-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CNKI7iLr5P2gl6A2Fwp3X2I2UnbT+/5i2Plt5KxSwEsZcgnZTM1fhR3LSjM0VNxT 0nwoI6ovjj254b8miYFSAA== 0000899078-98-000351.txt : 19981016 0000899078-98-000351.hdr.sgml : 19981016 ACCESSION NUMBER: 0000899078-98-000351 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980930 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19981015 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITAL SENIOR LIVING CORP CENTRAL INDEX KEY: 0001043000 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-NURSING & PERSONAL CARE FACILITIES [8050] IRS NUMBER: 752678809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-13445 FILM NUMBER: 98726335 BUSINESS ADDRESS: STREET 1: 14160 DALLAS PKWY STREET 2: STE 300 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9727705600 MAIL ADDRESS: STREET 1: 14160 DALLAS PKWY STREET 2: STE 300 CITY: DALLAS STATE: TX ZIP: 75240 8-K 1 FORM 8-K FOR CAPITAL SENIOR LIVING CORPORATION - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 30, 1998 Capital Senior Living Corporation - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 1-17445 75-2678809 - ------------------------------- ---------------- ------------------- (State or other jurisdiction of (Commission File (IRS Employer incorporation) Number Identification No.) 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240 - --------------------------------------------------------------- --------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (972) 770-5600 (Not Applicable) - -------------------------------------------------------------------------------- (Former name or former address, if changed since last report) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 1 Item 2. Acquisition or Disposition of Assets - --------------------------------------------- On September 30, 1998, Capital Senior Living Corporation (the "Company"), through Capital Senior Living Properties 2 - NHPCT, Inc. ("Purchaser"), an indirect wholly-owned subsidiary, completed the acquisition of four senior living communities from NHP Retirement Housing Partners I Limited Partnership ("NHP") for cash consideration of $40,650,000, pursuant to the terms of the Asset Purchase Agreement, attached hereto as Exhibit 2.1, dated as of July 24, 1998, by and between NHP and Capital Senior Living Properties, Inc. The funds for the transaction were provided from working capital of the Company and from the proceeds of a loan pursuant to the terms of the Loan Agreement, attached hereto as Exhibit 2.3, dated as of September 30, 1998, by and between Purchaser and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings Inc. The senior living communities acquired by the Company are The Atrium of Carmichael in Carmichael, California; Crosswoods Oaks in Citrus Heights, California; The Heatherwood in Southfield, Michigan; and The Veranda Club in Boca Raton, Florida. Capital Senior Living, Inc. ("CSL"), a subsidiary of the Company, has operated these communities under a long-term management contract since 1992. The purchase price for the properties was determined by independent appraisal. Personnel working at the property sites and certain home office personnel who perform services for NHP are employees of CSL. NHP reimburses CSL for the salaries, related benefits, and overhead reimbursements of such personnel. Capital Realty Group Brokerage, Inc., a company wholly-owned by Messrs. Jeffrey L. Beck and James A. Stroud, the Chief Executive and Chief Operating Officers of the Company, respectively, received a brokerage fee of $1,219,500 related to this transaction, which was paid by NHP. Item 7. Financial Statements and Exhibits - ------------------------------------------- (a) Financial Statements of business acquired. The financial statements required are not included in this Form 8-K Current Report, but will be filed not later than seventy-five days after the date of this Form 8-K Current Report. (b) Pro forma financial information. The pro forma financial statements required are not included in this Form 8-K Current Report, but will be filed not later than seventy-five days after the date of this Form 8-K Current Report. (c) Exhibits. 2.1 Asset Purchase Agreement, dated as of July 24, 1998, by and between Capital Senior Living Properties, Inc. and NHP Retirement Housing Partners I Limited Partnership. 2.2 Assignment and Amendment to Asset Purchase Agreement, effective as of September 29, 1998, by and among NHP Retirement Housing Partners I Limited 2 Partnership, Capital Senior Living Properties, Inc., and Capital Senior Living Properties 2 - NHPCT, Inc. 2.3 Loan Agreement, dated as of September 30, 1998, by and between Capital Senior Living Properties 2 - NHPCT, Inc. and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings Inc. 99.1 Press Release, dated October 5, 1998. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CAPITAL SENIOR LIVING CORPORATION (Registrant) Date: October 15, 1998 By: /s/ Lawrence A. Cohen ------------------------------------- Lawrence A. Cohen Chief Financial Officer 4 EXHIBIT INDEX Sequentially Exhibit No. Exhibit Description Numbered Page - ----------- ------------------- ------------- 2.1 Asset Purchase Agreement, dated as of July 24, 1998, by and between Capital Senior Living Properties, Inc. and NHP Retirement Housing Partners I Limited Partnership. 2.2 Assignment and Amendment to Asset Purchase Agreement, effective as of September 29, 1998, by and among NHP Retirement Housing Partners I Limited Partnership, Capital Senior Living Properties, Inc., and Capital Senior Living Properties 2 - NHPCT, Inc. 2.3 Loan Agreement, dated as of September 30, 1998, by and between Capital Senior Living Properties 2 - NHPCT, Inc. and Lehman Brothers Holdings Inc. d/b/a Lehman Capital, a division of Lehman Brothers Holdings Inc. 99.1 Press Release, dated October 5, 1998 5 EX-2 2 EXHIBIT 2.1 - ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (the "Agreement"), made and entered into as of this 24th day of July, 1998 (herein called the "Effective Date"), by and among NHP Retirement Housing Partners I Limited Partnership, a Delaware limited partnership ("Seller") and Capital Senior Living Properties, Inc., a Texas corporation, and its assigns ("Purchaser"), WITNESSETH: ---------- WHEREAS, Seller is the owner of certain lots and parcels of land situated in the States of California, Florida and Michigan, and more fully described in Schedule A attached hereto (collectively referred to herein as the "Land"); and WHEREAS, Seller is the owner of five (5) retirement communities which include four (4) retirement facilities located on the Land and listed in Schedule B attached hereto (such four (4) facilities being sometimes referred to herein separately as a "Facility" and collectively as the "Facilities"); and WHEREAS, Seller desires to sell and Purchaser desires to purchase the Land, the Facilities and certain other assets of Seller located on the Land or used in or in connection with the operation of the Facilities, all upon the terms and conditions hereinafter set forth. NOW, THEREFORE, for and in consideration of the mutual covenants and agreements herein contained, the parties hereto do hereby covenant and agree as follows: 1. ACQUISITION OF ASSETS. Seller shall sell and deliver to Purchaser and Purchaser shall purchase and accept from Seller, all of Seller's right, title, benefit, and interest in and to the Land, Facilities and the assets (excluding those assets listed on Schedule 1.1 hereto) of Seller used in or in connection with the operation of the Facilities as of the Effective Date, together with replacements thereof and additions thereto made between the Effective Date and the Closing Date, (collectively referred to herein as the "Assets"), including, without limitation, all assets described in the following categories: 1.1 The fee interest in the Land and the buildings (including without limitation the Facilities), structures, erections, appurtenances, easements, and improvements now thereon (collectively referred to herein as the "Premises") and the fixtures belonging to Seller and used in connection therewith including, if any, all venetian blinds, window shades, screens, screen doors, storm windows and doors, awnings, shutters, furnaces, heaters, heating equipment, stoves, ranges, oil and gas burners and fixtures appurtenant thereto, hot water heaters, plumbing and bathroom fixtures, electric and other lighting fixtures, mantels, outside television antennas, satellite dishes, fences, gates, trees, shrubs, plants, air conditioning equipment, ventilators, garbage disposals, dishwashers, washing machines and dryers. 1.2 All vehicles, machinery, equipment, furniture, furnishings and accessories of all kinds, whether owned or leased by Seller, used in connection with the Facilities. 1.3 Seller's entire inventory used or maintained in connection with the Facilities, including, but not limited to, food, pharmaceuticals, drugs, cleaning materials, linens and medical and office supplies (the "Inventory"). 1.4 To the extent transferable under federal or state law, all of the patient, medical, clinical, historical, financial, and personnel records of the Facilities, and all of the operating manuals, procedures manuals, training manuals, and other books and records used by Seller in operating the Facilities. 1.5 To the extent transferable under state law, all licenses, permits, certificates and franchises necessary to operate and conduct the business of the Facilities and all waivers of any requirements pertaining to such licenses, permits, certificates, and franchises. 1.6 All good will, registered or unregistered trademarks, trade or brand names, service marks and similar intangible property pertaining to the Facilities. 1.7 The exclusive right to use the trade names of each of the Facilities as set forth on Schedule 1.7 hereto or any variation thereof, as part of the name or in connection with the Facilities or any part thereof. 1.8 All surveys, environmental reports, plans, specifications, and architectural renderings of the Facilities in the possession or control of Seller. Attached hereto as Schedule 1.2 is a comprehensive list (excluding the assets described in Schedule 1.1 hereof) of the vehicles, fixtures, machinery, equipment, furniture, and furnishings owned by Seller and used in or in connection with the operation of the Facilities. Attached hereto as Schedule 1.3 is a comprehensive list of all material assets related to the operation of the Facilities which are leased by Seller. 2. CONSIDERATION. In consideration of the sale and transfer by Seller hereunder of the Assets to Purchaser and of the agreement herein by Seller to perform each of its other obligations hereunder, Purchaser shall pay to Seller an amount and assume from Seller certain liabilities, in each case as set forth below: 2.1 Purchase Price. The aggregate purchase price for the Assets shall be Forty Million Six Hundred Fifty Thousand and 00/100 Dollars ($40,650,000.00), payable in cash at closing (herein referred to as the "Purchase Price"). 2 2.1.1Purchase Price Allocation. Attached hereto as Schedule 2.1.1 is an allocation of the Purchase Price among the Assets. The Purchase Price allocation set forth in Schedule 2.1.1 is made with the knowledge and understanding that it will be used by the parties for all purposes including tax, reimbursement, and other purposes. Each party agrees that it will report the transaction in accordance with such allocation and that it will not take a position inconsistent with such allocation except with the written consent of the other party to this Agreement. Each party shall make available to the other party all filings and reports required under Section 1060 of the Code. 2.1.2Appraised Value of Assets. The Purchase Price is based on appraisals for each of the Assets prepared in July of 1997, by Senior Living Valuation Services, Inc. (the "Appraisals"). A copy of each of the Appraisals were delivered to Purchaser, which Appraisals and the value reflected in each Appraisal by Facility are as follows: Atrium at Carmichael: $ 8,700,000.00 Dated: July 24, 1997 Crosswoods Oaks: $ 5,400,000.00 Dated: July 24, 1997 Heatherwood: $ 8,600,000.00 Dated: July 18, 1997 Varenda Club $17,950,000.00 Dated: July 19, 1997 2.2 Assumed Liabilities. Purchaser will assume from Seller at Closing only the obligations and liabilities of Seller related to (i) the ownership and operation of the Facilities which accrue or otherwise are to be performed on or after Closing in respect of the contracts and agreements listed in Schedule 2.2 attached hereto (collectively referred to herein as the "Assumed Contracts"), in each case as in effect at Closing and solely to the extent that the existence at or after Closing of such liabilities or obligations does not constitute a breach of any representation or warranty made by Seller herein or in connection herewith; (ii) proratable items which are not yet due and payable by Seller prior to or at Closing and for which Purchaser receives a credit at Closing; and (iii) obligations with respect to any security deposits or patient trust funds held by Seller and transferred to Purchaser on the Closing Date. The liens and other related security regarding the Pension Notes secured by the Facilities (the "Mortgage") shall be released at Closing. Notwithstanding anything to the contrary herein, or in any other writing delivered in connection herewith, nothing herein or in any such other writing shall be construed to constitute the assumption, express or implied, by Purchaser of any obligations or liability of Seller or of any Affiliate thereof, except solely for the obligations and liabilities expressly agreed to be assumed at Closing by Purchaser pursuant to the first sentence of this Section 2.2. To the extent that any of the Assumed Contracts are not assignable without the consent of a third party, this Agreement shall not of itself constitute an assignment or an attempted assignment of such Assumed Contracts if such assignment or attempted assignment would constitute a breach thereof. Seller will use all reasonable efforts to 3 obtain the consent to the assignment to Purchaser of each such Assumed Contract with respect to which such consent is required for such assignment. 3. DEPOSIT. Upon entering into this Agreement, Purchaser shall escrow with Lawyers Title Insurance Corporation, 600 North Pearl, Suite 700, Lock Box 185, Dallas, Texas, 75201 ("Escrow Agent") the sum of Ten Thousand and 00/100 Dollars ($10,000.00), which sum (the "Deposit"), together with all interest earned thereon, shall be held by Escrow Agent for Purchaser's benefit, and either applied, returned or forfeited according to the terms of this Agreement. 4. TITLE REQUIREMENTS. Seller will deliver to Purchaser at Closing (without exception) good and marketable title to all of the Assets (except those Assets listed in Schedule 1.3 attached hereto, to which Assets Seller shall deliver a good and marketable leasehold interest therein) subject to the following requirements: At Closing, Seller shall convey the Premises (including without limitation the Facilities) to Purchaser by special warranty deed, subject to no Liens or encumbrances whatsoever, other than (i) real estate taxes and assessments which are a lien but not yet due and payable at Closing, (ii) zoning and building code ordinances and regulations which are applicable to the Premises and have not been violated, (iii) encumbrances which are shown on the surveys of the Premises prepared and/or updated as provided by this Agreement which are acceptable to Purchaser, (iv) rights of tenants of the Facilities on the Closing Date, and (v) those exceptions to title referenced in the Title Commitments, as hereinafter defined, which are accepted (or deemed accepted) by Purchaser (all of the foregoing collectively referred to herein as the "Permitted Exceptions"). At Closing, Seller shall convey to Purchaser the furniture, fixtures, machinery, equipment and Inventory included in the Assets by bill of sale with warranty of title and shall assign to Purchaser the leases of the Assets described in Schedule 1.3., free and clear of the Mortgage. If, on or before the Closing Date, Seller shall fail for any reason to remove or discharge any Lien or encumbrance on any Facility other than those Liens or encumbrances included in Permitted Exceptions, Purchaser may elect, in its sole discretion, to terminate this Agreement. 5. TITLE POLICY AND SURVEY. Within thirty (30) days after the Effective Date, Seller, at its expense, shall furnish Purchaser with a preliminary binder of title insurance ("Title Commitments") from Lawyers Title Insurance Corporation and/or its authorized agents (the "Title Company") agreeing to insure title to each Facility in the name of Purchaser in the full amount of the Purchase Price allocated to the Land and Facilities as set forth in Schedule 2.1.1. Such preliminary title insurance binders shall be issued in the most recently approved ALTA form without exception, other than Permitted Exceptions. The acceptability of title to each of the Premises shall be determined by Purchaser, in its discretion, within the later to occur of: (i) twenty (20) days after receipt of both the Title Commitments and the Surveys, as hereinafter 4 described, for the Premises, or (ii) the expiration of the Inspection Period. If any exceptions other than Permitted Exceptions are not cured by Seller within twenty (20) days after receipt of notice thereof from Purchaser, or thereafter waived by Purchaser, Purchaser may terminate this Agreement. In the event Purchaser does not elect to terminate this Agreement, Purchaser and Seller shall proceed with Closing, and the cost of curing title shall be offset against the Purchase Price. The Title Commitments shall be attached hereto as Schedule 5. At Closing, the Title Company shall issue Owner's Policies of Title Insurance to Purchaser insuring Purchaser's fees simple title to the each of the Premises free and clear of all matters other than the Permitted Exceptions and deleting all standard exceptions. In connection therewith, on or before Closing, Seller agrees to execute and deliver to the Title Company all necessary certificates and affidavits to delete standard exceptions. Promptly after the Effective Date, Seller shall deliver to Purchaser all survey, topographical and title information now in Seller's possession and shall procure, at Seller's expense, within thirty (30) days after the Effective Date, a current survey or recertification of the existing survey for each of the Premises meeting the minimum standard and detail requirements for currently approved ALTA Land Title Surveys and the requirements of the Title Company to delete the standard "survey exceptions" (the "Surveys"), and be paid by Seller. 6. SELLER'S COVENANTS, REPRESENTATIONS, AND WARRANTIES. As an inducement to Purchaser entering into this Agreement, Seller makes the following covenants, representations and warranties, in addition to those contained elsewhere elsewhere herein: 6.1 Corporate Matters. ----------------- 6.1.1 Organization, Power, and Standing. Seller is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware, and is qualified to do business in each state in which it is now doing business, and has all requisite partnership power and authority to execute, deliver, and perform this Agreement, to carry on the business of the respective Facilities as now conducted, to own, lease, or otherwise use its respective Assets, and to consummate the transactions contemplated hereby. 6.1.2 Authorization and Enforceability. This Agreement has been duly authorized, executed, and delivered by Seller, and, to the best of Seller's knowledge, constitutes the legal, valid, and binding obligation of Seller and is enforceable against Seller in accordance with its terms, except to the extent such enforceability may be limited by bankruptcy, reorganization, insolvency, or similar laws of general applicability governing the enforcement of the rights of creditors or by the general principles of equity (regardless of whether considered in a proceeding at law or in equity). 6.1.3 Compliance with Charter Documents. The execution, delivery, and performance of this Agreement by Seller and the consummation by Seller of the transactions contemplated hereby will not violate or conflict with or constitute a default under any term of the 5 Limited Partnership Agreement of Seller. Attached hereto as Schedule 6.1.3 is a true and complete copy of the Limited Partnership Agreement of Seller, and all amendments thereto, in effect as of the Effective Date. 6.1.4 No Breach, Etc. The execution, delivery, and performance of this Agreement by Seller will not conflict with or result in a breach of or default by Seller under any term, condition, or provision of any order, writ, injunction, decree, contract, agreement or instrument to which Seller is a party or subject, or by which Seller or the Assets are or may be bound; will not result in the creation or imposition of any lien, charge, or encumbrance of any nature upon any of the Assets; and will not give to others any interest or rights in, or with respect to, any of the Assets. 6.2 Seller's Financial Statements. Attached as Schedule 6.2.1 are the financial statements of Seller for the years ending December 31, 1995, December 31, 1996, and December 31, 1997, all of which have been audited by Ernst & Young, LLP (the "Seller's Annual Financial Statements"). The Seller's Annual Financial Statements (including the notes thereto) are, to the best of Seller's knowledge, prepared in conformity with generally accepted accounting principles. Seller has also provided Purchaser with Seller's financial statements through April 30, 1998, and shall deliver to Purchaser, as promptly as possible following the Effective Date, Seller's unaudited financial statements for the period from January 1, 1998, to the end of the month immediately prior to the Effective Date ("Seller's Interim Financial Statements"). 