Owner") and United States Fidelity & Guaranty Company ("Surety").

                                    RECITALS

         WHEREAS, on or about June 24, 1998, Owner entered into a construction
contract with CCI Construction Company, Inc. ("Principal") for the construction
of an assisted living community known as Outlook Pointe at Chesterfield, located
in Chesterfield, Virginia (the "Project"). The construction contract between
Principal and Owner, together with all agreed upon Change Orders thereto are
collectively referred to as the "Contract."

         WHEREAS, on or about June 24, 1998, Surety executed a Performance Bond
for the Project in the penal sum of $3,850,000.00 (the "Performance Bond Penal
Sum"). On or about June 24, 1998, Surety executed a separate Payment Bond for
the Project in the penal sum of $3,850,000.00 (the "Payment Bond Penal Sum").
The Performance Bond and the Payment Bond are collectively referred to as the
"Bonds."

         WHEREAS, on or about February 22, 2000, Principal voluntarily abandoned
the Project.

         WHEREAS, on or about March 10, 2000, Owner made a formal written demand
upon Surety to cure all defaults and satisfy all obligations of Principal under
the Contract pursuant to Surety's obligations under the Bonds.

         WHEREAS, in order to provide for the prompt and orderly completion of
the Project, Surety and Owner wish to enter into this Agreement.

                                    AGREEMENT

         NOW THEREFORE, in consideration of the mutual covenants and obligations
set forth herein, and for other good and valuable consideration and intending to
be legally bound hereby, Surety and Owner hereby agree as follows:
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         1. The parties agree that the Owner will employ forces to complete all
remaining work on the Project through Final Completion. Owner shall backcharge
against the Contract Balance (as defined herein) all amounts reasonably expended
to complete all of the Work under the Contract. Surety shall have the right to
review and verify all costs incurred in the completion of the Work and the
reasonableness thereof and Surety expressly reserves the right to contest the
validity of any backcharge. Owner expressly agrees that upon achievement of
Final Completion as per the Contract and identification and assessment of all
appropriate backcharges as provided for herein, Surety's obligation under the
Performance Bond to complete the construction work required under the Contract
shall be deemed to have been satisfied. Surety hereby expressly agrees and
acknowledges that, notwithstanding achievement of Final Completion and
satisfaction of certain obligations under the Performance Bond, and provided
that Owner completes the construction work in full compliance with the
requirements set forth in the Contract, Surety shall (i) remain liable for all
warranty obligations for the Project and (ii) remain responsible to satisfy its
obligations under this Agreement and the Payment Bond. Moreover, Owner expressly
reserves the right to assert damage claims under the Bonds and the Contract
resulting from defaults of Principal under the Contract.

         2. The parties understand that as of the date of this Agreement:

                  (a)   The Contract Sum or Guaranteed Maximum Price under the
                        Contract, including all approved Change Orders is
                        $4,089,160.05.

                  (b)   To date, the Owner has paid to the Principal amounts
                        totaling $3,776,419.08.

                  (c)   The difference between the amount in subsection (a) and
                        subsection (b) shall be referred to as the "Contract
                        Balance," which as of the date of this Agreement is
                        $312,740.97. The Contract Balance shall be increased or
                        decreased as provided for under the terms of the
                        Contract as a result of any pending Change Orders,
                        claims or other disputed items of work or requests for
                        additional compensation under the Contract. For purposes
                        of this Agreement, any liquidated damages assessed or to
                        be assessed by the Owner under the Contract shall not be
                        applied so as to reduce the Contract Balance.

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                  (d)   The parties now estimate that the cost to complete the
                        construction work under the Contract is approximately
                        $50,000. This amount is an estimate of the parties based
                        upon available information. This estimate does not
                        constitute a limit on the amount of backcharges that
                        Owner may assess against the Contract Balance nor may it
                        be construed as an acceptance by the Surety of the scope
                        or cost of all work remaining under the Contract. The
                        amount of appropriate backcharges are governed by
                        Paragraph 1 above.

                  (e)   The parties reserve the right to verify the accuracy of
                        the Contract Balance. The sole remedy of the parties in
                        the event it is determined that the Contract Balance is
                        inaccurate, is reformation of the Contract Balance set
                        forth in this Agreement.

         3. After completion of the Work and achievement of Final Completion as
provided for herein, Owner shall pay to Surety the lesser of the following:

                  (a)   The Contract Balance as reduced by all appropriate
                        backcharges for costs incurred by Owner to Complete the
                        Work; or

                  (b)   All Payment Bond losses incurred by Surety in
                        satisfaction of claims or liens pursuant to its
                        obligations under the Payment Bond.

Owner shall not offset or otherwise reduce the payment to Surety for liquidated
damages, delay damages and other losses incurred as a result of Principal's
default under the Contract. Owner shall, however, be entitled to offset and
reduce the payment to Surety for any breach by Surety of its obligations under
this Agreement.

