-----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, CggmHFQo1xCu05h3p+Evq4oT1+mFrYU9inHpwMp50cHlaZciM8sOykbQToK3S4c5 qTLTlVGHwZXJyZY6FmtpxA== 0000899078-02-000054.txt : 20020413 0000899078-02-000054.hdr.sgml : 20020413 ACCESSION NUMBER: 0000899078-02-000054 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020117 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEALTHCARE PROPERTIES L P CENTRAL INDEX KEY: 0000814458 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 621317327 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-17695 FILM NUMBER: 2511853 BUSINESS ADDRESS: STREET 1: 14160 DALLAS PARKWAY, SUITE 300 STREET 2: P O BOX 2549 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 2147705600 FORMER COMPANY: FORMER CONFORMED NAME: JACQUES MILLER HEALTHCARE PROPERTIES L P DATE OF NAME CHANGE: 19920703 8-K 1 dec312001-8k.txt UNITED STATES 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): January 1, 2002 --------------- HealthCare Properties, L.P. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 0-17695 62-1317327 - ---------------------------- ------------------ ------------------- (State or other jurisdiction (Commission File (IRS Employer of 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) Item 2. Acquisition or Disposition of Assets On January 1, 2002, HealthCare Properties, L.P. ("HCP") sold a long term care nursing facility, The Hearthstone of Round Rock, located in Round Rock, Texas, to HHC Round Rock NC, LP (the "Purchaser") for a total consideration of $4.0 million, pursuant to the terms of the Purchase and Sale Agreement attached hereto as Exhibit 2.1, by and between HCP and the Purchaser. Pursuant to the terms of the Limited Partnership Agreement, the General Partner of HCP will receive a 3% General Partner fee that will be paid by HCP. There was no brokerage fee paid by HCP. Additionally, HCP terminated its existing lease with Integrated Health Services for the Benbrook Nursing Home in Benbrook, Texas (the "Facility") and executed a new lease with Senior Management Services of Benbrook, Inc., a Texas corporation ("New Operator"). The lease term is for a period of five years commencing January 1, 2002 and the New Operator has the right to extend this term for one additional period of five years. HCP also entered into a purchase agreement with an affiliate of the New Operator, Preston Hollow Properties, LLC, a Texas limited liability company, for the purchase of the Facility. Copies of both the Facility Lease Agreement and Purchase Agreement are attached hereto as Exhibits 10.1 and 2.2, respectively. The purchase price for the Facility is $1.8 million subject to due diligence, with a closing scheduled on or before February 28, 2002. Item 7. Financial Statements and Exhibits (a) Financial Statements of Business Acquired. Not Applicable. (b) Pro Forma Financial Information. Not Applicable. (c) The following Exhibits are filed as a part of this Current Report on Form 8-K: 2.1 Purchase and Sale Agreement by and between HealthCare Properties, L.P. and HHC Round Rock NC, LP. 2.2 Purchase Agreement, by and between HealthCare Properties, L.P. and Preston Hollow Properties, LLC. 10.1 Benbrook Facility Lease, dated December 12, 2001, by and between HealthCare Properties, L.P. and Senior Management Services of Benbrook, Inc. 2 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. HEALTHCARE PROPERTIES, L.P. (Registrant) Date: January 16, 2002 By: Capital Realty Group Senior Housing, Inc., its general partner By: /s/ Robert Lankford --------------------------------- Robert Lankford President 3 EXHIBIT INDEX 2.1 Purchase and Sale Agreement by and between HealthCare Properties, L.P. and HHC Round Rock NC, LP. 2.2 Purchase Agreement by and between HealthCare Properties, L.P. and Preston Hollow Properties, LLC. 10.1 Benbrook Facility Lease, dated December 12, 2001, by and between HealthCare Properties, L.P. and Senior Management Services of Benbrook, Inc. EX-2 3 ex2-1_dec3120018k.txt EXHIBIT 2.1 PURCHASE AND SALE AGREEMENT BY AND BETWEEN HEALTHCARE PROPERTIES, LP ("SELLER") AND HHC ROUND ROCK NC, LP ("BUYER") DECEMBER ____, 2001
TABLE OF CONTENTS ARTICLE 1 DEFINITIONS...................................................................................1 ARTICLE 2 AGREEMENT OF PURCHASE AND SALE................................................................5 2.1 Agreement to Purchase and Sell................................................................5 ARTICLE 3 CLOSING AND CONDITIONS........................................................................5 3.1 Closing Conference............................................................................5 3.2 Delivery to Title Company.....................................................................5 3.3 Title Insurance and Survey....................................................................6 3.4 Additional Conditions.........................................................................6 3.5 Waiver of Conditions.........................................................................10 3.6 Non-Competition Agreement....................................................................10 3.7 Closing Date Extension.......................................................................10 ARTICLE 4 COSTS AND