6.3 Character of Operations, Compliance with Laws. --------------------------------------------- 6.3.1 Compliance Generally. To the best of Seller's knowledge, neither the execution and delivery of this Agreement by Seller nor the consummation by Seller of any transaction contemplated hereby does or will violate or give rise to any violations or default under any Legal Requirement assuming (i) Purchaser secures all necessary approvals from federal, state, and local governmental and administrative agencies having jurisdiction thereof required for the acquisition of the Facilities by Purchaser, and (ii) Purchaser and Seller make any applicable filing required under the Hart-Scott-Rodino Antitrust Improvements Act, 15 USC ss. 18a and the regulations promulgated thereunder. The Seller does not have actual knowledge that the operation of the Facilities as heretofore or currently conducted was or is in violation of, or that Seller is in default under any Legal Requirement. Seller has not received any notice of any impending order or requirement that would cause additional expenditures to be made to bring the Premises and the Assets into compliance with Legal Requirement. The sale of the Assets to Purchaser is not subject to any bulk sales act. 6.3.2 No Bribes, Illegal Payments. Neither Seller, nor any general partner of Seller, nor, to the best of Seller's knowledge, any employee or agent of Seller, has directly or indirectly given or agreed to give any gift, contribution, payment, or similar benefit to any supplier, customer, governmental employee or other Person who was, is, or may be in a position to help or hinder Seller or any Facility (i) which could subject Seller or Purchaser to any damage or penalty in any 6 damage or penalty in any civil, criminal or governmental litigation or proceeding, or (ii) the non-continuation of which in the future could reasonably be expected to result in a material adverse effect on the business, operations, assets, prospects or condition, financial or otherwise, of the Facilities. 6.3.3 Seller's Licenses. Schedule 6.3.3 attached hereto contains a true and complete list of all currently effective licenses, permits, approvals and qualifications issued to Seller by applicable governmental agencies (whether federal, state, local or other) in connection with the ownership of the Assets and the operation of the Facilities (collectively, "Seller's Licenses"). Seller's Licenses are all of the licenses, permits, approvals, and qualifications necessary for the ownership and operation by Seller of the Assets including, without limitation, each of the Facilities. Seller's Licenses are in full force and effect and no such License is conditional or restricted. 6.3.4 Compliance of Facilities with State Licensure, Medicare and Medicaid Certification Requirements. Each Facility currently meets and, as of the Closing Date, shall meet, in all respects, all standards and conditions for the operation and licensure of such Facility, including those for skilled and intermediate care nursing facilities to the extent such standards and conditions are applicable to such Facility and, if eligible, for participation in the Medicare and Medicaid programs under federal, state, and local governmental laws, rules, regulations, guidelines, standards, and conditions, and is not subject to any variances or waivers with respect to licensure or operational requirements. 6.3.5 Returns, Reports, Etc. All cost reports and all sales and use tax returns necessary to be filed by Seller with any governmental authorities on or prior to the Effective Date, including those to be filed on or prior to the Closing Date, have been, or will be, accurately completed in all material respects and properly and timely filed with the appropriate taxing authority. Seller has no obligations to the States in which the Facilities are located for reimbursement of Medicaid depreciation recapture liabilities or to the United States Government for Medicare overpayment liabilities. 6.3.6 Work Order, Statements of Deficiencies. There are no pending work orders or statements of deficiencies relating to the Premises or any Facility which have been required or issued by any state department of health or Medicare or Medicaid certification agency, or any insurance company, police or fire department, sanitation, health or work authorities or any other federal, state, or municipal authority. Seller shall provide to Purchaser a copy of any such work order or statement of deficiencies received by Seller after the Effective Date within five (5) days after receipt thereof. 6.3.7 Environmental Matters. Seller is not subject to any type of enforcement actions or compliance order for any violation or alleged violation of any environmental laws, rules, standards, or regulations relating to the Premises or any Facility, including, but not limited to, those related to waste-management, air pollution control, waste-water treatment or noise abatement. Seller has not received any 7 notice or citation for noncompliance by it with respect to any of the foregoing relating to the Premises or any Facility. To the best of Seller's knowledge: (i) Seller has not been notified that any person's health has or may have been impaired (including any past or present employee) as the result of the use, existence, or disposal of Hazardous Materials or Infectious Wastes on the Premises. (ii) All Infectious Wastes have been stored, transported, and disposed of in accordance with all laws and licensure and certification standards applicable to Seller and the respective Facilities. (iii) There are no underground fuel storage tanks located at the Premises except as indicated in the Existing Site Assessments. (iv) The Premises are not contaminated with any Hazardous Materials or Infectious Waste and neither Seller nor any of Seller's employees, agents, licensees, or invitees have placed or permitted the placement of any Hazardous Materials or Infectious Waste in, on, or over the Premises; the Premises do not appear on any state or Federal Comprehensive Environmental Responsibility, Compensation and Liability Act, or Super Fund lists as being classified as a hazardous waste site; and the Premises have not been used as a plant or site where Hazardous Materials or Infectious Waste was subjected to treatment, storage, disposal, or recovery. 6.3.8 Litigation. Except as set forth on Schedule 6.3.8 attached hereto, there is no litigation, at law or in equity, or any proceeding before or investigation by any federal, state, or municipal court, board, or other governmental or administrative agency or any arbitrator, against Seller in connection with the operation of the Facilities or otherwise affecting the Assets, or questioning or challenging the validity of this Agreement or actions to be taken hereunder, pending or, to the best of Seller's knowledge, threatened, involving a claim of $10,000 or more ($40,000 in the aggregate), nor has Seller given notice to any insurers (for notice or adjustment purposes) of any claim against Seller. No credit will be given Seller at Closing for any litigation claims pending or threatened. No judgment, decree, or order of any federal, state, or municipal court, board, or other governmental or administrative agency or any arbitrator (i) has been issued, to the best of Seller's knowledge, against any Person other than Seller which could have any material adverse effect on the business, operations, assets, prospects or condition, financial or otherwise, of Seller or the operation of any Facility, or (ii) has been issued against Seller. 6.4 Assets and Liabilities. ---------------------- 6.4.1 Condition of Certain Assets. To the best knowledge of Seller, all machinery and equipment included in the Assets, including without limitation, all heating, air conditioning, electrical and life 8 safety equipment/systems installed on the Premises, are in good working order, ordinary wear and tear excepted, and the roofs of each Facility are in good repair, ordinary wear and tear excepted. 6.4.2 Warranties and Guarantees. To the best knowledge of Seller, Schedule 6.4.2 attached hereto contains a true and complete list of all written warranties and guarantees currently in effect in connection with the buildings and other improvements on the Premises including by way of illustration, and not by way of limitation, any warranties on the roofs of the buildings and any warranties and guarantees in connection with any heating, air conditioning, or other equipment in, or about said buildings or improvements and any rights Seller may have against their general contractors or their subcontractors (collectively, the "Warranties and Guarantees"). Seller shall assign the Warranties and Guaranties to Purchaser, at Closing, to the extent such Warranties and Guaranties are transferable or assignable and Seller shall assist Purchaser in enforcing such Warranties and Guarantees. 6.4.3 Inventory. All items of Inventory included in the Assets consist and will consist of, as of Closing, items of a quality customarily used by Seller in the ordinary course of the business of its Facilities. 6.4.4 Trade Names. Seller has the right to use the respective names of its Facilities as set forth in Schedule B attached hereto in the market area of the respective Facilities, and Seller has not licensed or entered into any agreement to permit any person or entity to use such Facility name or any variation thereof. To Seller's knowledge, the use of such Facility names by Seller does not, and the use of such Facility names by Purchaser in the respective market areas of each Facility in a manner consistent with Seller's past practices will not, as of the Closing Date, conflict with any rights to any similar name owned by any other person or entity known to Seller. 6.4.5 Liabilities. Except as set forth in the Schedules attached hereto, to the best knowledge of Seller, there are no liabilities of Seller affecting the Assets, whether absolute, contingent, or fixed, liquidated or unliquidated, matured or not yet due, of any nature, including tax liabilities, other than (i) liabilities expressly accounted for and disclosed in Seller's Annual Financial Statements or Seller's Interim Financial Statements, or (ii) liquidated, non-contingent liabilities incurred by Seller in the ordinary course of business since December 31, 1997. 6.4.6 Liens and Encumbrances. As of the Effective Date, to the best knowledge of Seller, the Assets are not subject to any Liens or encumbrances other than those Liens and encumbrances included in the Permitted Exceptions, the personal property Permitted Exceptions and such other Liens or encumbrances which shall be paid and released at Closing. After giving effect to the transfer to Purchaser at Closing, the Assets will not be subject to any Lien except (i) any Lien included in the Permitted Exceptions and the personal property Permitted Exceptions (ii) any Lien created by Purchaser, if any, and (iii) any Lien insured against by title insurance. If, subsequent to the Closing, 9 any mechanic's or other lien, charge or order for the payment of money shall be filed against the Assets or against Purchaser or its assigns, based upon any act or omission of Seller, its agents, servants, or employees, or any contractor or subcontractor connected with construction on the Premises prior to Closing (whether or not such lien, charge, or order shall be valid or enforceable as such), within thirty (30) days after notice to Seller of the filing thereof, Seller shall take such action, by bonding, deposit, payment or otherwise, as will remove and satisfy such lien of record as against the Assets. 6.4.7 Taxes. To the best knowledge of Seller, all taxes, excises and assessments against the Assets due and payable on or before the Effective Date have been paid. As of Closing, there will be no unpaid or outstanding taxes or assessments against the Assets or any part thereof (except only taxes and assessments not yet due and payable to be adjusted as of the Closing Date). To the best knowledge of Seller, there are no agreements, waivers or other arrangements providing for an extension of time with respect to the assessment of any type of tax or deficiency against Seller with respect to the Assets owned by Seller, nor are there any actions, suits, proceedings, investigations, or claims for additional taxes and assessments asserted by any taxing authority with respect to the Assets owned by Seller of which Seller has notice. 6.4.8 Certain Real Estate Matters. There are no pending real estate tax abatement actions or proceedings, there is no unrepaired casualty damage to the Premises and there are no pending or, to the best of Seller's knowledge, threatened eminent domain or condemnation proceedings, with respect to the Premises. The Premises are each located on separate and independent tax parcels. 6.4.9 Trade Payables. Except as specifically provided otherwise in this Agreement, Seller shall pay all of its trade payables when and as due before and after the Closing. 6.4.10 Tenant and Patient Accounts. Except as set forth in Schedule 6.4.10 attached hereto, as of the Effective Date, no tenants or patients at any Facility (nor third party payors responsible for such patients) are delinquent in the payment of their bills owed to Seller. At Closing, Seller shall provide Purchaser with a update to Schedule 6.4.10 certified as of the Closing Date. 6.5 Contractual Matters. 6.5.1 Contracts. Schedule 6.5.1.1 attached hereto contains a true and complete list of all material written contracts, agreements, and leases (other than (i) material agreements described in Section 6.6.1 hereto (the "Labor Contracts"); and (ii) occupancy agreements of each Facility (the "Occupancy Agreements")), between Seller and any other person or entity currently in effect in connection with the 10 Premises or the operation of the Facilities (together with the Labor Contracts and Occupancy Agreements, collectively referred to herein as the "Contracts"). Seller has heretofore delivered to Purchaser a true and complete copy of each such Contract listed in Schedule 6.5.1.1. Each Assumed Contract is in full force and effect, and, to the best of Seller's knowledge, neither Seller nor any other party to any Assumed Contract is in default of its respective obligations thereunder, and to the best of Seller's knowledge, no event exists which, with notice or passage of time, would become an event of default by Seller thereunder. 6.5.2 Transactions with Affiliates. Except as set forth in Schedule 6.5.2 attached hereto, no Affiliate of Seller is an officer, director, employee, consultant, competitor, customer, or supplier of, or is a party to any Contract with, Seller in connection with any of the Facilities (collectively, "Affiliate Arrangements"). Unless Purchaser otherwise agrees in writing, Seller shall terminate or cause to be terminated each such Affiliate Arrangement described in Schedule 6.5.2 hereto on or before the Closing Date. There are no trade names, proprietary knowledge or licenses that any such Affiliate owns or is licensed or otherwise has the right to use and which is necessary to the operation of any Facility. 6.5.3 Occupancy Agreements. Attached as Schedule 6.5.3.1 hereto are true and complete copies of the current standard forms of occupancy agreements entered into between Seller and tenants or patients at each Facility (the "Occupancy Agreement Forms"). There are no agreements under which tenants or patients entering any Facility subsequent to the adoption by Seller of the applicable Occupancy Agreement Form currently occupy all or any part of any Facility which materially deviate from the Occupancy Agreement Forms. There are no undisclosed amendments or agreements to such residency agreements, nor any special rates, services, or concessions promised by Seller to any residents of any Facility except as disclosed in Schedule 6.5.3.2 attached hereto. 6.5.4 Insurance. Attached as Schedule 6.5.4 hereto is a list of all insurance coverage maintained by Seller as of the Effective Date in connection with the Premises and the operation of each Facility. All such insurance coverage is in full force and effect (with no overdue premium) in the amounts set forth on Schedule 6.5.4. Seller agrees to maintain the insurance coverage listed in Schedule 6.5.4 without material change thereto through the Closing Date. Certificates evidencing such insurance coverage will be supplied by Seller to Purchaser at Purchaser's request. Seller shall promptly inform Purchaser of any non-renewal, material change, cancellation, or replacement of any such insurance coverage prior to Closing. In the event of any non-renewal, material change, or cancellation of the insurance coverage currently maintained by Seller hereunder, Purchaser shall have the right during the period prior to Closing to provide replacement insurance generally comparable to the insurance coverage currently maintained by Seller, at the Seller's expense, and to deduct the cost thereof from the Purchase Price. All prepaid insurance policies shall be assigned to Purchaser at Closing. 11 6.6 Labor Matters. 6.6.1 Employment Related Contracts. Seller has provided to Purchaser all written employment agreements relating to any employees of Seller and all written compensation, pension, retirement, welfare, profit sharing, incentive, or other similar written plans relating to any employee of Seller. Seller has also advised Purchaser of all plans, agreements, arrangements, or practices which constitute "fringe benefits" to any of the employees of Seller, including, without limitation, group medical insurance, group life insurance, disability insurance, and related benefits. A complete list of all of the foregoing is attached hereto as Schedule 6.6.1. 6.6.2 Employee Compensation and Benefits. To the best knowledge of Seller, attached hereto as Schedule 6.6.2 is a true and complete list of all current employees of Seller, and their current level of compensation, which list shall be true and correct as of the Closing Date in all material respects except for those changes specifically authorized by Section 8.1 hereof and except for the addition or removal of employees in the ordinary course. 6.6.3 Labor Relations. To the best of Seller's knowledge, no employee of Seller is currently part of any collective bargaining unit or represented by any collective bargaining representative, and no petition has been filed or proceeding instituted by any such employee or group of employees with any labor relations board seeking recognition of a bargaining representative. There are no strikes, grievances, disputes, or controversies with individual employees, except for disputes and controversies with individual employees arising in the ordinary course of business consistent with past experience which do not and will not, individually or in the aggregate, have an adverse effect on the business, operations, assets, prospects, or conditions, financial or otherwise, of Seller, Purchaser, or the operation of the Facilities. 6.7 Other Representations. 6.7.1 Completeness and Accuracy of Contracts and Documents. To the best of Seller's knowledge, all copies of contracts and documents delivered by Seller to Purchaser in connection with the transactions contemplated hereby are complete and accurate in all respects, and no such contract or agreement has been amended or modified in any respect. 6.7.2 No Misrepresentations. To the best of Seller's knowledge, Seller has not made an untrue statement of material fact in any instrument, certification, or statement furnished to Purchaser, nor has Seller omitted to state a material fact necessary to make the statements contained herein or therein not misleading. 12 6.8 Seller's Covenants Regarding Transfer of Ownership Approvals and Notice. Seller shall file all notices and other documents with applicable federal, state, and local governmental authorities as required under law to effect the transfer of ownership of the Facilities to Purchaser and, to the extent applicable, the assignment to Purchaser of each currently effective Medicare and Medicaid provider agreement and Seller's Licenses, including without limitation, at least thirty (30) days prior to the Closing Date, file with the Federal Trade Commission, to the extent required under the Hart-Scott-Rodino Antitrust Improvements Act, 15 USC ss. 18a and the regulations promulgated thereunder, a "Notification and Report Form for Certain Mergers and Acquisitions." Seller shall assist and cooperate with Purchaser with all such filings and other action required to be taken by Purchaser to accomplish the foregoing. 6.9 Finder's or Broker's Fee. Except for a three percent (3%) broker's fee payable to Capital Realty Group Brokerage, Inc., by Seller, Seller has not engaged in any conduct that has given or will give rise to any liability for any fee, compensation, or reimbursement for expenses to any agent, finder, or broker, either in the nature of a finder's fee or otherwise, in connection with the transactions contemplated hereby. 6.10 Seller's Knowledge Defined. The representations and warranties made to Purchaser by Seller in this Section 6 and elsewhere in this Agreement are limited to the current actual knowledge of the executive officers of the corporation which is the sole general partner of the Seller, and the recertification required of Seller at Closing shall likewise be qualified to the then current actual knowledge of said officers. 