         4. Surety acknowledges that Owner has been served with Writs of
Execution and/or Attachment ("Writs") by Allfirst Bank which designate Owner as
a garnishee to satisfy Principal's debt to Allfirst Bank in the amount of
$1,600,691.81. Notwithstanding the Writs, Surety has requested that Owner pay
all Contract Balance funds remaining after the Owner's completion of the work to
the Surety. In lieu of initiating an interpleader action and asking a court to
adjudicate the respective rights of Surety and Allfirst Bank to funds (if any)
that may in the future become due and payable under the terms of

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the Contract and/or the Bonds, Owner has agreed to pay money directly to Surety
pursuant to the terms of this Agreement; provided, however, that Owner's
agreement to make such payments to Surety is conditioned upon Surety's agreement
to provide full indemnification for all claims and damages as provided for in
this Agreement.

         5. The Surety shall defend, indemnify and hold harmless Owner and its
respective past, present, and future administrators, officers, directors,
shareholders, employees, predecessors, successors, representatives, agents,
attorneys, advisers, assigns, transferees, parents, subsidiaries, partners,
members, managers, affiliates and legal representatives (collectively
"Indemnitees") from and against any and all claims, liabilities, damages,
losses, costs and expenses (including without limitation attorneys' fees),
arising out of or related in any way to the Writs and/or payments by Owner to
Surety pursuant to the terms of this Agreement.

         6. After receiving notice of any claim by Allfirst for which
Indemnification would be available under this Agreement, the Indemnitee shall
within a reasonable time period, give notice thereof to Surety, provided that
the giving of such notice shall not be a condition of indemnification. After
receipt of notice of an Indemnified Claim, Surety agrees to bear all reasonable
costs and expenses (including attorneys' fees) incurred in connection with the
investigation, negotiation, settlement or defense of any Indemnified Claim, and
further agrees to pay all such costs and expenses as incurred on a monthly
basis. Surety shall have the right to review all legal costs and other expenses
for which indemnification is sought. Surety further agrees to indemnify the
Indemnitees from and against any liability, damages, losses or settlements which
may be incurred as a result of an Indemnified Claim. The Indemnitees agree to
cooperate with Surety and provide Surety information regarding the status of any
Indemnified Claims. Surety shall have the right to select counsel of its choice
for the defense of any Indemnified Claim, provided that such counsel is
reasonably acceptable to Owner, or to tender defense of such claims to the
Indemnitees.

         7. With the exception of its liability as set forth in Paragraph 10,
the total liability of the Surety under this Agreement and the Performance Bond
for completion of the Work under the Contract and payment of all damages
incurred by Owner as a result of the defaults of Principal in completing the
Work, shall not exceed the Penal Sum of the Performance Bond. Nothing in this
Agreement constitutes a waiver of such penal sum or an

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increase in the liability of the Surety under the Performance Bond.

         8. Owner agrees that it will give Surety prompt notification of any
problems, disputes, or claims that occur in respect to the remaining work for
the completion of the Contract.

         9. As part of this Agreement, Owner hereby rescinds the notice of
default under the Performance Bond for this Project that it issued to Surety on
April 13, 2000. Owner has agreed to rescind its notice of default for purposes
of implementing this Agreement, and such recession does not constitute an
admission or acknowledgement of any kind with respect to defaults (if any) by
Surety under the Bonds. Pursuant to the terms of this Agreement, Owner reserves
all rights related to any such defaults.

         10. Surety hereby agrees to satisfy or bond off all currently known
liens on the Project by all Claimants that have standing to assert claims under
the Payment Bond within twenty-one (21) days of the execution of this Agreement.
Surety further agrees to keep the Project totally free and clear of all liens
and encumbrances that have been or may be asserted by any contractor,
subcontractor, supplier, or worker that performed work on or supplied material
to the Project on behalf of the Principal prior to the Owner's commencement of
its efforts to complete all remaining work under the Contract.

         11. With the exception of its liability as set forth in Paragraph 7,
the total liability of the Surety under this Agreement and the Payment Bond for
satisfaction of Surety's obligations under the Payment Bond shall not exceed the
sum of (i) all amounts paid to Surety by Owner pursuant to the terms of this
Agreement, plus (ii) the Penal Sum of the Payment Bond. All amounts in excess of
amounts paid directly to Surety by Owner, properly and reasonably expended by
Surety to satisfy its obligations under the Payment Bond, shall be credited to
Surety against the Penal Sum of the Payment Bond. Nothing in this Agreement
constitutes a waiver of such penal sum or an increase in the liability of Surety
under the Payment Bond.

         12. Provided that Owner completes all remaining work on the Project in
full compliance with the requirements set forth in the Contract, Surety shall be
obligated to perform or cause to be performed all warranty work required under
the terms of the Contract, whether such work is required before or after
achievement of Final Completion. All such warranty obligations

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shall be coextensive with the warranty obligations under the Contract.

         13. This Agreement is effective as of the date first written above.

         14. This Agreement shall inure to the benefit of and be binding upon
the parties hereto, their successors and assigns. Owner and Surety do not intend
by any provision of this Agreement to create any rights in or increase the
rights of any third-party beneficiaries, nor to confer any benefits upon or
enforceable rights under this Agreement or otherwise upon anyone other than
Owner and Surety. Specifically, Owner and Surety acknowledge that nothing in
this Agreement shall extend or increase the rights of any third-party claimants
or the liabilities or obligations of Surety under the Bonds.