PRORATIONS.........................................................................10 4.1 Closing Costs................................................................................10 4.2 Prorations...................................................................................11 4.3 Default......................................................................................12 ARTICLE 5 REPRESENTATIONS AND WARRANTIES...............................................................12 5.1 Representations and Warranties of Seller.....................................................12 5.2 Representations and Warranties of Buyer......................................................14 5.3 Indemnifications.............................................................................15 5.4 No Additional Representations or Warranties by Seller........................................15 ARTICLE 6 MISCELLANEOUS................................................................................17 6.1 Brokers and Consultants......................................................................17 6.2 Survival of Representations and Warranties...................................................17 6.3 Further Instruments..........................................................................17 6.4 Entire Agreement; Amendments; Captions.......................................................17 6.5 Consents and Approvals.......................................................................17 6.6 Time of the Essence; Non-Business Days.......................................................17 6.7 Attorneys' Fees..............................................................................17 6.8 Cumulative Remedies..........................................................................17 6.9 Governing Law................................................................................18 6.10 Successors and Assigns.......................................................................18 6.11 Notices......................................................................................18 6.12 Counterparts.................................................................................18
i Exhibit "A" Property Description Exhibit "B" Bill of Sale Exhibit "C" Form of Closing Certificate Exhibit "D" Closing Procedure Letter Exhibit "E" Form of Special Warranty Deed Exhibit "F" Form of Estoppel Certificate Exhibit "G" Form of SNDA ii PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT (the "Agreement") is made as of December _____, 2001, by and between HEALTHCARE PROPERTIES, LP, a Delaware limited partnership, fka Jacques-Miller Healthcare Properties, LP ("Seller") and HHC ROUND ROCK NC, LP, a Texas limited partnership ("Buyer"). RECITALS Seller is the fee owner of that certain parcel of real property more particularly described in Exhibit "A" attached hereto (the "Land"). The Land is improved with certain buildings and other Improvements (as hereinafter defined) and together with the Improvements thereon is operated as a 120-bed long-term care nursing home (the "Facility"). Seller desires to sell, and Buyer desires to buy, all of the Property (as hereinafter defined) upon the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the Recitals, the mutual covenants, agreements and conditions set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: ARTICLE 1 DEFINITIONS As used herein (including any Exhibits attached hereto), the following terms shall have the following meanings: "Bill of Sale" shall mean a bill of sale in the form attached as Exhibit "B" hereto. "Business Agreement" shall mean any lease, rental agreement, management agreement, loan agreement, mortgage, easement, covenant, restriction or other agreement or instrument affecting all or a portion of the Property and which is presently in effect or binding upon Seller and relating to all or any portion of the Property. "Claim" shall mean any obligation, liability, lien, encumbrance, loss, damage, cost, expense or claim, including, without limitation, any claim for damage to property or injury to or death of any person or persons. "Closing" shall mean the consummation of the sale and purchase provided for herein. "Closing Certificate" shall mean a certificate in the form of Exhibit "C". "Closing Date" shall mean December 31, 2001, unless extended as provided herein, or such earlier or later date as shall be hereafter agreed upon by the parties. "Closing Procedure Letter" shall mean a letter to the Title Company executed by Seller and Buyer setting forth directions for the Title Company in connection with the Closing and in a form to be mutually agreed upon by the parties and attached hereto as Exhibit "D". 