7. PURCHASER'S COVENANTS, REPRESENTATIONS, AND WARRANTIES. As an inducement to Seller entering into this Agreement, Purchaser makes only the following Covenants, representations, and warranties: 7.1 Organization, Power, and Standing. Purchaser is a corporation duly organized and validly existing under the laws of the State of Texas, and has all requisite power to execute, deliver, and perform this Agreement and to consummate the transactions contemplated hereby. 7.2 Authorization and Enforceability. This Agreement has been duly authorized, executed, and delivered by Purchaser, and, to the best of Purchaser's knowledge, constitutes the legal, valid, and binding obligation of Purchaser, and is enforceable against Purchaser in accordance with its terms, except to the extent such enforceability may be limited by bankruptcy, reorganization, insolvency, or similar laws of general applicability governing the enforcement of the rights of creditors or by the general principles of equity (regardless of whether considered in a proceeding at law or in equity). 7.3 Compliance with Charter Documents. The execution, delivery, and performance of this Agreement by Purchaser and the consummation by Purchaser of the transactions contemplated hereby will not violate or conflict with or constitute a default under any term of the Charter or Bylaws of Purchaser. 13 7.4 No Breach, Etc. The execution, delivery, and performance of this Agreement will not conflict with or result in a breach of or default by Purchaser under any material terms, condition, or provision of any order, writ, injunction, decree, contract, agreement, or instrument to which Purchaser is a party or subject or by which it is bound. 7.5 Litigation. There is no litigation, at law or in equity, or any proceeding before or investigation by any federal, state, or municipal court, board of arbitrator, against Purchaser, pending or, to the best of Purchaser's knowledge, threatened, which, if adversely determined, would have a material effect on Purchaser. 7.6 Covenants Regarding Transfer of Ownership Approvals and Notices. To the extent applicable, Purchaser shall file all applications and other documents with applicable federal, state, and local governmental authorities as required under law to effect the transfer of ownership of the Assets to Purchaser and the assignment to Purchaser of each of Seller's Licenses. In addition, Purchaser, at least thirty (30) days prior to the Closing Date, shall file with the Federal Trade Commission, to the extent required under the Hart-Scott-Rodino Antitrust Improvements Act, 15 USC ss. 18a and the regulations promulgated thereunder, a "Notification and Report Form for Certain Mergers and Acquisitions." 7.7 Finder's or Broker's Fee. Purchaser has not engaged in any conduct that has given or will give rise to any liability for any fee, compensation, or reimbursement of expenses to any agent, finder, or broker, either in the nature of a finder's fee or otherwise, in connection with the transactions contemplated hereby. 7.8 Purchaser's Knowledge Defined. The representations and warranties made to Seller by Purchaser in this Section 7 and elsewhere in this Agreement are limited to the current actual knowledge of the executive officers of Purchaser, and the recertification required of Purchaser at Closing shall likewise be qualified to the then current actual knowledge of said officers. 8. CERTAIN AGREEMENTS OF THE PARTIES. 8.1 Conduct of Seller Prior to Closing. Seller covenants and agrees that, through the period prior to Closing: (i) the Assets, including without limitation each Facility, shall be operated in the ordinary course of business and in a manner consistent with Seller's past practice, and Seller will use its best efforts to maintain existing levels of occupancy at each Facility; (ii) no sale, disposition, removal, or encumbrance of any furniture, fixtures, or equipment located at the Premises, outside of the ordinary course of business, shall be made without the written approval of Purchaser; (iii) except in accordance with established practice and rates of increase, Seller shall not pay or obligate itself to pay any bonus, pension, retirement, insurance, death, or other form of incentive or special compensation to any employee, agent, partner, or shareholder, or make any increase in rates of pay of any employees, agents, partners, or shareholders without the written approval of Purchaser; (iv) except for closing expenses contemplated by this Agreement as Seller's obligation at Closing, no contract, agreement, lease, or other obligation providing for the 14 payment of consideration or the occurrence of indebtedness of more than Five Thousand Dollars ($5,000) in any one instance, Ten Thousand Dollars ($10,000) in the aggregate, shall be executed, entered into, or made by Seller in connection with the operation of the Assets, without the written approval of Purchaser; (v) no increase shall be made in the usual rates charged to tenants or patients at the Facility without the written approval of Purchaser; (vi) Seller will replace the Inventory used in the operation of the Facility as and when required in the ordinary course of business and the quantity and quality of the Inventory at Closing shall be substantially the same as exists on the Effective Date; (vii) no order for equipment, machinery, furniture, furnishings, or accessories which was placed by Seller prior to the Effective Date shall be canceled by Seller after the Effective Date without the written approval of Purchaser; (viii) as soon as possible, but not less than twenty-four (24) hours, prior to the submission of any plan of correction to any state licensure authorities, Seller shall submit a copy thereof to Purchaser; (ix) Seller shall use its best efforts to preserve the business operation of each Facility and to preserve for Purchaser the good will of Seller's suppliers, the patients and tenants in each Facility, and others having business relations with each Facility; (x) except as otherwise directed by Purchaser, Seller shall use its best efforts to retain the services of each Facility's current management-level and professional employees and to maintain existing staffing patterns; and (xi) Seller shall not pay any sums to any partner of Seller or any Affiliate of Seller except in the ordinary and necessary course of the operations of the Facilities, provided, however, that such payments are comparable to that which would be charged and received by a non-affiliated business for the same or similar goods or services. 8.2 Preparation for Closing. Each party hereto shall use its best efforts to assist the other to apply for and obtain any such permits, licenses, authorization, and approvals required by the other party under applicable federal, state, and local law in order to sell/purchase the Assets and operate the Facilities as contemplated hereby, and complete this transaction. Seller and Purchaser shall use their best efforts to bring about the fulfillment of each of the conditions precedent to the obligations of the other party set forth in this Agreement. 8.3 Prohibited Act. Seller will not merge or consolidate with or into any other corporation, partnership or trust, sell, lease, or otherwise dispose of any of the assets (except in accordance with Section 8.1 hereof), sell any additional partnership interests, liquidate, or dissolve, nor agree to do any of the foregoing. 8.4 Access to Premises and Information. On and prior to the Closing Date, Seller shall permit Purchaser and the Purchaser's counsel, accountants, engineers, consultants, and other authorized representatives thereof to have full and complete access to the Premises and its documents, books and records to the extent the same are related to the transactions contemplated hereunder and to make copies during normal business hours of such financial and operating data and other information with respect to respective businesses and properties as Purchaser or any of its authorized representations shall reasonably request to the extent such data and information are related to the transactions contemplated hereunder. Seller shall deliver such additional information and copies of documents, books, and records relating to the businesses and properties of Seller as may reasonably requested by Purchaser or any of its 15 authorized representations. Except as expressly provided otherwise in this Agreement, any investigation undertaken by Purchaser hereunder shall not diminish Purchaser's right to rely on Seller's representations and warranties. 8.5 Environmental Testing. Seller shall provide Purchaser copies of each of the Phase I Site Assessments prepared for the Facilities by EMG (the "Existing Site Assessments"), each of which are dated August 22, 1997. Purchaser may, at its option and expense, have the Existing Site Assessments addressed and certified to Purchaser, in which event Seller agrees to cooperate with Purchaser in obtaining such recertifications. In the event Purchaser desires further testing, Seller hereby grants to Purchaser and its agents the right to enter upon the Premises at any reasonable time or times after the Effective Date to conduct, at Purchaser's sole cost and expense, such further inspections, investigations, and tests as are necessary to complete Purchaser's own Preliminary Environmental Site Assessment ("PESA") at each Facility. If any such PESA shall indicate that any Hazardous Material may be located at the Premises, Seller hereby grants to Purchaser and its agents the right to conduct such additional inspections, investigations and tests of the Premises, including, without limitation, test borings, to determine whether, in fact, any Hazardous Material is located at the Premises. In connection with the conduct of such PESA's and any further testing warranted thereby (collectively, the "Environmental Testing"), Purchaser agrees, at Purchaser's sole cost and expense, to repair any damage to the Premises resulting from such Environmental Testing. Purchaser shall hold confidential the information in the Existing Site Assessments and results of the Environmental Testing in the event Purchaser does not close the transaction contemplated by this Agreement; provided, however, that in the event any Hazardous Material is discovered at the Premises and Purchaser is required by law to disclose such finding to governmental authorities, Purchaser shall have the right to disclose such finding to such authorities without liability to Purchaser; provided, further, that Purchaser shall disclose such findings to Seller prior to disclosure of such findings to any governmental authorities. 8.6 Expenses of Transaction. Seller and Purchaser each agree to be responsible for all fees of their respective attorneys for services rendered in connection with this transaction and the same shall be paid outside of Closing. Seller shall pay for all transfer taxes, revenue, excise, and surtax charges, survey costs, conveyance, and recording fees, title examination costs and owner's title insurance policy premiums in connection with the transactions contemplated by this Agreement, provided however, that any endorsements to the title insurance policy provided by Seller or additional coverage beyond the Purchase Price shall be at the cost and sole expense of Purchaser. The filing costs for any Hart-Scott-Rodino determination shall be shared equally by Purchaser and Seller. 8.7 Further Assurances. Each of the parties hereto, both before and after the Closing, upon the request from time to time of any other party hereto and without further consideration, will do each and every act and thing as may be necessary or reasonably requested to consummate the transactions contemplated hereby and to effect an orderly transfer to Purchaser of the Assets and assumption by Purchaser of the Assumed Contracts and the other assumed liabilities under Section 2.2 hereof, including without limitation executing, acknowledging, and delivering assurances, assignments, powers of attorney, and other documents and instruments; furnishing information and copies of documents, 16 books, and records (including, without limitation, tax records); filing reports, returns, applications, filings, and other documents and instruments with governmental authorities; and cooperating with the other party hereto in exercising any right or pursuing any claim, whether by litigation or otherwise, other than rights and claims running against the party from whom or which such cooperation is requested. 8.8 Use of Certain Brochures and Other Materials. After the Closing Date, Purchaser shall be entitled to use any existing brochures and other printed materials used in connection with the marketing and operation of the Facilities. 8.9 Appraisals. Purchaser acknowledges that Seller has provided Purchaser copies of the Appraisals as described in Section 2.1.2 herein. Purchaser further acknowledges and agrees that it accepts the Appraisals and the values provided therein for purposes of this Agreement and for the establishment of the Purchase Price. Notwithstanding the foregoing, Purchaser may, at its option and expense, have the Appraisals updated and certified to Purchaser or obtain additional appraisals of the Assets. In the event that Seller desires to update the Appraisals or obtain new appraisals, Seller hereby grants to Purchaser and its agents the right to enter upon the Premises at any reasonable time or times to conduct and obtain such further appraisals and/or updates. Seller agrees to cooperate with Purchaser in obtaining any such recertification. 8.10 Bankruptcy. If, prior to Closing, Seller or Purchaser shall file a voluntary petition in bankruptcy or shall be adjudicated as bankrupt or insolvent, or shall file any petition or answer so seeking or acquiescing in any reorganization, arrangement, composition, readjustment, liquidation, dissolution, or similar relief for itself under any present or future federal, state, or other statute, law, or regulation relating to bankruptcy, insolvency, or other relief for debtors; or shall seek or consent to or acquiesce in the appointment of any trustee, receiver, or liquidator of Seller or Purchaser or of all or any part of the Assets, or of any or all of the royalties, revenues, rents, issues, or profits thereof, or shall make any general assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due ("Bankrupt"), then the non-Bankrupt party may terminate this Agreement. If Purchaser consents in writing to any of the foregoing actions taken by or against Seller, then Purchaser shall waive the right to terminate the Agreement on account of this Section 8.10. 9. INSPECTION PERIOD AND CONDITIONS TO PURCHASER'S OBLIGATION TO CLOSE. Purchaser's obligation to purchase the Assets shall be subject to the following: 9.1 Purchaser's Inspection Period. Subject to Section 9.2 below and except has may be expressly provided to the contrary herein, Purchaser shall have until July 24, 1998 (the "Inspection Period"), in which to conduct its due diligence review and make its investigations and studies with respect to the Assets as Purchaser deems appropriate, including, but not limited to, Purchaser's review of the Seller's financial information, tenant and patient information, Title Commitments, Surveys and environmental condition of the Facilities, and to terminate this Agreement, by written notice to Seller, to be received on or before the expiration of the Inspection Period, if Purchaser is not, for any reason, satisfied with the Assets. If Purchaser fails to give 17 notice of such termination to be received by Seller on or before the expiration of the Inspection Period, then Purchaser's rights under this Section 9.1 shall be deemed to have been waived by Purchaser and this Agreement shall remain in full force and effect without any longer being subject to this Section 9.1. If Purchaser does give notice of termination, $100.00 of the Earnest Money shall be paid to Seller solely for the rights granted Purchaser hereunder and the balance of the Earnest Money shall be refunded to Purchaser by Title Company, and the parties shall have no further rights or obligations hereunder, except for those which expressly survive any such termination. Promptly after such termination Purchaser shall provide to Seller, without charge, copies of any reports, surveys, drawings or tests obtained by Purchaser with respect to the Assets. 9.2 Conditions to Purchaser's Obligation to Close. Notwithstanding anything to the contrary contained in Section 9.1, the obligations of Purchaser at Closing to purchase the Assets and to assume the Assumed Contracts and the other assumed liabilities under Section 2.2 hereof are subject to the satisfaction, at or prior to Closing, of all of the following conditions, compliance with which, or the occurrence of which, may be waived in whole or in part by Purchaser: 9.2.1 Continued Accuracy of All Representations and Warranties. All representations and warranties of Seller contained in this Agreement shall be true and correct in all respects as of Closing with the same force and effect as if made at and as of Closing. 9.2.2 Performance of Agreements. Seller shall have performed and satisfied all covenants, agreements, and conditions required by this Agreement to be performed or satisfied by it at or prior to Closing. 9.2.3 Closing Certificate. At Closing, Seller shall furnish to Purchaser a certificate signed by the general partner of Seller dated the Closing Date, to the effect that the conditions specified in Sections 9.2.1 and 9.2.2 hereof have been satisfied. 9.2.4 Licenses and Approvals. On or before Closing, Purchaser shall have secured all approvals available to it prior to Closing from the appropriate federal, state, and local governmental or administrative agencies having jurisdiction thereof required to conclude the proposed transfer of the Assets to Purchaser pursuant to the terms of this Agreement, and providing, to the extent applicable, for the continued operation by Purchaser of the Facilities on substantially the same basis as Seller is currently operating the same. 9.2.5 Legality; Material Adverse Change; No Change in Law. Purchaser's purchase of and payment for the Assets and assumption of the Assumed Contracts and other assumed liabilities under Section 2.2 shall not be prohibited by any Legal Requirement. No Legal Requirement shall have been enacted, nor shall any legislation have been introduced in either house of the United States Congress or of the legislature of those states in which the Facilities are located, or favorably reported for passage to either house of the United States Congress or of the legislature of such states or by any committee thereof, nor shall have any investigation by any governmental authority or administrative 18 agency been commenced, nor shall any decision of any court of competent jurisdiction have been rendered, nor shall any order by any governmental authority or administrative agency been issued, nor shall have occurred at any Facility, which materially and adversely affects, restrains, prevents, or changes the transactions contemplated by this Agreement, or has a material adverse effect on the business, operations, assets, prospects, or condition, financial or otherwise, of any Facility or of Seller. 9.2.6 Litigation. No action or proceeding shall have been instituted at or prior to Closing before any court, arbitrator or other governmental body, or instituted or threatened by any public authority, pertaining to any Facility or the transfer of the Assets and the assumption of the Assumed Contracts and the other assumed liabilities under Section 2.2 hereof by Purchaser or any of the other transactions contemplated hereby, the results of which action or proceeding could prevent or make illegal the consummation of such transactions, or which could otherwise have a material adverse effect on the business, operations, assets, prospects, or condition, financial or otherwise, of any Facility or of Seller. 9.2.7 Opinion of Seller's Counsel. Purchaser shall have received an opinion of Seller's independent legal counsel, dated as of the Closing Date, addressed to Purchaser, in form and substance reasonably satisfactory to Purchaser, to the effect that: (i) Seller is a limited partnership which is duly organized and validly existing under the laws of the State of Delaware and has all the requisite partnership power to own all of its assets and properties and to carry on the business of each Facility owned by Seller as presently conducted. (ii) The execution, delivery, and performance by Seller of this Agreement and each of the documents transferring or assigning title to the Assets to be delivered by Seller to Purchaser at Closing have been duly authorized by all requisite corporate or partnership action of Seller. This Agreement and each of the documents transferring or assigning title to the Assets to be delivered by Seller to Purchaser at Closing constitute the valid and binding obligation of Seller enforceable in accordance with its terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other similar laws in effect from time to time affecting the rights of creditors generally and by the application of equitable principles. (iii) The execution, delivery, and performance by Seller of this Agreement and the documents transferring or assigning title of the Assets to be delivered by Seller to Purchaser at Closing will not (i) violate any provision of the Limited Partnership Agreement of Seller or Trust Indenture, (ii) conflict with or result in any breach of or default under any order, writ, injunction, decree, agreement, or instrument of which counsel has knowledge by which any of the Assets are bound, (iii) to counsel's knowledge, result in the creation or 19 imposition of any lien, charge, or encumbrance of any nature upon any of the Assets, (iv) give to others of whom counsel has knowledge any property, contractual or security interest or rights in, or with respect to any of the Assets, and, (v) give others any right to terminate any agreement to which Seller is a party or by which the Assets are benefited, of which counsel has knowledge. Counsel may specify the state or states in which they are admitted to practice, and may assume that the governing law that applies to any agreement is the same as the law of the State of Indiana. 