         15. This Agreement may not be amended or altered in any way except in
writing executed by both the parties hereto.

         16. This Agreement shall be governed and controlled by the laws of the
State of Virginia.

         17. This Agreement, together with the Contract and the Bonds,
constitutes the whole of the understanding, discussions and agreements by and
between Owner and Surety. The terms and provisions of this Agreement are
contractual and not mere recitals. Owner and Surety acknowledge that there have
been no oral, written or other agreements of any kind as a condition precedent
to or to induce the execution and delivery of this Agreement. Any written or
oral discussion conducted prior to the effective date of this Agreement shall
not in any way vary or alter the terms of this Agreement.

         18. Any notices which are required to be given by the terms of this
Agreement, the Contract or the Bonds shall be made in writing as follows:

         As to Owner:

         Robin L. Barber, Esquire
         Balanced Care Corporation
         1215 Manor Drive
         Mechanicsburg, PA  17055

         and

         George B. Foster, Esquire

                                      -6-
<PAGE>   7
         Kirkpatrick and Lockhart LLP
         Henry W. Oliver Building
         535 Smithfield Street
         Pittsburgh, PA  15222-2312

         As to Surety:

         St. Paul Surety Claims
         Matthew L. Silverstein, Esquire
         P.O. Box 1138 (MC 41)
         Baltimore, MD  21203-1138

         and

         Fred A. Mendicino, Esquire
         Watt, Tieder, Hoffar & Fitzgerald, L.L.P.
         7929 Westpark Drive, Suite 200
         McLean, VA  22102

         19. It is understood and agreed by Owner and Surety that this Agreement
shall be construed without regard to any presumption or other rule requiring
construction against the party causing this Agreement to be drafted.

         20. Surety expressly reserves all prior rights, equitable liens and
rights to subrogation that would be the Principal's, the laborers' or
materialmen's or the Contractor's under the Contract or at law or equity, as
well as its own rights dating back to the execution of the Bonds, including but
not limited to those rights and remedies that may accrue during the completion
of the Contract. No waiver of such rights is agreed to or implied or intended
regardless of any provisions of this Agreement to the contrary.

         21. Owner expressly reserves all rights, claims and causes of action
that it may have against Principal and/or Surety under the Contract, this
Agreement and/or the Bonds to seek recovery of any and all damages incurred by
Owner as a result of defaults under and/or breaches of the Contract, the
Agreement and/or the Bonds. The rights, claims and causes of action reserved by
Owner shall include, without limitation, claims for delay damages incurred by
Owner as a result of Principal's and/or Surety's defaults. Notwithstanding any
language in the Contract to the contrary, the making of payments to Surety as
provided for herein shall not constitute a waiver of any rights or claims for
damages resulting from breaches of the Contract. By paying the Contract Balance
to Surety as provided for herein, Owner is

                                      -7-
<PAGE>   8
merely acknowledging completion of the construction work as required by the
Contract. Surety hereby acknowledges that Owner has reserved its rights with
respect to damages incurred as a result of defaults of Principal and/or Surety
and that Owner has the right to and may assert claims against Surety and/or
Principal to recover all such damages.

         22. Owner agrees that as part of its obligations hereunder, it will
stay all pending arbitration proceedings against principal relating to this or
any other Project for a period of ninety (90) days from the date of execution of
this Agreement to provide the parties with an opportunity to negotiate a
settlement of any outstanding claims. Should such settlement negotiations fail,
Owner shall have the right to reinitiate its arbitration proceedings upon the
expiration date of this ninety (90) day period.

         23. All terms and conditions of the Contract shall be and remain the
same.

         24. Other than as set forth below in this paragraph, the parties hereto
do not intend by any provision of this Agreement to create any third-party
beneficiaries nor to confer any benefit upon or enforceable rights or otherwise
upon anyone other than the parties hereto. The parties do, however, acknowledge
that the Contract and the Bonds were collaterally assigned by Owner to New
Meditrust Company LLC ("New Meditrust") at the commencement of the Project and
that, pursuant to such assignment, New Meditrust has certain rights under the
Contract, the Bonds and/or this Agreement.

         25. This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
the same Agreement. Delivery of an executed copy of this Agreement via facsimile
or other electronic transmission shall be deemed effective delivery.

                                      -8-
<PAGE>   9
         IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement on the date first written above, and each of the undersigned
personally represent and warrant that they have the full right, power and
authority to execute this Agreement on behalf of the respective parties.

                                      OWNER

                                      By: /s/ Robin L. Barber
                                      Name:   Robin L. Barber
                                      Title:  Vice President and
                                              Secretary

                                      SURETY

                                      By: /s/ Matthew L. Silverstein
                                      Name:   Matthew L. Silverstein
                                      Title:  Surety Claims Attorney

                                      -9-

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