1 "Deed" shall mean a special warranty deed substantially in the form of Exhibit "E" attached hereto, executed by Seller, as grantor, in favor of Buyer, as grantee, conveying the Land and Improvements to Buyer, subject only to the Permitted Exceptions. "Effective Date" shall mean the date the last party hereto executes this Agreement. "Escrow Deposit" shall mean Twenty Five Thousand and No/100 Dollars ($25,000) to be delivered to the Title Company within two (2) business days after the Effective Date of which $100 shall be nonrefundable independent consideration for Buyer's exclusive option to purchase the Property and the right for due diligence granted herein. "Estoppel Certificate" shall mean the Tenant's estoppel certificate in the form of Exhibit "F". "Existing Encumbrances" shall have the meaning given such term in Section 4.1(c). "Facility" shall mean the 120 licensed bed long-term, care facility. "Facility Data" shall mean all resident lists, resident leases, cost reports, employee records, employee welfare and benefit programs, pending insurance claims of whatsoever nature submitted in behalf of, or against, the Facility, income statements, and balance sheets for the three prior years plus for the reporting periods of the current year, other financial data reasonably requested by Buyer, and other data reasonably requested by Buyer to conduct its, and that of its investors or lenders, due diligence investigation. "Fixture" shall mean all property now or upon the Closing Date located on or about the Property which is attached or appurtenant thereto. "Hazardous Materials" shall mean any hazardous, toxic or dangerous waste, substance or material, pollutant or contaminant, as defined for purposes of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et seq.), as amended, or the Resource Conservation and Recovery Act (42 U.S.C. Section 6901 et seq.), as amended, or any other federal, state or local law, ordinance, rule or regulation applicable to the Property, or any substance which is toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise hazardous to the environment or to human health or safety, or any substance which contains gasoline, diesel fuel or other petroleum hydrocarbons or byproducts, polychlorinated byphenyls (PCBs), or radon gas, urea formaldehyde, asbestos or lead. "Improvements" shall mean all buildings, improvements, structures and Fixtures now or on the Closing Date located on the Land, including, without limitation, parking lots and structures, roads, drainage and other utility structures and other so-called "infrastructure" improvements. "Intangible Property" means all of Seller's right, title and interest in all Permits and other intangible property or any interest therein now or on the Closing Date in connection with the Land, the Improvements or the Fixtures, or any business or businesses now or thereafter conducted by Seller or any 2 Lessee thereon or with the use thereof, including all rights of Seller in and to all contract rights, agreements, trade names, water rights and reservations, zoning rights, business licenses and warranties (including those relating to construction or fabrication) related to the Land, the Improvements or the Fixtures, or any part thereof. "Land" shall be the real property described on Exhibit "A". "Laws" means all federal, state and local laws, moratoria, initiatives, referenda, ordinances, rules, regulations, standards, orders and other governmental requirements, including, without limitation, those relating to the environment, health and safety, or handicapped persons, where the failure to abide by the same would have a material adverse effect on Buyer, Seller, the Property or the operation or use thereof. "Lease" means that certain Hearthstone of Round Rock lease dated January 31, 2001, between Seller and Tenant. "Medicaid Beds" means the seventy-seven Medicaid certified beds certified to the Facility. "Nursing Home" means the long term care facility located at 401 Oakwood Boulevard, Round Rock, Williamson County, Texas. "Permits" means all of Seller's right, title and interest in all permits, Medicaid contracts, licenses, approvals, entitlements and other governmental and quasi-governmental authorizations including, without limitation, certificates of occupancy, required in connection with the ownership, planning, development, construction, use, operation or maintenance of the Property as a long term care nursing home. "Permitted Exceptions" shall mean those title exceptions or defects with respect to the Land and Improvements, those exceptions or defects appearing as listed exceptions on the Title Policy which have been approved pursuant to the provisions hereof by Buyer. "Personal Property" shall mean all Intangible Property and all furnishings, equipment, tools, machinery, fixtures, appliances and all other tangible personal property, other than the Fixtures, now or on the Closing Date located on or about the Land or Improvements or used in connection with the operation thereof which is owned by Seller. "Property" means, collectively, the Land and all rights, titles, and appurtenant interests, the Improvements, the Fixtures, architectural plans for expansion, the Personal Property, the Intangible Property, the Medicaid Beds and proceeds thereof. As used in the foregoing, "appurtenant interests" shall mean those interests which pass by operation of law with the conveyance of the fee simple estate in the Land and Improvements. "Purchase Price" shall mean an amount equal to Four Million and No/100 Dollars ($4,000,000.00). "Real Property" shall mean the Land, the Improvements and the Fixtures. 