9.2.8 Presence of Hazardous Material at the Premises. The Environmental Testing, if undertaken by Purchaser, shall not have revealed the presence of a material amount of any Hazardous Material at the Premises. For purposes of this Section 9.2.8, the amount of any Hazardous Material present at the Premises shall be deemed material if the reasonable estimated cost of removal and disposal thereof, in accordance with all applicable laws and statutes, as determined by a qualified environmental consultant reasonably acceptable to Purchaser, exceeds Twenty Thousand Dollars ($20,000) in the aggregate for all Facilities. 9.2.9 Schedules. As of the Effective Date, the Schedules to be attached to and made a part of this Agreement have not been prepared by Seller or reviewed by Purchaser. Seller shall furnish all Schedules at least ten (10) days prior to the expiration of the Inspection Period. If Purchaser is not satisfied with any Schedule and if Seller is not willing to amend the Schedules to satisfy Purchaser, then Purchaser may terminate this Agreement, and the parties shall have no further rights or obligations except for those which expressly survive any such termination. 9.2.10 Title Policies. Pursuant to the Title Commitments the Title Company will have delivered to Purchaser as of the Closing Date title policies in favor of Purchaser, as owner of the Premises, insuring Purchaser's fee simple title to the Premises free and clear of all matters other than the Permitted Exceptions and deleting the standard exceptions. 10. CONDITIONS TO SELLER'S OBLIGATION TO CLOSE. The obligations of Seller at Closing to sell the Assets and to assign the Assumed Contracts and the other liabilities to be assumed by Purchaser pursuant to Section 2.2 hereof are subject to the satisfaction at or prior to Closing, of all of the following conditions, compliance with which, or the occurrence of which, may be waived in whole or in part by Seller: 10.1 Representations, Warranties, and Covenants. ------------------------------------------ 10.1.1 Continued Accuracy of Representations and Warranties. All representations and warranties of Purchaser contained in Section 7 of this Agreement shall be true and correct in all material respects as of the Closing with the same force and effect as if made at and as of the Closing. 20 10.1.2 Closing Certificate. At Closing, Purchaser shall furnish to Seller a certificate signed by a duly authorized corporate officer of Purchaser dated the Closing Date, to the effect that the conditions specified in Section 10. 1. 1 hereof has been satisfied. 10.2 Litigation. No action or proceeding shall have been instituted at or prior to Closing before any court, arbitrator or other governmental body, or instituted or threatened by any public authority, pertaining to the transfer of the Assets and the assumption by Purchaser of the Assumed Contracts and other liabilities to be assumed by Purchaser pursuant to Section 2.2 hereof or any of the other transactions contemplated hereby, the results of which action or proceeding would prohibit or make illegal the consummation of such transactions. 10.3 Licenses and Approvals. On or before Closing, Seller shall have secured all approvals available to it prior to Closing from the appropriate federal, state, and local governmental or administrative agencies having jurisdiction thereof required to conclude the proposed transfer of the Assets to Purchaser pursuant to the terms of this Agreement, and providing, to the extent applicable, for the continued operation by Purchaser of the Facilities on substantially the same basis as Seller is currently operating the same. 10.4 Legality, Material Adverse Change, No Change in Law. Seller's sale of the Assets and assignment of the Assumed Contracts and other assumed liabilities under Section 2.2 to Purchaser shall not be prohibited by any Legal Requirement. No Legal Requirement shall have been enacted, nor shall any legislation have been introduced in either house of the United States Congress or of the legislature of those states in which the Facilities are located, or favorably reported for passage to either house of the United States Congress or of the legislature of such states or by any committee thereof, nor shall have any investigation by any governmental authority or administrative agency been commenced, nor shall any decision of any court of competent jurisdiction have been rendered, nor shall any order by any governmental authority or administrative agency have been issued, nor shall any event have occurred at any Facility, which materially and adversely affects, restrains, prevents, or changes the transactions contemplated by this Agreement, or has a material adverse effect on the business, operations, assets, prospects, or condition, financial or otherwise, of any Facility or of Seller. 11. CLOSING. ------- 11.1 Closing Date. The closing of the transaction contemplated herein (the "Closing") shall be conducted at the offices of Purchaser's counsel in Dallas, Texas, on or before August 1, 1998 (the "Closing Date"). 21 11.2 Seller's Deliveries at Closing. At the Closing, Seller shall execute (if applicable) and deliver to Purchaser: (i) The Certificate described in Section 9.2.3 hereof. (ii) A Special Warranty Deed, a Bill of Sale, an Assignment of Certain Tangible and Intangible Assets, and Assignment and Assumption of Services Agreement, an Assignment of Occupancy Agreements, an Assignment of Leases, and an Assignment of Patient Trust Accounts for each Facility, each in form agreeable to the Purchaser, and any appropriate motor vehicle transfer documents. (iii) The right to immediate possession of the real property and all tangible personal property included in the Assets. (iv) The opinion of counsel required under Section 9.2.7 hereof. (v) A Certificate of Existence (or other similar good standing certification) for Seller issued by the Secretary of State of the state of Seller's organization and in each states in which Seller's Facilities are located (dated within thirty (30) days of the Closing). (vi) A settlement statement for each Facility as approved by the parties hereto. (vii) Partnership resolutions of Seller authorizing it to undertake the transactions contemplated by this Agreement and authorizing its signatories to execute this Agreement and all other documents required to effect the Closing, certified as of the Closing Date by an officer or general partner of Seller as having been duly adopted and being in full force and effect on the Closing Date. (viii) IRS Form 8594 Asset Acquisition Statement. (ix) The agreement regarding real estate tax proration as provided in Section 11.4 hereof. (x) FIRPTA (nonforeign) Certificate. (xi) Such other documents as may be required to fully perform the terms of this Agreement or as may be required by any Legal Requirement. 11.3 Purchaser's Deliveries at Closing. At the Closing, Purchaser shall execute (if applicable) and deliver: (i) The Certificate described in Section 10.1.2 hereof. 22 (ii) An Assignment and Assumption Agreement for each Facility. (iii) A corporate resolution from Purchaser authorizing the transactions contemplated by this Agreement and authorizing its signatories to execute this Agreement and all other documents required to effect the Closing, certified as of the Closing Date by a corporate officer of Purchaser as having been duly adopted and being in full force and effect on the Closing Date. 11.4 Real Estate and Personal Property Tax Prorations. Real estate taxes and assessments and personal property taxes ("Taxes") shall be prorated at the Closing based upon the last available tax duplicate, which prorations shall thereafter be adjusted directly between Seller and Purchaser based upon the actual amount of taxes for the year in which the Closing occurs, promptly following receipt of the official statement therefor and notice thereof by Purchaser to Seller. The proration agreement set forth herein shall be incorporated into an agreement in form reasonably satisfactory to Purchaser and Seller to be executed and delivered by each at Closing. All Taxes shall be prorated on the accrual basis, Seller being responsible for all Taxes accruing up to the Closing Date regardless of whether such Taxes are then due and payable. 11.5 Other Prorations. All expenses attributable to the operation of each Facility (measured on an accrual basis) through 11:59 p.m. on the day before the Closing shall be paid for by Seller. Thereafter, such expenses shall be paid for by Purchaser. All income not received by Seller as of the Closing, including, but not limited to, all payments under Occupancy Agreements, including any insurance payments or advances, shall be for Seller's account and any amount collected from tenants or patients and third party payors with accounts owing to Seller shall, if collected by Purchaser, be paid over to Seller. Except as otherwise expressly provided in this Agreement, Seller shall remain responsible for all accounts payable through 11:59 p.m. on the day before the Closing. As of the Closing, Seller shall calculate and pay wages, payroll taxes, and any employee bonuses based upon attendance record or other criteria accrued through 11:59 p.m. on the day before the Closing. In effecting the proration, Seller shall be credited for items of expense paid for as of the Closing Date. In addition, on or about the Closing, Seller shall cause final utility meter readings to be made for all utilities serving the Premises and Seller shall pay or cause to be paid all final bills rendered from such meter readings. To the extent that all items of income and expenses to be transferred, prorated, or assumed cannot be determined at the Closing, then Seller and Purchaser shall cooperate with each other to revise the settlement statements within thirty (30) days after Closing. All prepaid rental and security deposits and other tenant or patient funds held in trust by Seller shall be accounted for (including any interest required on such funds) and transferred to Purchaser at Closing. Seller shall furnish to Purchaser on or before the Closing a list, by Facility, of all security and rent deposits and other patient and tenant funds held by Seller, which list shall also indicate the rent status of each patient or tenant, certified to by an officer of the general partner of Seller, which list Seller warrants will be true and correct. Upon transfer thereof at Closing, Purchaser agrees to maintain, repay and/or return such security and rent deposits in accordance with the terms and subject to the conditions and requirements under 23 which they are now being held by Seller and as imposed by applicable law or regulation. 12. CASUALTY. 12.1 Major Damage. If any Facility, or a portion thereof, shall be damaged or destroyed by reason of any casualty or other cause prior to the Closing, Seller shall give Purchaser written notice of such damage or destruction within ten (10) days of the occurrence thereof and in all events prior to the Closing Date. Within twenty (20) days of the occurrence of such damage or destruction, Seller shall submit to Purchaser Seller's reasonable estimate of the cost to repair such damage or destruction and its estimate of the loss of operating revenues due to such damage (collectively, "Seller's Expense Estimate") and the basis for such estimate. If Seller's Expense Estimate is equal to or in excess of Twenty Thousand Dollars ($20,000) ("Major Damage") with respect to any Facility, then Purchaser, at Purchaser's option, may either: (i) elect, within twenty (20) days after the determination of the repair cost in accordance with Section 12.3 hereof, to terminate this Agreement, and the parties shall have no further rights or obligations hereunder, except for those which expressly survive any such termination; or (ii) proceed to complete the transactions contemplated under this Agreement and be entitled to the insurance proceeds payable in the event of such damage or destruction plus any deductible which shall be paid by Seller to Purchaser at Closing. If Purchaser does not make the election set forth in subparagraph (i) above within the applicable twenty (20) day period, then Purchaser shall be deemed to have elected option (ii) set forth above. 12.2 Other Damage. If Seller's Expense Estimate is less than Twenty Thousand Dollars ($20,000) for each Facility and such damage or destruction is covered by Seller's insurance coverage, Seller shall pay such applicable insurance proceeds, plus the amount of any applicable deductible, to Purchaser at Closing. If (i) such damage or destruction is not covered by Seller's insurance coverage, or (ii) such insurance proceeds are insufficient to cover the cost of repairing such damage or destruction and Seller does not pay such deficiency to Purchaser at Closing, then the Purchase Price shall be reduced by an amount equal to the cost of restoring the Premises in the case of subparagraph (i), or the amount of such deficiency in the case of subparagraph (ii). 12.3 Determination of Repair Cost. If Purchaser disagrees with Seller's Expense Estimate, Purchaser shall give written notice of such dispute to Seller within then (10) days after Seller submits Seller's Expense Estimate to Purchaser. Upon receipt of such notice, Seller and Purchaser shall promptly retain an appraiser acceptable to both Seller and Purchaser, the cost of such appraisal being borne equally by Seller and Purchaser, and such appraiser shall determine the cost of repairing such damage or destruction and the lost operating revenues as a result thereof, which cost shall include all professional fees incurred in connection therewith. Seller and Purchaser agree that the determination by such appraiser of such costs shall be conclusive as to both Seller and Purchaser. 13. CONDEMNATION. If, prior to the Closing Date, all or any portion of any Facility shall be taken by any governmental authority under its power of eminent domain, Purchaser shall have the option (to be exercised by written notice given 24 to Seller not later than twenty (20) business days following Purchaser's receipt of notice of such taking) to: (i) Accept the Assets on the Closing date without any abatement or adjustment in the Purchase Price, in which event Purchaser shall have the right to participate in any settlement or compromise with such taking authority and Seller shall assign its rights in the condemnation award to the Purchaser (or Purchaser shall receive the condemnation award from Seller if it has already been paid before the Closing Date); or (ii) If, and only if, in Purchaser's reasonable opinion, any Facility subject to such taking cannot be operated in substantially the same manner operated by Seller prior to such taking, Purchaser may elect to terminate this Agreement, and the parties shall have no further rights or obligations hereunder, except for those which expressly survive any such termination. If the Purchaser does not make the election set forth in subparagraph (ii) above within the applicable twenty (20) day period, then Purchaser shall be deemed to have elected option (i) set forth above. 14. DEFAULT. In the event of a material misrepresentation by Seller in this Agreement, or a material breach of any warranty or covenant in this Agreement, or other default under this Agreement by Seller prior to Closing, and Seller's failure to rectify such misrepresentation, breach or default within ten (10) days after receipt of notice thereof from Purchaser, then Purchaser shall have the right, upon written notice to Seller, to rescind this Agreement and be entitled to such remedies as shall be provided by law, including the recovery of reasonable attorneys' fees. Seller acknowledges and agrees that the Assets are unique and not available on the open market and that Purchaser will be seriously and irreparably injured in the event this Agreement is not specifically performed by Seller and the transactions contemplated hereby are not consummated. Both parties further agree that it may be difficult and impractical to measure in money the damages, which will accrue by reason of a refusal by Seller to perform their obligations under this Agreement. Therefore, Seller acknowledges and agrees that, in lieu of rescission and recourse to such remedies as shall be provided by law, Purchaser shall be entitled to specific performance of this Agreement by Seller, and Seller hereby consents thereto. In the event that Purchaser shall institute any actions specifically to enforce Seller's performance under this Agreement, Seller hereby agrees to waive the defense that Purchaser has an adequate remedy at law. 15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All statements of fact contained in this Agreement, or in any certificate or other document delivered by or on behalf of one party to this Agreement to the other pursuant to this Agreement or in connection with the transaction contemplated hereby, shall be deemed representations and warranties by such party making such statement of fact. Each party understands that the other party has relied on each said representations and warranties in entering into this Agreement. Notwithstanding 25 any investigations made by or on behalf of Seller or Purchaser or any distribution in liquidation, dissolution, or other voluntary or involuntary act of Seller or Purchaser, the representations and warranties contained in this Agreement shall survive the Closing for a period of twelve (12) months (except Section 6.3.5 which shall survive for thirty-six (36) months) following the Closing notwithstanding the execution and delivery of the documents transferring title to the Assets to Purchaser or the consummation of the other transactions contemplated herein, whereupon such representations and warranties shall become unenforceable except to the extent that notice of a claim relating to such representations and warranties has been given pursuant to Section 16.3 hereof prior to the expiration of such 12-month period. 16. INDEMNIFICATION PROVISIONS. -------------------------- 16.1 Indemnification of Purchaser. If the Closing occurs, Seller shall defend, indemnify, and hold harmless Purchaser and any Affiliate of Purchaser against all damages, punitive damages, civil and criminal monetary penalties, losses and reasonable expenses, including any reasonable attorneys' and other professional fees (hereinafter referred to collectively as "Liabilities") in connection with any of the following matters: 16.1.1 Misrepresentation, Etc.. Any and all Liabilities arising out of or related to any breach of the agreements, representations, warranties, or covenants by Seller in this Agreement, provided, however, that Purchaser's right to indemnification hereunder for Liabilities arising out of or related to any breach of such Seller's representations and warranties shall be limited to claims asserted by Purchaser in accordance with Section 16.3 hereof during the period during which said representations and warranties survive the Closing provided under Section 15 hereof. 16.1.2 Audits, Investigations, Refund Obligations, and Other Pre-Closing Liabilities. Any and all Liabilities arising out of or related to any of the following: (i) any audit or investigation by any governmental authority or administrative agency concerning the operation of any Facility and other Assets owned by Seller prior to the Closing or any amounts paid to Seller prior to the Closing; (ii) any assessments, adjustments or offsets made against Purchaser or any Facility and other Assets owned by Seller as a result of such an audit or investigation or in connection with the recovery by such governmental authority or administrative agency of any overpayments made to Seller for services performed prior to Closing or any depreciation recapture applicable to the period prior to Closing; (iii) any reasonable costs of defense of, and any judgment against Purchaser with respect to, any litigation relating to the operation of the Assets owned by Seller prior to the Closing; (iv) any suit, claim, or proceeding brought by any Person (including, without limitation, any employee or former employee of Seller) of any nature seeking to recover damages for personal injury, death, or property damage due or alleged to be due to occurrences in connection with the operation of the Assets owned by Seller prior to the Closing; and (v) any other liability, damage, cost, claim, expense, or assessment asserted against Purchaser or the Assets owned by Seller (other than those liabilities specifically assumed by Purchaser pursuant to Section 2.2 hereof) as a 26 result of, or with respect to Seller's ownership or operation of the Assets prior to the Closing. 16.1.3 Indemnification Limitation. Anything contained in this Section 16.1 to the contrary notwithstanding, the obligation of Seller to indemnify Purchaser hereunder shall arise only at such time as Purchaser shall have paid the cumulative sum of $10,000 as the result of any matter or matters occurring under Sections 16.1.1 and 16.1.2 hereof, in which event the indemnity obligations of Seller hereunder shall exist only to the extent that such payments, in the aggregate, exceed the sum of $10,000. Seller shall have no obligation to indemnify the Purchaser for any specific item which is covered by the title insurance delivered to Purchaser at Closing. 