3 "SNDA" shall mean the Subordination, Non-Disturbance and Attornment Agreement in the form of Exhibit "G". "Survey" shall mean a current land title survey ("Survey") of the Property prepared by a registered public land surveyor reasonably acceptable to Buyer. If the Survey complies with the standards of a Category 1-A, Condition II survey, as specified by the latest edition of the Manual of Practice for Land Surveying published by the Texas Surveyors Association, it shall be deemed acceptable to Buyer, however, Buyer shall retain the right to object to items disclosed in the Survey. The Survey shall be certified to Buyer and shall include: (i) the actual boundaries and dimensions of, and area within, the Property; (ii) a metes-and-bounds field note legal description of the Property; (iii) the location of any easements, set-back lines, encroachments, overlaps, roadways or waterways, including volume and page references, if applicable; (iv) the outside boundaries and dimensions of all improvements; (v) the surveyor's registered number and seal, the date of the survey, and a certificate reasonably satisfactory to Buyer; (vi) a statement that the Property has access to and from a publicly dedicated street or road; (vii) information sufficient to cause the Title Company to delete (except for "shortages in area") the printed exception for "discrepancies, conflicts or shortages in area or boundary lines, or encroachments, or any overlapping of improvements" in the Owner's Title Policy; and (viii) the actual dimensions of, and area within, any portion of the Property that has been designated by the Federal Emergency Management Administration, the U.S. Army Corps of Engineers, or any other governmental agency or body as being subject to special flooding hazards. For purposes of the property description to be included in the Deed to be delivered to Buyer, any field notes prepared by the surveyor shall control any conflicts or inconsistencies with the description contained in this Agreement, and such field notes shall be incorporated into this Agreement upon their completion and approval by Buyer and Title Company. "Tenant" shall mean Hearthstone Health Center, Inc. "Tenant ROFR" shall mean Tenant's right of first refusal under the Lease to purchase the Real Property. "Title Commitment" shall mean the commitment for an owner's policy of title insurance in the amount of the Purchase Price setting forth the status of the title of the Property and showing all liens, claims, encumbrances, easements, rights-of-way, encroachments, reservations, restrictions, and any other matters of record affecting the Property. Seller shall additionally deliver or cause the Title Company to deliver to Buyer (i) a true, complete, and legible copy of all documents referred to in the Title Commitment, including, but not limited to, deeds, lien instruments, plats, reservations, restrictions and easements ("Title Documents"); and (ii) the results of UCC financing statement searches of the records of Williamson County, Texas, and the Texas Secretary of State (the "UCC Searches"). "Title Company" shall mean the underwriter of the Title Policy and shall be Republic Title Company of Texas whose agent is Brian Fricke, 2626 Howell Street, 10th Floor, Dallas, Texas. "Title Policy" shall mean a Texas Form T-1 Owner's Policy of Title Insurance, together with such endorsements thereto as are reasonably requested by Buyer, with liability in the amount of the Purchase Price, dated as of the 4 Closing Date, issued by the Title Company, insuring title to the fee interest in the Real Property in Buyer, subject only to the Permitted Exceptions and to the standard printed exceptions included therein. "Warranties" shall mean all of Seller's right, title and interest in all assignable warranties, representations and guaranties with respect to the Property, whether express or implied, which Seller now holds or under which Seller is the beneficiary. ARTICLE 2 AGREEMENT OF PURCHASE AND SALE 2.1 Agreement to Purchase and Sell. Subject to the Tenant ROFR, Seller hereby agrees to sell, convey and assign the Property to Buyer, and Buyer agrees to buy and accept the Property from Seller, on the terms and conditions and for the Purchase Price as hereinafter set forth. ARTICLE 3 CLOSING AND CONDITIONS 3.1 Closing Conference. The Closing shall take place in Austin, Texas at the offices of Title Company's agent, Texas American Title Company, on or before the Closing Date unless extended as provided herein. 3.2 Delivery to Title Company. (a) Deliveries by Seller. On or before the Closing Date, Seller shall deliver or cause to be delivered to Title Company in accordance with the Closing Procedures Letter, the following monies and items, all of which shall be in form and substance reasonably acceptable to Buyer, and each of which shall be executed by Seller and acknowledged by a notary public where applicable: (i) By bank wire transfer (or credit towards the Purchase Price), the amount of Seller's income from the Property prorated from the Closing Date through the end of that current calendar month (the "Income Proration"); (ii) The duly executed and acknowledged Deed; (iii) Payoff letters and UCC terminations from the holders or claimants of, or with respect to, any encumbrance or monetary lien affecting the Property, other than Permitted Exceptions, stating the cash amount required to be paid and where and to whom such amount is to be paid (by bank wire instruction) in order to satisfy and discharge of record such encumbrances; (iv) the Bill of Sale; (v) A Closing Certificate, dated as of the Closing Date; 5 (vi) Resolutions authorizing the transactions described in this Agreement and confirming the authority of the persons executing conveyance documents to do so; (vii) By bank or wire transfer, an amount equal to the 2001 real property and ad valorem taxes due with respect to the Real Property (provided, such amount may be escrowed pursuant to an escrow agreement mutually agreeable to the parties), or evidence acceptable to Buyer that same have been paid in full; (viii) An assignment of the Lease from Seller to Buyer, and all tax, insurance and security deposit escrows held by Seller pursuant to the Lease; and (ix) The Estoppel Certificate and SNDA, executed by Tenant. (b) Items To Be Delivered by Buyer. On or before the Closing Date, except for the Escrow Deposit, Buyer shall deliver to the Title Company, in accordance with the Closing Procedure Letter, the following items, all of which shall be in form and substance acceptable to Seller, and each of which shall be executed by Buyer (or other appropriate party) and acknowledged by a notary public where applicable: (i) By bank wire transfer, the amount of the Purchase Price; and (ii) A Closing Certificate, dated as of the Closing Date. (c) Items To Be Delivered by Both Buyer and Seller. Buyer and Seller shall jointly deliver all notices of change of ownership or other similar notices required by any governmental or quasi-governmental authority or agency having jurisdiction over the Property or any portion thereof or any activities occurring on the Property or deemed reasonably advisable by Buyer. 3.3 Title Insurance and Survey. As a condition to Buyer's obligation to consummate the transactions herein contemplated, Buyer shall receive, at Seller's expense, within five (5) days after the Effective Date the Survey and an unconditional, irrevocable commitment from the Title Company to issue the Title Policy Commitment. Seller shall deliver to Title Company such instruments, documents, payments, indemnities, releases and agreements and shall perform such other acts as Title Company shall reasonably require in order to issue the Title Policy. Buyer will have five (5) days after receipt of both the Title Policy Commitment and Survey to object. Failure of Seller to satisfactorily correct such objections within three (3) days after notice will entitle Buyer to terminate this Agreement receiving a refund of the Escrow Deposit or to waive the objections in writing. 3.4 Additional Conditions. (a) Mutual Conditions. In addition to the conditions provided in other provisions of this Agreement, each party's obligation to perform its undertakings provided in this Agreement is conditioned upon the following: 6 (i) Performance by Other Party. The due performance by the other party of each and every material undertaking and agreement to be performed by it hereunder (including the delivery by such other party of the monies and items specified in Section 3.2). (ii) Representations and Warranties. Each representation and warranty made by the other party in this Agreement shall be true and correct in all material respects on the date hereof and at all times up to and including the Closing Date. (iii) No Bankruptcy or Dissolution. None of the following shall have been done by, against or with respect to Buyer or Seller: (A) the commencement of a case under Title 11 of the U.S. Code, as now constituted or hereafter amended, or under any other applicable federal or state bankruptcy law or other similar law; (B) the appointment of a trustee or receiver of any property interest; (C) an assignment for the benefit of creditors; (D) an attachment, execution or other judicial seizure of a substantial property interest; (E) the taking of, failure to take, or submission to any action indicating an inability to meet its financial obligations as they accrue; (F) a dissolution or liquidation; or (G) the implementation of enforcement procedures by the Texas Department of Human Services ("TDHS") as to the operation of the nursing home or withholding of vendor payments. (b) Conditions to Buyer's Performance. In addition to the conditions provided elsewhere in this Agreement, Buyer's obligation to perform its undertakings provided in this Agreement is conditioned upon the following: (i) No Damage. Between the Effective Date and the Closing Date, inclusive, no destruction of or damage or loss from any cause whatsoever, shall have occurred with respect to the Property which, according to Buyer's reasonable estimate, would cost, in the aggregate, more than Fifty Thousand and No/100 Dollars ($50,000.00) to repair, restore and replace or would take longer than thirty (30) days to repair, restore and replace. (ii) No Taking. No taking, threatened taking (or consideration by a governmental authority of a taking) of the Land or any material part thereof by eminent domain shall have occurred which would materially and adversely affect the value or use of the Property or portion thereof. (iii) Approval of Due Diligence Results. On or before five (5) days from the Effective Date, Buyer shall have received and approved the following from Seller, if in Seller's possession ("Due Diligence Material"). (A) an environmental