16.2 Indemnification of Seller. If the Closing occurs, Purchaser shall defend, indemnify and hold harmless Seller and any Affiliate of Seller against all Liabilities (as defined in Section 16.1 hereof) in connection with any of the following matters: 16.2.1 Misrepresentations, Etc.. Any and all Liabilities arising out of or related to any breach of the agreement, representations, warranties or covenants of Purchaser in this Agreement, provided, however, that Seller's right to indemnification hereunder for Liabilities arising out of or related to any breach of Purchaser's representations and warranties shall be limited to claims asserted by Seller in accordance with Section 16.3 hereof during the period during which said representations and warranties survive the Closing as provided in Section 15 hereof. 16.2.2 Audits, Investigations and Other Post-Closing Liabilities. Any and all Liabilities arising out of or related to any of the following: (i) any audit or investigation by any governmental authority or administrative agency concerning the operation of any Facility and other Assets by Purchaser subsequent to the Closing or any amounts paid to Purchaser subsequent thereto; (ii) any assessments, adjustments or offsets made against Seller as a result of any such audit or investigation; (iii) any reasonable costs of defense of, and any judgment against Seller with respect to, any litigation relating to the operation of the Assets by Purchaser subsequent to the Closing; (iv) any suit, claim or proceeding brought by any Person of any nature seeking to recover damages, for personal injury, death or property damage due or alleged to be due to occurrences in connection with the operation of the Assets subsequent to the Closing; and (v) any other liability, damage, cost, claim, expense or assessment asserted against Seller as a result of, or with respect to, Purchaser's operation of the Assets subsequent to the Closing. 16.3 Notice and Defense of Claims. A party claiming indemnification under this Agreement (the "Asserting Party") must promptly notify in writing the party from which indemnification is sought (the "Defending Party") of the nature and basis of such claim for indemnification. If such claim relates to a claim, litigation or other action by a third party against the Asserting Party, or any fixed or contingent liability to a third party (a "Third Party Claim"), the Defending Party may elect to assume the defense of the Third Party Claim within 27 a reasonable time after receipt of the notice referred to above at its own expense with counsel selected by the Defending Party and approved by the Asserting Party, which approval shall not be unreasonably withheld or delayed; provided, however, that if any claim for indemnification under this Agreement is covered by the Defending Party's applicable insurance coverage, then the assumption of such defense and the selection of counsel shall be governed by the applicable insurance coverage. Subject to the foregoing sentence, the Defending Party may not assume the defense if the named parties to the Third Party Claim (including any impleaded parties) include both the Defending Party and the Asserting Party and representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them, in which case the Asserting Party shall have the right to employ counsel approved by the Defending Party at the expense of the Defending Party. If the Defending Party, or the Defending Party's applicable insurer, assumes the defense of the Third Party Claim, the Defending Party shall not be liable for any fees and expenses of counsel for the Asserting Party incurred thereafter in connection with the Third Party Claim. 17. DEFINITIONS. For purposes of this Agreement: 17.1 Cross Reference Table. The following terms defined elsewhere in this Agreement in the Sections set forth below shall have the respective meanings therein defined: Term Definition "Affiliate Arrangements" Section 6.5.2 "Agreement" Preamble "Asserting Party" Section 16.3 "Assets" Section 1 "Assumed Contracts" Section 2.2 "Closing" Section 11. 1 "Closing Date" Section 11. 1 "Contracts" Section 6.5.1 "Defending Party" Section 16.3 "Deposit" Section 3 "Effective Date Preamble "Environmental Testing" Section 8.5 "Existing Site Assessments" Section 8.5 "Facility"; "Facilities" Preamble "Inspection Period" Section 9.1 "Inventory" Section 1.3 "Labor Contracts" Section 6.5.1 "Liabilities" Section 16.1 "Land" Preamble "Major Damage" Section 12.1 "Occupancy Agreement" Section 6.5. 1 28 "Occupancy Agreement Form" Section 6.5.3 "Permitted Exceptions" Section 4 "PESA" Section 8.5 "Premises" Section 1.1 "Purchase Price" Section 2.1 "Seller" Preamble "Seller's Annual Financial Statements" Section 6.2 "Seller's Interim Financial Statements" Section 6.2 "Seller's Licenses" Section 6.3.3 "Title Commitment" Section 5 "Title Company" Section 5 "Third Party Claim" Section 16.3 "Warranties & Guarantees" Section 6.4.2 17.2 Affiliate. The term "Affiliate" shall mean (i) any Person directly or indirectly controlling, controlled by or under direct or indirect common control with Seller (or other specified Person), (ii) any Person owning or controlling ten percent (10%) or more of the outstanding voting securities of such other Person; (iii) any officer, director or partner of such Person, and (iv) if such other Person is an officer, director or partner, any company for which such Person acts in such capacity. 17.3 By-laws. The term "By-laws" shall mean all written rules, regulations and by-laws, and all other documents (other than the Charter), relating to the management, governance or internal regulation of a Person (other than an individual) or interpretative of the Charter of such Person, each as from time to time in effect. 17.4 Charter. The term "Charter" shall mean the certificate or articles of incorporation or organization, statute, constitution, joint venture or partnership agreement or articles or other charter documents of any Person (other than an individual), each as from time to time in effect. 17.5 Code. The term "Code" shall mean the Federal Internal Revenue Code of 1986 or any successor statute, and the rules and regulations thereunder, and in the case of any referenced section of any such statute, rule or regulation, any successor section thereto, collectively and as from time to time amended and in effect. 17.6 Generally Accepted Accounting Principles. The term "generally accepted accounting principles" shall mean generally accepted accounting principles, as defined by the Financial Accounting Standards Board and as applied by Seller in preparing the Financial Statements and consistently followed. 17.7 Hazardous Materials. The term "Hazardous Materials" shall mean (i) any pollutant, contaminant or hazardous substance (within the meaning of such terms under the federal Comprehensive Environmental Response, Compensation and 29 Liability Act of 1980, as amended, and any implementing regulations) but excepting Infectious Wastes or (ii) any hazardous or toxic substance or material within the meaning of any federal, state or local law applicable to Seller or the Premises, but excepting Infectious Wastes. 17.8 Infectious Wastes. For purposes of each Facility, the term "Infectious Wastes" shall mean such term as it is defined in the Legal Requirements of the state in which the Facility is located. 17.9 Legal Requirement. The term "Legal Requirement" shall mean any federal, state, local law, statute, standard, ordinance, code, order, rule, regulation, resolution, promulgation, or any order, judgment or decree of any court, arbitrator, tribunal or governmental authority, or any license, franchise, permit or similar right granted under any of the foregoing, or any similar provision having the force and effect of law. 17.10 Lien. The term "Lien" shall mean (i) any encumbrance, mortgage, pledge, lien, charge or other security interest of any kind upon any property or assets of any character, or upon the income or profits therefrom; or (ii) any arrangement or agreement which prohibits the creation of such encumbrances, mortgages, pledges, liens, charges or other security interests or which restricts transfer of capital stock (other than restrictions on transfer imposed by applicable securities laws) or other property or assets. 17.11 Person. The term "Person" shall mean any individual, partnership, corporation, association, trust, joint venture, unincorporated organization, or entity, and any government, governmental department or agency or political subdivision thereof. 18. MISCELLANEOUS ------------- 18.1 Headings. Section and subsection headings are not to be considered part of this Agreement, are included solely for convenience, are not intended to be full or accurate descriptions of the content thereof and shall not affect the construction hereof. 18.2 Schedules: Exhibits: Contemplated Transactions. Schedules, exhibits, agreements and documents referred to in this Agreement are an integral part of this Agreement. For all purposes of this Agreement, the transactions contemplated hereby shall be deemed to include, without limitation, all transactions contemplated by any agreement entered into by Seller and Purchaser at the Closing. 18.3 Severability. The provisions of this Agreement are severable, and in the event that any provision hereof should, for any reason, be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof, and such invalid or unenforceable provision shall be construed by limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. 30 18.4 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument 18.5 Knowledge of a Party. Whenever reference is made herein to the knowledge or best knowledge of a party hereto, it is understood that the party has made, or caused to be made by personnel or representatives reasonably competent to determine the accuracy thereof (and the results thereof reported to such party), an inquiry which is reasonably appropriate to determine the accuracy of the statement in question. Whenever reference is made herein to a person's "actual knowledge, " it is understood that such Party shall be in possession of information sufficient to form a belief as to the truth or accuracy of the statement in question. 18.6 Entire Agreement. This Agreement, the Schedules and Exhibits hereto, the agreements expressly referred to herein and any agreement making specific reference to this Agreement embody the entire agreement and understanding of the parties hereto with respect to the subject matter herein contained, supersede all prior agreements and understandings relative to the subject matter hereof. This Agreement may not be changed, modified, terminated or discharged, in whole or in part (other than in accordance with the respective terms hereof), except by writing executed by the parties hereto. No waiver of any of the provisions or conditions of this Agreement or any of the rights of a party hereto shall be effective or binding unless such waiver shall be in writing and signed by the party claimed to have given or consented to such waiver. 18.7 Governing Law. This Agreement shall in all respects be construed in accordance with and governed by the laws of the State of Texas. 19. ASSIGNMENT. Neither Seller's nor Purchaser's rights and obligations hereunder shall be assignable without the express written consent of the other party, except that Purchaser shall have the right to assign its interests herein to an Affiliate of Purchaser. 20. NOTICES. All notices required to be given hereunder shall be given in writing to the appropriate party or parties at the following addresses: To Seller: NHP Retirement Housing Partners I Limited Partnership 3516 Merrell Road Dallas, TX 75229 Attn: Robert Lankford With a copy to: David A. Shelton, Esq. Lowe Gray Steele and Darko 111 Monument Circle, Suite 4600 Indianapolis, IN 46204-5146 31 To Purchaser: Capital Senior Living Properties, Inc. 14160 Dallas Parkway Suite 300 Dallas, TX 75240 Attn: David R. Brickman, Vice President With a copy to: Winston W. Walp II, Esq. Jenkens & Gilchrist 1445 Ross Avenue, Suite 3200 Dallas, TX 75202-2799 or at such other place as such party may designate in writing to the other party. All notices shall be delivered either in person or by registered mail, return receipt requested, and shall be deemed to have been delivered, if in person upon delivery thereof, or if by registered mail on the date shown on the return receipt. 21. SUCCESSORS AND ASSIGNS. All of the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective transferees, delegatees, heirs, devisees, successors and permitted assigns. 22. PUBLIC ANNOUNCEMENT. Press releases and other public announcements of the transactions contemplated herein to be made by either party hereto shall be subject to the prior review and approval of the other party hereto. [Remainder of Page Intentionally Left Blank] 32 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first set forth above. SELLER: NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP, a Delaware limited partnership By: Capital Realty Group Senior Housing, Inc., its general Partner By: /s/ Robert Lankford ------------------------------------------ Robert Lankford, President PURCHASER: CAPITAL SENIOR LIVING PROPERTIES, INC., a Texas corporation By: /s/ Keith Johannessen ------------------------------------------ Printed: Keith Johannessen Title: President 33 EX-2 3 EX 2.2 - ASSIGN & AMEND TO ASSET PURCHASE AGREMNT ASSIGNMENT AND AMENDMENT TO ASSET PURCHASE AGREEMENT BY AND AMONG NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP, CAPITAL SENIOR LIVING PROPERTIES, INC., AND CAPITAL SENIOR LIVING PROPERTIES 2 - NHPCT, INC. Effective September 29, 1998 THIS ASSIGNMENT AND AMENDMENT (this "Assignment and Amendment") TO ASSET PURCHASE AGREEMENT is entered into by and among NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP, a Delaware limited partnership ("Seller"), CAPITAL SENIOR LIVING PROPERTIES, INC., a Texas corporation (herein "Assignor") and CAPITAL SENIOR LIVING PROPERTIES 2 - NHPCT, INC., a Delaware corporation ("Assignee"). Recitals WHEREAS, Seller and Assignor, as purchaser, entered into that certain Asset Purchase Agreement dated July 24, 1998 (the "Agreement"), a copy of which is attached hereto as Exhibit "A" and incorporated herein by reference; WHEREAS, Assignor desires to assign, and Assignee desires to accept, all of Assignor's rights as purchaser under the Agreement; WHEREAS, Seller desires to acknowledge and accept such assignment of purchaser's interest from Assignor to Assignee; and WHEREAS, Seller, Assignor and Assignee desire to amend certain provisions contained within the Agreement; NOW, THEREFORE, in consideration of the foregoing, and the sum of Ten and no/100 ($10.00), and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller, Assignor and Assignee do hereby agree as follows: Agreements 1. Defined Terms. All terms not defined herein shall have the meanings ascribed to them in the Agreement. 2. Assignor does hereby SELL, ASSIGN, TRANSFER, SET OVER, and CONVEY unto Assignee, all of Assignor's right, title and interest, as purchaser, in, to, and under the Agreement (as hereinafter amended). Assignee (i) does hereby assume all obligations of purchaser under the Agreement, and (ii) does hereby agree to indemnify and hold harmless Assignor from and against any and all loss sustained by Assignor and any and all liability, claims or causes of action (including without limitation, all attorneys' fees, costs and expenses) asserted against Assignor arising under the Agreement from and after the date hereof. Assignor hereby represents and warrants to Assignee that prior to the date hereof, it has complied with all of its obligations under the Agreement, that it is not in default under the Agreement, and that on the date hereof, the Agreement is in full force and effect and has not been modified or amended except as hereinafter set forth. Assignor will reimburse Assignee for and indemnify, defend and hold harmless Assignee from and against any and all loss sustained by Assignee and any and all liability, claims or causes of action (including without limitation, all attorneys' fees, costs and expenses) asserted against Assignee arising from Assignor's failure to have complied with any of its obligations under the Agreement or any of its defaults under the Agreement prior to the date hereof, or any termination or amendment of the Agreement prior to the date hereof except as shown on Exhibit "A". Seller hereby acknowledges and accepts the assignment by and between Assignor and Assignee of purchaser's interest under the Agreement. 3. Section 2.1 of the Agreement shall be amended so that as amended it shall read as follows: "Purchase Price. The aggregate purchase price for the Assets shall be Forty Million Six Hundred Fifty Thousand and 00/100 Dollars ($40,650,000.00) (herein referred to as the "Purchase Price"), payable by delivery by Purchaser to Seller of a promissory note (the "Note"), in the amount of Thirty Two Million Five Hundred Twenty Thousand and 00/100 Dollars ($32,520,000.00), and the remainder payable by Purchaser to Seller in cash at Closing." The form of the Note is attached to this Assignment and Amendment as Exhibit "B". 4. The second sentence of Section 2.2 of the Agreement shall be amended so that as amended it shall read as follows: "Notwithstanding anything to the contrary contained herein, the liens and other related security regarding the Pension Notes secured by the Facilities (the "Mortgage") shall be released simultaneously with and utilizing the proceeds from the payment of the Note by Purchaser." 3. Section 11.1 of the Agreement shall be amended so that as amended it shall read as follows: "Closing Date. The closing of the transaction contemplated herein (the "Closing") shall be conducted at the offices of Purchaser's counsel in Dallas, Texas, on or before September 30, 1998 (the "Closing Date")." 6. The last sentence of Section 11.4 of the Agreement shall be amended so that as amended it shall read as follows: "All Taxes shall be prorated on the accrual basis, Seller being responsible for all Taxes accruing up to and including the Closing Date regardless of whether such Taxes are then due and payable." 7. The first paragraph of Section 11.5 of the Agreement shall be amended so that as amended it shall read as follows: "All expenses attributable to the operation of each Facility (measured on an accrual basis) through 11:59 p.m. on the day of the Closing shall be paid for by Seller. Thereafter, such expenses shall be paid for by Purchaser. All income not received by Seller as of the Closing, including, but not limited to, all payments under Occupancy Agreements, including Medicare and Medicaid reimbursement and other insurance payments or advances shall be for Seller's account and any amount collected from tenants or patients and third party payors with accounts owing to Seller shall, if collected by Purchaser, be paid over to Seller. Except as otherwise expressly provided in this Agreement, Seller shall remain responsible for all accounts payable through 11:59 p.m. on the day of the Closing. As of the Closing, Seller shall calculate and pay wages, payroll taxes, and any employee bonuses based upon attendance record or other criteria accrued through 11:59 p.m. on the day of the Closing. In effecting the proration, Seller shall be credited for items of expense paid for as of the Closing Date. In addition, on or about the Closing, Seller shall cause final utility meter readings to be made for all utilities serving the Premises and Seller shall pay or cause to be paid all final bills rendered from such meter readings. To the extent that all items of income and expenses to be transferred, prorated, or assumed cannot be determined at the Closing, then Seller and Purchaser shall cooperate with each other to revise the settlement statements within thirty (30) days after Closing." 8. Multiple Counterparts. This Assignment and Amendment may be signed by the parties in counterparts, and when taken together shall be deemed an original Assignment and Amendment. 9. Full Force and Effect. Except as amended and/or modified herein, the Agreement shall remain unchanged and in full force and effect. [Remainder of page left intentionally blank] IN WITNESS THEREOF, the parties hereto have executed this Assignment and Amendment effective as of the day and year first above written. SELLER ------ NHP RETIREMENT HOUSING PARTNERS I LIMITED PARTNERSHIP By: Capital Realty Group Senior Housing, Inc., its general partner By: /s/ Robert Lankford ------------------------------------------ Name: Robert Lankford Title: President ASSIGNOR: -------- CAPITAL SENIOR LIVING PROPERTIES, INC., a Texas corporation By: /s/ David R. Brickman ------------------------------------------ Name: David R. Brickman Title: Vice President ASSIGNEE: -------- CAPITAL SENIOR LIVING PROPERTIES 2 - NHPCT, INC., a Delaware corporation By: /s/ David R. Brickman ------------------------------------------ Name: David R. Brickman Title: Vice President EX-2 4 EXHIBIT 2.3 - LOAN AGREEMENT - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CAPITAL SENIOR LIVING PROPERTIES 2-NHPCT, INC. (Borrower) and LEHMAN BROTHERS HOLDINGS INC. d/b/a LEHMAN CAPITAL, a division of LEHMAN BROTHERS HOLDINGS INC. (Lender) -------------------------- LOAN AGREEMENT -------------------------- Dated: As of September 30, 1998 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS
Page 1. The Note and the Security Instruments....................................................................2 2. Loan Documents...........................................................................................2 3. Lock-box Account.........................................................................................2 4. Replacements and Replacement Reserve.....................................................................3 5. Required Repairs; Required Repair Funds..................................................................8 6. Events of Default........................................................................................9 7. Sale of Notes and Securitization; Indemnification.......................................................10 8. Incorporation of Provisions.............................................................................11 10. Representations and Warranties..........................................................................12 11. Construction of Agreement...............................................................................12 12. Parties Bound, Etc......................................................................................12 13. Waivers.................................................................................................12 14. Governing Law...........................................................................................13 15. Severability............................................................................................13 16. Notices.................................................................................................13 17. Fees and Expenses.......................................................................................13 18. Modification............................................................................................13 19. No Oral Agreements......................................................................................13 20. Definitions.............................................................................................14 21. Limited Recourse........................................................................................14
-i- THIS LOAN AGREEMENT made as of the 30th day of September, 1998 between CAPITAL SENIOR LIVING PROPERTIES 2-NHPCT, INC., a Delaware corporation, having an office at 14160 Dallas Parkway, Suite 300, Dallas, Texas 75240 (hereinafter referred to as "Borrower") and LEHMAN BROTHERS HOLDINGS INC. d/b/a LEHMAN CAPITAL, a division of LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation having an office at Three World Financial Center, New York, New York 10285 (hereinafter referred to as "Lender"); W I T N E S S E T H : WHEREAS, at the request of Borrower, Lender has agreed to fund to Borrower a loan in the principal amount of $60,000,000.00 (the "Loan") pursuant to the terms of this Agreement; WHEREAS, the Loan is evidenced by that certain note of even date herewith made by Borrower to Lender in the original principal amount of $60,000,000.00 (the "Note") to be secured by multistate originals of a Mortgage and/or Deed of Trust, as the case may be, each of even date herewith, made by Borrower and securing the Loan (collectively, the "Security Instruments"), covering four (4) parcels of land more fully described in Schedule A attached hereto and made a part hereof (individually, a "Parcel" and collectively, the "Parcels"); WHEREAS, at the request of Borrower, Lender has agreed, among other things, to (i) permit Borrower to obtain additional advances by adding certain additional properties to the lien of the Security Instruments and (ii) provide the establishment of a lockbox account upon the occurrence of an Event of Default (defined herein) under the Loan Documents (defined below). NOW, THEREFORE, in consideration of ten dollars ($10) and other good and valuable consideration, the receipt of which is hereby acknowledged, Lender and Borrower hereby covenant and agree as follows: 1. The Note and the Security Instruments. The indebtedness of Borrower shall be: (i) evidenced by the Note, and (ii) secured by, among other things, (a) the Security Instruments made by Borrower covering the fee estate of Borrower, in each Parcel, the Improvements (as such term is defined in the Security Instruments) located on each Parcel and other property, rights and interests of Borrower in the same (individually, a "Property" and collectively, the "Properties"), and (b) assignments of leases and rents each given by Borrower to Lender dated the date hereof and covering the Properties (the "Assignments of Rents"). 2. Loan Documents. The term "Loan Documents" as used in this Agreement shall collectively mean the Note, the Security Instruments, the Assignments of Rents, the Assignments of Agreements, Permits and Contracts, the Environmental Indemnity Agreement, and the Conditional Assignment of Management Agreement and Subordination of Management Fees, each dated the date hereof between Borrower and Lender, this Agreement and all other documents and instruments of any nature whatsoever executed or delivered in connection with the Loan. 3. Lock-box Account. ---------------- (a) Upon the occurrence and continuance of an Event of Default (as defined in the Security Instruments), Borrower shall establish and maintain a segregated Eligible Account (defined below) (the "Lockbox Account") to be held by Lender, which Lockbox Account shall be under the sole dominion and control of Lender. Borrower hereby grants to Lender a first priority security interest in the Lockbox Account and all deposits at any time contained therein and the proceeds thereof and will take all actions necessary to maintain in favor of Lender a perfected first priority security interest in the Lockbox Account, including, without limitation, executing and filing UCC-1 Financing Statements and continuations thereof. Borrower will not in any way alter or modify the Lockbox Account and will notify Lender of the account number thereof. Lender and or its designated agent shall have the sole right to make withdrawals from the Lockbox Account and all costs and expenses for establishing and maintaining the Lockbox Account shall be paid by Borrower. (b) Upon the establishment of the Lockbox Account, Borrower shall, or shall cause the Manager (as defined in the Security Instruments) to, deposit the Rents (as defined in the Security Instruments) directly into the Lockbox Account, and Borrower shall deliver written instructions to all tenants under Leases (as defined in the Security Instruments) and credit card companies to deliver all Rents payable thereunder directly to the Lockbox Account. Borrower shall, and shall cause each Manager, to deposit all amounts received by Borrower or Manager constituting Rents into the Lockbox Account within one (1) Business Day of receipt thereof. (c) All funds on deposit in the Lockbox Account shall be applied by Lender to the payment of any amounts then due and payable under the Loan Documents in such order and priority as Lender in sole discretion shall determine. (d) The insufficiency of funds on deposit in the Lockbox Account shall not absolve Borrower of the obligation to make any payments, as and when due pursuant to this Agreement and the other Loan Documents, and such obligations shall be separate and independent, and not conditioned on any event or circumstance whatsoever. (e) The following capitalized terms shall have the meanings set forth below: "Eligible Account" shall mean a separate and identifiable account from all other funds held by the holding institution that is either (i) an account or accounts maintained with a federal or state-chartered depository institution or trust company which complies with the definition of Eligible Institution (defined below) or (ii) a segregated trust account or accounts maintained with a federal or state chartered depository institution or trust company acting in its fiduciary capacity which, in the case of a state chartered depository institution or trust company is subject to regulations substantially similar to 12 C.F.R. ss.9.10(b), having in either case a combined capital and surplus of at least Fifty Million and No/100 Dollars ($50,000,000) and subject to supervision or examination by federal and state authority. An Eligible Account will not be evidenced by a certificate of deposit, passbook or other instrument. "Eligible Institution" shall mean a depository institution or trust company the short term unsecured debt obligations or commercial paper of which are rated at least A-1 by Standard & Poor's Ratings Group, P-1 by Moody's 2 Investors Service, Inc., D-1 by Duff & Phelps Credit Rating Co. and F-1+ by Fitch Investors Service, L.P. in the case of accounts in which funds are held for thirty (30) days or less (or, in the case of accounts in which funds are held for more than thirty (30) days, the long term unsecured debt obligations of which are rated at least "AA" by Fitch Investors Service, L.P., Duff & Phelps Credit Rating Co. and Standard & Poor's Ratings Group and "Aaa" by Moody's Investors Service, Inc). 4. Replacements and Replacement Reserve. ------------------------------------ (a) Commencing on the first Payment Date (as defined in the Note) and on each Payment Date thereafter, Borrower shall pay to Lender an amount (the "Replacement Reserve Monthly Deposit") equal to $20,137.00, to be applied to maintain and replace certain items used in connection with the operation of each Property, which items are more particularly described on Schedule B attached hereto and made a part hereof (collectively, the "Replacements"), and amounts so deposited shall hereinafter be referred to as the "Replacement Reserve Fund". Lender will maintain the Replacement Reserve Fund in an interest bearing segregated account (the "Replacement Reserve Account") with all interest accrued to be held for the benefit of Borrower. (b) Intentionally deleted. (c) Borrower hereby grants a first priority security interest to Lender, as security for payment of all sums due under the Loan and the performance of all other terms, conditions and provisions to be paid and performed, of all Borrower's right, title and interest in and to the Replacement Reserve Fund and the Replacement Reserve Account and shall execute and deliver to Lender such UCC-1 Financing Statements and other documents or instruments as Lender may request in order to grant and perfect such security interest. Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in the Replacement Reserve Fund or the Replacement Reserve Account or permit any lien or encumbrance to attach thereto, or any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. Upon the occurrence of an Event of Default, Lender may apply any sums then present in the Replacement Reserve Fund to the payment of the Debt (as defined in the Security Instruments) in any order in its reasonable discretion. Until expended or applied as above provided, the Replacement Reserve Fund shall constitute additional security for the Debt. (d) (i) After the commencement of Borrower's obligation to make the Replacement Reserve Monthly Deposit pursuant to Section 4(a), Lender shall make disbursements from the Replacement Reserve Account to pay Borrower only for Replacements. Lender shall not be obligated to make disbursements from the Replacement Reserve Account to pay for or to reimburse Borrower for the costs of routine maintenance (other than the regular replacement of furniture, fixtures and equipment constituting Replacements or as permitted pursuant to Section 4(e) hereof) to an individual Property or for costs which are to be reimbursed from the Required Repair Fund (as such term is defined in Section 5 of this Agreement). (ii) Lender shall, upon written request from Borrower and satisfaction of the requirements set forth in Section 4(a) of this Agreement, disburse to Borrower amounts from the Replacement Reserve 3 Account to pay for the actual approved costs of Replacements within ten (10) days of Lender's receipt of a request for disbursement in accordance with Section 4(d). In no event shall Lender be obligated to disburse funds from the Replacement Reserve Account if an Event of Default exists. (e) Each request for disbursement from the Replacement Reserve Account shall be in a form specified or approved by Lender and shall certify as to (i) the specific Replacements for which the disbursement is requested, (ii) the quantity and price of each item purchased, if the Replacement includes the purchase or replacement of specific items, (iii) the price of all materials (grouped by type or category) used in any Replacement other than the purchase or replacement of specific items, and (iv) the cost of all contracted labor or other services applicable to each Replacement for which such request for disbursement is made. With each request for disbursement, Borrower shall certify that all Replacements that were the subject of the prior request for disbursement, if any, have been made in accordance with all applicable Legal Requirements (defined below) of any Governmental Authority (defined below) having jurisdiction over the applicable Individual Property to which the Replacements are being provided. Each request for disbursement shall include copies of invoices for all items or materials to be purchased and all contracted labor or services to be provided in connection with the Replacements for which the disbursement is requested. Each request for disbursement shall include a statement setting forth each person or entity that supplied materials or labor in connection with Replacements that were the subject of the prior request for disbursement, if any, and setting forth the amount paid to each such person pursuant to a prior request and shall include evidence satisfactory to Lender of payment of all such amounts or other evidence of completion (or in good faith actively proceeding towards completion) the Replacements for which the prior request for disbursement was made, if any, which evidence shall be satisfactory to Lender in its reasonable discretion. Prior to Borrower's making of the initial Replacement Reserve Monthly Deposit in accordance with Section 4(a) or thereafter with respect to any calendar month during which a request for disbursement from the Replacement Reserve Fund is not submitted to Lender pursuant to this Section 4(e), Borrower shall deliver to Lender, as a part of the monthly reports to be delivered pursuant to Section 3.11 of the Security Instruments, an Officer's Certificate setting forth the amounts paid during the preceding calendar month for Replacements and setting forth each Person to whom such amounts were paid, the amount paid to each such Person and the related Replacement provided by each such Person. (f) Intentionally deleted. (g) Borrower shall not make a request for disbursement from the Replacement Reserve Account more frequently than once in any calendar month. (h) Borrower shall make Replacements when required in order to keep each individual Property in condition and repair consistent with other senior living facilities, as applicable, in the same market segment which the respective individual Property is located, and to keep each individual Property or any portion thereof from deteriorating. Borrower shall complete all Replacements in a good and workmanlike manner as soon as practicable following the commencement of making each such Replacement. (i) Lender reserves the right, at its option, to approve in its reasonable discretion all material contracts or work orders with materialmen, mechanics, suppliers, subcontractors, contractors or other parties providing 4 labor or materials in connection with the Replacements. Upon Lender's request following an Event of Default, Borrower shall assign any contract or subcontract to Lender. (j) Following an Event of Default, in the event Lender determines in its reasonable discretion that any Replacement is not being performed in a workmanlike or timely manner or that any Replacement has not been completed in a workmanlike or timely manner, Lender shall have the option to withhold any further disbursements from the Replacement Reserve Account and, upon ten (10) days prior written notice, to proceed under existing contracts or to contract with third parties to complete such Replacement and to apply the Replacement Reserve Fund toward the labor and materials necessary to complete such Replacement and, without providing any prior notice to Borrower, to exercise any and all other remedies available to Lender upon an Event of Default hereunder. (k) Borrower grants Lender, following an Event of Default, the right to enter onto any individual Property during reasonable hours and subject to the rights of any tenant in possession of the Property in accordance with the terms of the Security Instruments and perform any and all work and labor necessary to complete or make the Replacements and/or employ watchmen to protect such individual Property from damage. All sums so expended by Lender shall be deemed to have been advanced under the Loan to Borrower and secured by the Security Instruments. For this purpose Borrower constitutes and appoints Lender its true and lawful attorney-in-fact with full power of substitution to complete or undertake the Replacements in the name of Borrower. Such power of attorney shall be deemed to be a power coupled with an interest and cannot be revoked. Borrower empowers said attorney-in-fact following an Event of Default as follows: (i) to use any funds in the Replacement Reserve Account for the purpose of making or completing the Replacements; (ii) to make such additions, changes and corrections to the Replacements as shall be necessary or desirable to complete the Replacements; (iii) to employ such contractors, subcontractors, agents, architects and inspectors as shall be required for such purposes; (iv) to pay, settle or compromise all existing bills and claims which are or may become liens against any individual Property, or as may be necessary or desirable for the completion of the Replacements, or for clearance of title; (v) to execute all applications and certificates in the name of Borrower which may be required by any of the contract documents; (vi) to prosecute and defend all actions or proceedings in connection with any individual Property or the rehabilitation and repair of any individual Property; and (vii) to do any and every act which Borrower might do in its own behalf to fulfill the terms of this Agreement. (l) Nothing in this Section 4 shall: (i) make Lender responsible for making or completing the Replacements; (ii) require Lender to expend funds in addition to the Replacement Reserve Fund to make or complete any Replacement; (iii) obligate Lender to proceed with the Replacements; or (iv) obligate Lender to demand from Borrower additional sums to make or complete any Replacement. (m) Borrower shall permit Lender and Lender's agents and representatives (including, without limitation, Lender's engineer, architect, or inspector) or third parties making Replacements pursuant to this Section 4 to enter onto each individual Property during normal business hours (subject to the rights of tenants under their Leases) to inspect the progress of any Replacements and all materials being used in connection therewith and to examine all plans and shop drawings relating to such Replacements which are or may be kept at each individual Property. Borrower shall cause all contractors and 5 subcontractors to cooperate with Lender or Lender's representatives or such other persons described above in connection with inspections described in this Section 4(m), the completion of Replacements pursuant to Section 4(j) or in connection with the inspections described in Section 4(n) below. (n) Following an Event of Default, if Lender has determined in its sole discretion that any Replacements are not being completed in a timely and workmanlike manner, Lender may require an inspection of the applicable individual Property at Borrower's expense prior to making a monthly disbursement from the Replacement Reserve Account in order to verify completion of such Replacements. Lender may require that such inspection be conducted by an appropriate independent qualified professional selected by Lender and/or may require a copy of a certificate of completion by an independent qualified professional acceptable to Lender prior to the disbursement of any amounts from the Replacement Reserve Account. Borrower shall pay the expense of the inspection as required hereunder, whether such inspection is conducted by Lender or by an independent qualified professional. (o) The Replacements and all materials, equipment, fixtures, or any other item comprising a part of any Replacement shall be constructed, installed or completed, as applicable, free and clear of all mechanic's, materialman's or other liens (except for those liens which have been approved in writing by Lender). (p) In the event that the prior request for disbursement included any amount in excess of Two Hundred Fifty Thousand and No/100 Dollars ($250,000) for any single Replacement requiring construction, installation or completion, Lender may require Borrower to provide Lender with a search of title to the applicable individual Property prior to making any additional disbursements from the Replacement Reserve Account, which search shows that no mechanic's or materialmen's liens or other liens of any nature have been placed against the applicable individual Property since the date of recordation of the related Security Instruments and that title to such individual Property is free and clear of all liens (other than the lien of the related Security Instruments and any other liens previously approved in writing by the Lender, if any). (q) All Replacements shall comply with all applicable Legal Requirements of all Governmental Authorities having jurisdiction over the applicable individual Property and applicable insurance requirements including, without limitation, applicable building codes, special use permits, environmental regulations, and requirements of insurance underwriters. (r) In addition to any insurance required under the Loan Documents, Borrower shall provide or cause to be provided workmen's compensation insurance, builder's risk, and public liability insurance and other insurance to the extent required under applicable law in connection with a particular Replacement. All such policies shall be in form and amount reasonably satisfactory to Lender. All such policies which can be endorsed with standard mortgagee clauses making loss payable to Lender or its assigns shall be so endorsed. Certified copies of such policies shall be delivered to Lender. (s) It shall be an Event of Default under this Agreement if (A) Borrower fails to make the initial Replacement Reserve Monthly Deposit in accordance with this Section 4 or (B) Borrower fails to comply with any other 6 provision of this Section 4 and such failure is not cured within thirty (30) days after prior written notice from Lender. Upon the occurrence of an Event of Default, Lender may use the Replacement Reserve Fund (or any portion thereof) for any purpose, including but not limited to completion of the Replacements as provided in Section 4(j), or for any other repair or replacement to any individual Property or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply the Replacement Reserve Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. (ii) Nothing in this Agreement shall obligate Lender to apply all or any portion of the Replacement Reserve Fund on account of an Event of Default to payment of the Debt or in any specific order or priority. (t) The insufficiency of any balance in the Replacement Reserve Account shall not relieve Borrower from its obligation to fulfill all preservation and maintenance covenants in the Loan Documents. (u) Borrower shall indemnify Lender and hold Lender harmless from and against any and all actions, suits, claims, demands, liabilities, losses, damages, obligations and costs and expenses (including litigation costs and reasonable attorneys fees and expenses) arising from or in any way connected with the performance of the Replacements. Borrower shall assign to Lender all rights and claims Borrower may have against all persons or entities supplying labor or materials in connection with the Replacements; provided, however, that Lender may not pursue any such right or claim unless an Event of Default has occurred and remains uncured. (v) The following capitalized terms appearing in Section 4 and Section 5 of this Agreement shall have the meanings set forth below: "Governmental Authority" shall mean any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence. "Legal Requirements" shall mean, with respect to each individual Property, all federal, state, county, municipal and other governmental statutes, laws, rules, orders, regulations, ordinances, judgments, decrees and injunctions of Governmental Authorities affecting such individual Property or any part thereof or the construction, use, alteration or operation thereof, or any part thereof, whether now or hereafter enacted and in force, and all permits, licenses, authorizations and regulations relating thereto, and all covenants, agreements, restrictions and encumbrances contained in any instruments, either of record or known to Borrower, at any time in force affecting such individual Property or any part thereof, including, without limitation, any which may (i) require repairs, modifications or alterations in or to such individual Property or any part thereof, or (ii) in any way limit the use and enjoyment thereof. 5. Required Repairs; Required Repair Funds. --------------------------------------- 7 (a) Borrower shall perform the repairs at its Properties, as more particularly set forth on Schedule C hereto (such repairs hereinafter referred to as "Property Required Repairs"). Borrower shall complete each of the Property Required Repairs on or before October 1, 1999. On the date hereof, Borrower shall deposit with Lender an amount equal to $47,350.00 to perform the Property Required Repairs for each Property in accordance with this Section 5. Amounts so deposited shall hereinafter be referred to as the "Required Repair Fund". Lender will maintain the Required Repair Fund in an interest bearing segregated account (the "Required Repair Account") with all interest accrued to be held for the benefit of Borrower. Borrower hereby grants a first priority security interest to Lender, as security for payment of all sums due under the Loan and the performance of all other terms, conditions and covenants on Borrower's part to be paid and performed, in all of Borrower's right, title and interest in and to the Required Repair Fund and the Required Repair Account and shall execute and deliver to Lender such UCC-1 Financing Statements and other documents or instruments as Lender may request in order to grant and perfect such security interest. Borrower shall not, without obtaining the prior written consent of Lender, further pledge, assign or grant any security interest in the Required Repair Fund or the Required Repair Account or permit any lien or encumbrance to attach thereto, to any levy to be made thereon, or any UCC-1 Financing Statements, except those naming Lender as the secured party, to be filed with respect thereto. Upon the occurrence of an Event of Default, Lender may apply any sums then present in the Required Repair Fund to the payment of the Debt in any order in its reasonable discretion. Until expended or applied as herein provided, the Required Repair Fund shall constitute additional security for the Debt. (b) After Borrower's initial deposit into the Required Repair Account pursuant to paragraph (a) hereof, Lender shall disburse to Borrower the Required Repair Funds from the Required Repair Account from time to time upon satisfaction by Borrower of each of the following conditions: (i) Borrower shall submit a written request for payment to Lender at least ten (10) days prior to the date on which Borrower requests such payment be made and specifies the Property Required Repairs to be paid; (ii) on the date such request is received by Lender and on the date such payment is to be made, no Event of Default shall exist and remain uncured; (iii) Lender shall have received a certificate from Borrower (A) stating that all Property Required Repairs at the applicable Property funded by the prior requested disbursement, if any, have been or are in good faith being completed in a good and workmanlike manner and in accordance with all applicable federal, state and local laws, rules and regulations, (B) any license, permit or other approval by any Governmental Authority required to commence and/or complete the Property Required Repairs to be funded by the requested disbursement have been obtained, (C) identifying each person that will supply materials or labor in connection with the Property Required Repairs to be performed at such Property and to be funded by the requested disbursement and including copies of invoices or statements from each such person or entity setting forth the costs for such materials or labor, and (D) stating that each person or entity that supplied materials or labor in connection with the Property Required Repairs performed at a Property and funded by the prior requested disbursement, if any, has been paid all amounts to be paid to such person or entity as set forth in the written request with respect to such prior requested disbursement and setting forth the amount paid to each such person and, if such requested disbursement includes amounts constituting the final payment to any person on account of any Property Required Repairs, such certificate shall be accompanied by lien waivers or other evidence of payment satisfactory to Lender and (iv) Lender shall have received such other evidence as Lender shall reasonably request that the Property Required Repairs at any Property funded by the prior requested disbursement, if any, have been or are in good faith being completed and the related costs and expenses have been paid. 8 Lender shall not be required to make disbursements from the Required Repair Account with respect to any such Property more frequently than once per calendar month and unless such requested disbursement is in an amount greater than Five Thousand and No/100 Dollars ($5,000) (or a lesser amount if the total amount in the Required Repair Account is less than Five Thousand and No/100 Dollars ($5,000), in which case only one disbursement of the amount remaining in the account shall be made) and such disbursement shall be made only upon satisfaction of each condition contained in this paragraph (b). Prior to Borrower's initial deposit of funds into the Required Repair Fund in accordance with paragraph (a) hereof or thereafter with respect to any calendar month during which a request for payment from the Required Repair Fund is not submitted to Lender pursuant to this paragraph (b), Borrower shall deliver to Lender, as a part of the monthly reports to be delivered pursuant to Section 3.11 of the Security Instruments, a certificate setting forth the amounts paid, if any, during the preceding calendar month for Property Required Repairs and setting forth each person to whom such amounts were paid, the amount paid to each such person or entity and the related Property Required Repairs performed by each such person. (c) It shall be an Event of Default under this Agreement if (i) Borrower does not exercise diligent efforts to complete the Property Required Repairs at each Property by the required deadline for each repair as set forth on Schedule C, or (ii) Borrower does not make the initial deposit into the Required Repair Fund in accordance with paragraph (a) hereof. Upon the occurrence of an Event of Default, Lender, at its option, may withdraw all Required Repair Funds from the Required Repair Account and Lender may apply such funds either to completion of the Property Required Repairs at one or more of the Properties or toward payment of the Debt in such order, proportion and priority as Lender may determine in its sole discretion. Lender's right to withdraw and apply Required Repair Funds shall be in addition to all other rights and remedies provided to Lender under this Agreement and the other Loan Documents. 6. Addition of Cottonwood and Tesson Properties. Provided that no Event of Default has occurred and is continuing, Borrower shall have the one time right (with respect to each of the following Additional Properties (hereinafter defined)), on or before November 30, 1998 (the "Addition Date") to request (a) that the assisted living facilities known as (i) Tesson Heights located at 12335 West Bend Drive, St. Louis, Missouri 63128 (the "Tesson Property") and (ii) Cottonwood Village located at 201 East Mingus Avenue, Cottonwood, Arizona 86236 (the "Cottonwood Property") each as more particularly described on Schedule D attached hereto and made a part hereof (the Tesson Property and the Cottonwood Property hereinafter referred to, individually and collectively, as the context may require, as the "Additional Property"), each to be owned in fee simple by Borrower, and to be subjected to the lien of a new mortgage, deed of trust, deed to secure debt or similar security instruments (hereinafter referred to, individually and collectively, as the context may require, as the "Addition"), in the same form and substance as the Security Instruments (hereinafter referred to individually and collectively, as the context may require, as the "Additional Security Instrument") and to the lien of the Loan Documents, as a first lien thereon and managed by Manager (as defined in the Security Instruments) pursuant to the terms of the Management Agreement or a Replacement Management Agreement (as defined in the Security Instruments) and (b) that Lender make an additional advance for each Addition of the Tesson Property (the "Tesson Advance") and the Cottonwood Property (the "Cottonwood Advance"; together with the Tesson Advance, hereinafter referred to, individually and collectively, as the context may require, as an "Advance") upon compliance with and conditioned on receipt by 9 Lender on or before the Addition Date of each of the following with respect to each Additional Property: (a) evidence which would be reasonably satisfactory to a prudent institutional mortgage lender that the Additional Property is fully operational. (b) (1) a current appraisal of the Additional Property prepared within one hundred eighty (180) days prior to the corresponding Advance showing an appraised value equal to or greater than 125% of the Advance; (2) an aggregate loan-to-value ratio with respect to the Properties subject to the lien of the Security Instruments after each Addition not greater than the ratio equal to the aggregate loan-to-value ratio as of the date hereof with respect to the Properties immediately prior to the Addition and (3) such other standard underwriting criteria as Lender may apply in its sole discretion. (c) an opinion of Borrower's counsel which would be reasonably satisfactory to a prudent institutional mortgage lender stating that (i) the Additional Security Instrument and the Loan Documents by which the Additional Property will be encumbered have been duly authorized, executed and delivered by such Borrower and are valid and enforceable in accordance with their terms, subject to bankruptcy and equitable principles exceptions, (ii) Borrower is qualified to do business and in good standing under the laws of the State where the Additional Property is located, or that Borrower is not required by Applicable Law (as defined in the Security Instruments) to qualify to do business in such state, and (iii) based solely on a certificate of Borrower that the encumbrance of the Additional Property with the lien of the Additional Security Instrument and the Loan Documents shall not cause a breach of, or a default under any agreement, document or instrument to which Borrower is a party or to which it or its properties are bound or affected. (d) a certification by the Borrower that (x) the certificates, opinions and other instruments which have been or are therewith delivered to or deposited with Lender in connection with the Advance conform to the requirements of this Agreement and the Security Instruments, and (y) all conditions precedent to the delivery of the Additional Security Instrument and Loan Documents contained in this Agreement have been fulfilled. (e) original executed counterparts of the Additional Security Instrument and the Loan Documents encumbering the Additional Property and related collateral, including without limitation, any financing statements or other documents necessary to grant or perfect Lender's first priority security interest in the Personal Property (defined in the Security Instruments) located thereon and the Rents derived therefrom; the principal amount of such Additional Security Instrument shall equal the face amount of the Note, provided that in the event that the jurisdiction in which the Additional Property is located imposes a mortgage recording intangibles or similar tax, and does not permit the allocation of indebtedness for the purpose of determining the amount of such tax payable, the principal amount of such Additional Security Instrument shall equal 125% of the Advance for such Additional Advance. 10 (f) a title insurance policy issued by a title insurance company reasonably satisfactory to the Rating Agencies (or, if a Securitization has not occurred, to Lender) insuring the lien of the Additional Security Instrument on the Additional Property, in form and substance which would be reasonably satisfactory to a prudent institutional mortgage lender insuring that the Additional Security Instrument is a valid and enforceable first lien on the good and marketable fee simple estate of Borrower to the Additional Property in an amount equal to the Advance for such Additional Advance, subject only to standard and customary exceptions and such other exceptions that would be reasonably approved by a prudent institutional mortgage lender, together with such affirmative insurance and other endorsements customarily reasonably required by a prudent institutional mortgage lender, including a "tie-in" and first loss endorsement satisfactory to Lender, or, if such endorsement is not available in the State where the Additional Property is located, insurance in an amount equal to the greater of one hundred twenty five percent (125%) of the such Advance or the amount on which mortgage or intangibles tax was paid with respect to the Additional Security Instrument, together with a "last dollar endorsement". Such title insurance policy shall not contain any exception for any state of facts that an accurate survey might show or that a survey made after the date of the survey referred to in Section 6(l) might show. (g) intentionally deleted. (h) evidence which would be reasonably satisfactory to a prudent institutional mortgage lender to the effect that the Additional Property and the use thereof are in substantial compliance with the applicable zoning, subdivision, and all other applicable federal, state or local laws and ordinances affecting the Additional Property, and that all material building and operating licenses and permits necessary for the use and occupancy of the Additional Property as a senior living facility, but not limited to, current certificates of occupancy, have been obtained and are in full force and effect. (i) an environmental report dated within six (6) months prior to delivery which states that the Additional Property does not contain any Hazardous Substances (as defined in the Security Instrument) in violation of Environmental Law (as defined in the Security Instrument) or material risk of contamination from off-site Hazardous Substances. (j) payment of all reasonable costs and expenses incurred by Lender including reasonable counsel fees and disbursements in connection with the addition of the Additional Property as collateral, all recording charges, filing fees, taxes, or other expenses, including but not limited to intangibles taxes and documentary stamp taxes in connection with the recording of the Additional Security Instrument and the lien necessary to grant and perfect Lender a first priority lien on and security interest in the Additional Property, the Personal Property located therein and the Rents derived therefrom. In the event that the State where the Additional Property is located imposes a mortgage recording or intangibles tax, or similar tax, and does not permit the allocation of indebtedness for the purpose of determining the amount of such tax payable, if permitted by applicable law in such jurisdiction, such tax shall be paid on an amount equal to 125% of the Advance for such Additional Advance. 11 (k) a recent survey of the Additional Property prepared by a land surveyor licensed in the State where the Additional Property is located pursuant to the then current American Land Title Association/American Congress of Surveying and Mapping standards for title surveys and which would be otherwise reasonably satisfactory to a prudent institutional mortgage lender, provided that no structural additions to the improvements shown on such survey or new structures have been made or built since the date of such survey and that there has been no material change in the legal description of the Additional Property since the date of such survey, whether due to sales, transfers, condemnation or otherwise. (l) evidence indicating whether the Additional Property is located within a flood plain. (m) a property inspection report dated within six (6) months of the Advance prepared by an independent licensed engineer reasonably approved by Lender, prepared in accordance with standards employed by prudent institutional mortgage lenders stating, among other things, that the Additional Property is in good condition and repair and free of material damage or waste and complies in all material respects with the Americans with Disabilities Act, or which otherwise reveals a state of fact that would be reasonably satisfactory to a prudent institutional mortgage lender and provided that adequate reserves reasonably satisfactory to Lender and the Rating Agencies are established. (n) annual operating statements and occupancy statements for the Additional Property for the most recent fiscal year of the owner thereof, together with a year to date operating statement, current occupancy statements, and a budget for the current fiscal year, each certified by Borrower, and a certificate of no adverse change since the date thereof executed by Borrower, in each case in a form and substance which would be reasonably satisfactory to a prudent institutional mortgage lender. (o) original certificates and copies of policies of insurance required by Lender under the terms of the Additional Security Instrument for the Additional Property. (p) evidence of the qualification and good standing of Borrower (and the principals, if necessary) in the State where the Additional Property is located unless such qualification is not required in such state by Applicable Law. (q) certified copies of all material contracts and agreements relating to the management, leasing and operation of the Additional Property, including, without limitation, the Management Agreement, which shall be in a form and substance which would be reasonably satisfactory to a prudent institutional mortgage lender in a transaction of similar type. (r) copies of all material licenses and approvals, if any, required in connection with the Advance, including evidence that such licenses and approvals are in full force and effect. (s) a certificate by Borrower certifying that all of the representations and warranties contained in the Security Instruments and in the other Loan Documents, after giving effect to the addition of the Additional 12 Property, are true and correct in all material respects with respect to the Additional Property and that there is no Event of Default hereunder. (t) UCC Searches with respect to the Additional Property and Borrower in the State where the Additional Property is located and the jurisdictions where such person has its principal place of business. (u) a certified copy of (i) the management agreement for the Additional Property between Borrower and Manager or (ii) an amendment to the Management Agreement to include the Additional Property, in either case in a form and substance that would be reasonably satisfactory to a prudent institutional lender together with a Conditional Assignment of Management Agreement in the same form and substance as with respect to the other Properties. (v) a certificate of Borrower dated the date of the applicable Advance, certifying (i) the names and true signatures of the incumbent officers of such person authorized to sign the applicable Loan Documents, (ii) the by-laws of Borrower as in effect on the date of such Advance, (iii) the resolutions of such person's board of directors approving and authorizing the execution, delivery and performance of all Loan Documents executed by such person, and (iv) that there have been no changes in the certificate of incorporation of such person since the date of the most recent certification thereof by the appropriate Secretary of State. (w) if a Securitization has occurred, an opinion of Borrower's counsel reasonably satisfactory to Lender stating, among other things, that the tax qualification and status of the REMIC will not be adversely affected or impaired as a result of the addition of the Additional Property. (x) such other certificates, opinions, documents and instruments relating to the applicable Advance reasonably requested by Lender, its counsel or the Rating Agencies, and all corporate and other proceedings and all other documents (including, without limitation, all documents referred to herein and not appearing as exhibits hereto) and all legal matters in connection with such Advance shall be reasonably satisfactory in form and substance to Lender in its reasonable discretion. (y) if a Securitization has occurred, written confirmation from the Rating Agencies that the addition of the Additional Property shall not result in a withdrawal, downgrade or qualification of the then current ratings by the applicable Rating Agencies of the Securities and otherwise in form and substance reasonably satisfactory to Lender and its counsel. Following compliance with the conditions set forth above in this Section 6, Lender shall fund to an account in Borrower's name, in accordance with Borrower's written instructions, an Advance for the Additional Properties which in the aggregate shall not exceed $27,700,000.00. Upon the addition of the each Additional Property in accordance with the terms and conditions of this Section 6, such Additional Property shall be deemed a Property for all purposes under this Agreement. 