assessment of the Property; (B) evidence of compliance with all building codes, zoning ordinances and other governmental entitlements as necessary for the operation of the Property for the current and intended use, including without limitations, certificates 7 of occupancy, health care provider permits and agreements, Medicare and Medicaid approvals, licenses and such other permits, licenses, approvals, agreement and authorizations as are required for the operation of the Property for the current and intended use. (C) Copies of the TDHS survey reports and plans of correction, if any, for the three (3) prior years and for-the current year; (D) Architectural drawings; (E) The Due Diligence Material, if in Seller's possession, which shall be delivered by Seller to Buyer within five (5) days from the Effective Date and supplemented through the Closing Date;. (F) Reasonable access and inspection of the Facility which Seller will provide Buyer after the Effective Date through the Closing; (G) A copy of the executed Lease, including all exhibits and schedules thereto, and Tenant's executed waiver of the Tenant ROFR; and (H) Copies of all financial statements and other financial information in Seller's possession regarding Tenant and all guarantors of Tenant. (iv) Approval of Due Diligence Material. Buyer shall have completed its review of, and shall have approved, all Due Diligence Material within ten (10) days after the Effective Date and if finding objections ("Objections") to the Due Diligence Material, Buyer shall notify Seller in writing of Objections within the same time period. Seller will have five (5) days to cure Objections to Buyer's satisfaction. Failure to timely cure the Objections within this time period will entitle Buyer to either terminate this Agreement within five (5) days thereafter and receive a return of the Escrow Deposit or to waive the Objections. (v) Confidential Information. (A) Buyer agrees to keep all of the Confidential Information, whether transmitted orally, in writing or in any other form, and whether prepared by Seller or its employees, agents advisors or their representatives, in strict confidence and shall not disclose it to any third party without the prior written consent of the Seller, provided, however, that any of such Confidential Information may be disclosed to a representative of the Buyer who needs to know such information for the purpose of evaluating any such possible transaction between the Buyer and the Seller (it being understood that such representatives shall be informed of the confidential nature of such information and shall be directed to treat such information confidentially). All Confidential Information transmitted hereunder shall be and remain the property of Seller. Buyer agrees that the Confidential Information shall 8 be used solely for the purpose of evaluating a possible negotiated transaction between the Seller and the Buyer and not for any other purpose including using the Confidential Information in the conduct of the business affairs of Buyer's business. Buyer agrees to be responsible for a breach of this Section 3.4(b)(v) by any third party to whom the Buyer has provided the Confidential Information. Buyer agrees that if the transaction contemplated by this agreement does not proceed within a reasonable time, then Buyer shall promptly deliver to the Seller all written Confidential Information and any other written material containing or reflecting Confidential Information and will not retain any copies, extracts or other reproductions in whole or in part of such written material. All documents, memoranda, notes and other writings whatsoever prepared by the Buyer, or respective representatives, based on the information included in the Confidential Information shall be promptly destroyed, and such destruction shall be certified in writing by an authorized officer of Buyer. Notwithstanding the return or destruction of any Confidential Information, the Buyer shall continue to be bound by its obligations of confidentiality and other obligations hereunder. Buyer hereby acknowledges and agrees that, in the event of any breach of this Section 3.4(b)(v) by Buyer or its representatives, including, without limitation, the actual or threatened disclosure of Confidential Information without the express prior written consent of Seller, Seller will suffer irreparable harm and injury and no remedy at law will afford it adequate protection against, or appropriate compensation for, such injury. Accordingly, Buyer hereby agrees that, in any such event, the Seller shall be entitled to seek specific performance of the Buyer's obligations under this Section 14(b)(v), as well as such further injunctive relief as may be granted by a court of competent jurisdiction. The provisions of this Section 3.4(b)(v) will continue in full force and effect for a two (2) year period after the execution of this Agreement. (B) For the purposes of this agreement, the, term "Confidential Information" shall mean any and all sensitive business, financial and technical information provided prior to the execution of this Agreement and to be provided after the execution of this Agreement by Seller to Buyer, including, without limitation, financial statements, reports and data, customer lists, trade secrets, technical data, software, code, proprietary information, and any other confidential information regarding the Seller, its affiliates and its respective businesses. (C) Seller acknowledges the confidential nature of this Agreement and agrees not to disclose its terms to third parties (other than third parties directly engaged by Seller to assist Seller in evaluating and consummating the transactions described in this Agreement), including, but not limited to, competitors, lenders, landlords, employees, constituents, vendors, hospitals, medical directors, or residents without the written approval of Buyer. 