7. Events of Default. ----------------- 13 The term "Event of Default" as used in this Agreement shall have the meaning ascribed to such term in the Security Instruments. Upon the occurrence of an Event of Default, and, if Lender shall not have exercised its option under clause (i) below, during the continuance thereof, Lender (i) may, at its option and in its sole discretion, declare the Debt immediately due and payable, and (ii) may pursue any and all remedies provided for in the Loan Documents, or otherwise available. 8. Sale of Notes and Securitization; Indemnification. ------------------------------------------------- (a) At the request of the holder of the Note, and, to the extent not already required to be provided by Borrower under this Agreement, Borrower shall use reasonable efforts to satisfy the market standards to which the holder of the Note customarily adheres or which may be reasonably required in the marketplace or by the Rating Agencies in connection with the sale or transfer of the Note or participations or other interests therein or, subject to Section 7(c) below, the first successful securitization (such sale, transfer and/or securitization, the "Securitization") of rated single or multiclass securities (the "Securities") secured by or evidencing ownership interests in the Note and the Security Instruments, including, without limitation, to: (i) (A) provide such financial and other information with respect to the Properties, the Borrower and the Manager as is reasonably available to Borrower, (B) provide existing budgets relating to the Properties and (C) at Lender's expense, to perform or permit or cause to be performed or permitted such site inspection, appraisals, market studies, environmental reviews and reports (Phase I's and, if appropriate, Phase II's), engineering reports (including updates of any such information delivered to Lender at the closing of the Loan) and other due diligence investigations of the Properties, as may be reasonably requested by the holder of the Note or the Rating Agencies or as may be necessary or appropriate in connection with the Securitization (the "Provided Information"), together, if customary, with appropriate verification and/or consents of the Provided Information through letters of independent auditors or opinions of counsel in form reasonably acceptable to the Lender and otherwise acceptable to the Rating Agencies; (ii) if required by the Rating Agencies, and at Lender's expense, deliver (A) revised opinions of counsel as to non-consolidation, due execution and enforceability with respect to the Property, the Borrower and its constituent entities and the Loan Documents and (B) revised organizational documents of the Borrower and its constituent entities, which counsel opinions and organizational documents shall be reasonably satisfactory to Lender and the Rating Agencies; 14 (iii)(A) deliver one or more Officer's Certificates certifying as to the accuracy of all representations made by Borrower in the Loan Documents as of the date of the closing of the Securitization setting forth any then existing facts conflicting with any such representations, (B) deliver certificates of the relevant Governmental Authorities in all relevant jurisdictions indicating the good standing and qualification of each individual Borrower and their respective general partners or managing members, as applicable, as of the date of the Securitization and (C) make such additional representations and warranties as of the closing date of the Securitization with respect to the Properties, Borrower, and the Loan Documents as are customarily provided in securitization transactions and as may be reasonably requested by the holder of the Note or the Rating Agencies and consistent with the facts covered by such representations and warranties as they exist on the date thereof; and (iv) execute such amendments to the Loan Documents and establish and fund such reserve funds as and to the extent provided herein or as otherwise may be reasonably requested by the Rating Agencies to effect the Securitization; provided, however, that the Borrower shall not be required to modify or amend any Loan Document if such modification or amendment would (A) change the interest rate, the stated maturity or the amortization of principal amount of the Loan set forth herein, or (B) modify or amend any other economic term or other material term of any Loan Document in a manner that has a material adverse effect on Borrower. (b) Borrower understands that certain of the Provided Information and the financial statements, certificates, reports or information required to be provided by Borrower to Lender pursuant to Section 3.11 of the Security Instruments (collectively, the "Required Records") may be included in disclosure documents in connection with the Securitization including, without limitation, a prospectus, prospectus supplement or private placement memorandum (each, a "Disclosure Document") and may also be included in filings with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended (the "Securities Act"), or the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), and that such Disclosure Documents may be provided or made available to investors or prospective investors in the Securities, the Rating Agencies, and service providers relating to the Securitization and the Initial Securitization. If required by Lender, Borrower shall review such Disclosure Document and advise Lender in writing of any required revisions to correct inaccuracies with respect to the Provided Information and or the Required Records. In the event that any Disclosure Document is required to be revised prior to the sale of all Securities, the Borrower will use reasonable efforts to cooperate with Lender in updating the Disclosure Document by providing all current information necessary to keep the Disclosure Document accurate and complete in all material respects. Lender will promptly discontinue the use of any Disclosure Document upon such holder's receipt of written notice from Borrower that such Disclosure Document requires revision to correct any inaccuracy. 15 9. Incorporation of Provisions. If the Note, the Security Instruments and the other Loan Documents conflict with this Agreement, then the conditions, stipulations, agreements and covenants contained herein shall govern and control to the same extent and effect as if fully set forth therein until this Agreement is terminated by the payment in full of the Debt. 10. Further Assurances. Borrower shall on reasonable demand of Lender do any act or execute any additional documents required by Lender to confirm the lien of the Security Instruments. 11. Representations and Warranties. Borrower represents and warrants to Lender as follows: (a) Borrower is duly qualified to do business in the States in which the Properties are located unless such qualification is not necessary pursuant to the applicable laws of the States. (b) Borrower (and the undersigned representative, if any, of Borrower) has the full power and authority to execute and deliver this Agreement and the Loan Documents, and the same constitute the legal, valid and binding obligations of Borrower. (c) Borrower is not contemplating either the filing of a petition by it under any state or federal bankruptcy or insolvency laws or the liquidation of all or a major portion of such individual Borrower's assets or property, and no individual Borrower has knowledge of any person contemplating the filing of any such petition against it. (d) No statement of fact made by Borrower in this Agreement or in any of the other Loan Documents contains any untrue statement of a material fact or omits to state any material fact known to Borrower necessary to make statements contained herein or therein not misleading. There is no fact presently known to Borrower which has not been disclosed to Lender which materially and adversely affects, nor as far as Borrower can foresee, would materially and adversely affect, any of the Properties or the business, operations or condition (financial or otherwise) of Borrower. (e) No part of the proceeds of the Loan will be used for the purpose of purchasing or acquiring any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System or for any other purpose which would be inconsistent with such Regulation U or any other Regulations of such Board of Governors, or for any purposes prohibited by Legal Requirements or by the terms and conditions of this Agreement or the other Loan Documents. 12. Construction of Agreement. The titles and headings of the paragraphs of this Agreement have been inserted for convenience of reference only and are not intended to summarize or otherwise describe the subject matter of such paragraphs and shall not be given any consideration in the construction of this Agreement. 13. Parties Bound, Etc. The provisions of this Agreement shall be binding upon and inure to the benefit of Borrower, Lender and their respective heirs, executors, legal representatives, successors and assigns (except as otherwise prohibited by this Agreement). 16 14. Waivers. Lender may at any time and from time to time waive any one or more of the conditions contained herein, but any such waiver shall be deemed to be made in pursuance hereof and not in modification thereof, and any such waiver in any instance or under any particular circumstance shall not be considered a waiver of such condition in any other instance or any other circumstance. 15. Governing Law. (a) This Agreement shall be deemed to be a contract entered into pursuant to the laws of the State of New York and shall in all respects be governed, construed, applied and enforced in accordance with the laws of the State of New York, provided however, that with respect to the creation, perfection, priority and enforcement of the lien of the Security Instruments, and the determination of deficiency judgments, the laws of the State where the applicable Property is located shall apply. (b) Any legal action or proceeding with respect to this Agreement or any other Loan Document and any action for enforcement of any judgment in respect thereof may be brought in the courts of the State of New York or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, Borrower hereby accepts, each for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of the aforesaid courts and appellate courts from any thereof. Borrower irrevocably consents to the service of process out of any of the aforementioned courts in any such action or proceeding by the mailing of copies thereof by registered or certified mail, postage prepaid, to Borrower at its address set forth in Article 16 of the Security Instruments. Borrower hereby irrevocably waives any objection which it may now or hereafter have to the laying of venue of any of the aforesaid actions or proceedings arising out of or in connection with this Agreement or any other Loan Document brought in the courts referred to above and hereby further irrevocably waives and agrees not to plead or claim in any such court that any such action or proceeding brought in any such court has been brought in an inconvenient forum. Nothing herein shall affect the right of Lender, to serve process in any other manner permitted by law or to commence legal proceedings or otherwise proceed against Borrower in any other jurisdiction. 16. Severability. If any term, covenant or provision of this Agreement shall be held to be invalid, illegal or unenforceable in any respect, this Agreement shall be construed without such term, covenant or provision. 17. Notices. All notices required to be given under the terms of this Agreement shall be given in accordance with and to the addresses set forth in Article 16 of the Security Instruments. 18. Fees and Expenses. Borrower shall pay to Lender, upon demand, all expenses incurred by Lender in connection with the collection of the Debt, the enforcement of the Loan Documents, and in curing any defaults under the Loan Documents (including, without limitation, reasonable attorneys' fees, which shall include attorney's fees incurred in any trial, appellate or bankruptcy proceeding), with, if any such expenses are past due, interest thereon at a rate per annum equal to the rate of interest payable pursuant to the Note, provided that such interest rate shall in no event exceed the maximum interest rate which Borrower may by law pay, from the date of payment by Lender to the date of payment to Lender, which sums and interest shall be secured by the Security Instruments. 17 19. Modification. This Agreement may not be modified, amended or terminated, except by an agreement in writing executed by the parties hereto. 20. No Oral Agreements. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT, INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US, EXCEPT AS WE MAY AGREE IN WRITING TO MODIFY IT. 21. Definitions. Capitalized terms not defined herein shall have the meaning set forth in the Security Instruments. In addition to the foregoing, the word "person" shall include an individual, corporation, partnership, limited liability company, trust, unincorporated association, government, governmental authority and any other entity. 22. Limited Recourse. The provisions of Article 14 of the Note are hereby incorporated by reference to the fullest extent as if the text of such Article were set forth in its entirety herein. [NO FURTHER TEXT ON THIS PAGE] 18 IN WITNESS WHEREOF, Borrower and Lender have duly executed this Agreement the day and year first above written. BORROWER: CAPITAL SENIOR LIVING PROPERTIES 2-NHPCT, INC., a Delaware corporation By: /s/ Lawrence A. Cohen ----------------------------------------- Name: Lawrence A. Cohen Title: Chief Financial Officer LENDER: LEHMAN BROTHERS HOLDINGS INC. d/b/a LEHMAN CAPITAL, a division of LEHMAN BROTHERS HOLDINGS INC., a Delaware corporation By: /s/ Larry Kravetz ------------------------------------------ Name: Larry Kravetz Title: Authorized Signatory EX-99 5 EXHIBIT 99.1 - COMPANY PRESS RELEASE Monday October 5, 7:01 a.m. Eastern Time Company Press Release Capital Senior Living Corporation Acquires Four Senior Living Communities DALLAS--(BUSINESS WIRE)--Oct. 5, 1998--Capital Senior Living Corporation (NYSE:CSU news), one of the country's largest developers and operators of senior living communities, has purchased four senior living communities from NHP Retirement Housing Partners I Limited Partnership ("NHP") with a capacity for 706 residents for a cash purchase price of $40,640,000, according to Jeffrey L. Beck, Chief Executive Officer of Capital Senior Living Corporation. The four communities acquired by the Company are The Atrium of Carmichael in Carmichael, California; Crosswood Oaks in Citrus Height, California; The Heatherwood in Southfield, Michigan; and Veranda Club in Boca Raton, Florida. The Company has operated the communities under a long-term management contract since 1992 and owns 33 percent of the outstanding pension notes issued by NHP. The average occupancy of the four communities is 95 percent. The residents in each of the communities enjoy amenities such as gracious living areas, a beauty parlor/barber shop, a library, exercise rooms, broad range of activity and recreational programs and attractively landscaped grounds. The communities also provide meal service, housekeeping, transportation, emergency call response, and personal care services. "We are pleased to increase our ownership in these four communities to 100 percent," commented James A. Stroud, Chief Operating Officer. "Originally, we anticipated acquiring the remaining interests in the pension note debt of the communities and benefiting from the interest earned on the notes. This acquisition will allow us to report the operating results of those communities, which we have managed since 1992. This is a further step in our previously announced plans to fully consolidate the ownership of the communities we operate and in which we own partial interests." Lawrence A. Cohen, Chief Financial Officer, added, "Completing these consolidations will strengthen our balance sheet and enhance our quality of earnings. This acquisition is expected to add approximately $11.6 million to our resident revenue and approximately $4 million to our earnings before interest, taxes, depreciation and amortization (EBITDA) in the next twelve months. This is after taking into account the elimination of approximately $1.2 million in management fee revenue previously earned from these four communities." Mr. Cohen also stated, "As a result of this transaction, approximately $7.5 million of principal and $5.3 million of deferred interest on the NHP pension notes owned by the Company will be repaid through 2001. In addition, the Company will continue to earn interest on approximately $6.6 million of the outstanding NHP pension notes that mature in 2001." Capital Senior Living Corporation is one of the country's largest developers and operators of senior living communities. The Company currently operates 33 communities in 17 states with a capacity of approximately 5,400 residents. Later this month, the Company plans to close the previously announced acquisition of two communities, Gamercy Hill and Tesson Heights, with a capacity of 358 residents. The Company currently has 29 communities under construction or development, which will have a capacity of approximately 4,500 residents, including 22 new Waterford Communities with a capacity of approximately 3,100 residents. The Company is negotiating terms for additional sites. The Company is also expanding 9 existing communities to accommodate approximately 600 additional residents. Upon completion of these acquisitions, developments and expansions, the Company is expected to double its capacity to approximately 11,000 residents. Further additional growth in capacity is expected to result from acquisitions of existing communities. The Company's operating philosophy emphasizes a continuum of care, which integrates independent living, assisted living and personal care to provide residents with the opportunity to age in place. The forward-looking statements in this release are subject to certain risks and uncertainties that could cause results to differ materially, including, but not without limitation to, the Company's ability to find suitable acquisition properties at favorable terms, financing, licensing, business conditions, risks of downturns in economic conditions generally, and satisfaction of closing conditions such as those pertaining to licensure. These and other risks are detailed the Company's reports filed with the Securities and Exchange Commission. For further information, contact Scott Shamblin, Director of Investor Relations, 972-770-5600. -----END PRIVACY-ENHANCED MESSAGE-----