9 3.5 Waiver of Conditions. Any party may at any time or times, in its sole discretion, waive any of the conditions to its obligations hereunder, but any such waiver shall be effective only if contained in a writing signed by such party. No waiver by a party of any breach of this Agreement or of any warranty or representation hereunder by the other party shall be deemed to be a waiver of any other breach by such other party (whether preceding or succeeding and whether or not of the same or similar nature), and no acceptance of payment or performance by a party after any breach by the other party shall be deemed to be a waiver of any breach of this Agreement or of any representation or warranty hereunder by such other party, whether or not the first party knows of such breach at the time it accepts such payment or performance. No failure or delay by a party to exercise any right it may have by reason of the default of the other party shall operate as a waiver of such default or as a modification of this Agreement nor shall any such failure or delay prevent the exercise of any right by the nonbreaching party while the default continues. 3.6 Non-Competition Agreement. Seller, its affiliates, assigns or employees, agree not to compete for a period of twenty-four (24) months with Buyer in the delivery, directly or indirectly, of skilled nursing services as provided in the Facility on the Effective Date within the county where the Property is located or in addition within a twenty-five (25) mile radius of the Property if the Facility is located within twenty-five (25) miles of the county boundary. Seller also agrees not to solicit, hire, or retain the service of any employees or subcontractors of the Nursing Home for the purpose of providing skilled nursing services for a period of twenty-four (24) months after the Closing Date within the county where the Property is located or in addition within a twenty-five (25) mile radius of the Property if the Facility is located within twenty-five (25) miles of the county boundary, or solicit, directly or indirectly, either individually or as an employee of another provider, residents of the Nursing Home to move elsewhere. The parties agree that injunctive remedies, as well as other legal and equitable remedies, including damages, will be available to Buyer in the event Seller breaches this covenant not to compete and Seller agrees to waive all requirements that Buyer post a bond in the event Buyer must pursue the remedies herein. 3.7 Closing Date Extension. In the event the Tenant ROFR has not expired, terminated or been waived by Tenant prior to the Closing Date, Seller may extend the Closing Date to January 31, 2002, by delivering written notice thereof to Buyer. ARTICLE 4 COSTS AND PRORATIONS 4.1 Closing Costs. (a) Seller's Costs. Seller shall pay: (i) all expenses of the Survey and the issuance of the Title Policy (not including any Survey amendments or endorsements), and all escrow fees and charges; 10 (ii) the charges for or in connection with the recording and/or filing of any instrument or document provided herein or contemplated by this Agreement or any agreement or document described or referred to herein; (iii) other than as specifically set forth in Section 6.1, any and all broker's fees or similar fees claimed by any party employed by Seller in connection with the transactions contemplated herein; and (iv) Seller's legal, accounting and other professional fees and expenses and the cost of all opinions, certificates, instruments, documents and papers required to be delivered, or to cause to be delivered, by Seller hereunder, including without limitation, the cost of all performances by Seller of its obligations hereunder. (b) Buyer's Costs. Buyer shall pay: (i) other than as specifically set forth in Section 6.1, any and all broker's fees or similar fees claimed by any party employed by Buyer in connection with the transactions hereunder; (ii) all costs of Buyer's due diligence; and (iii) Buyer's legal, accounting and other professional fees and expenses and the cost of all opinions, certificates, instruments, documents and papers required to be delivered, or to cause to be delivered, by Buyer hereunder, including without limitation, the cost of all performances by Buyer of its obligations hereunder. (c) Existing Encumbrances. The Property is presently encumbered by certain deeds of trust and certain other security instruments (collectively, the "Existing Encumbrances"). Seller shall cause the Existing Encumbrances and all indebtedness secured thereby to be fully satisfied, released and discharged of record on or prior to the Closing Date (recognizing that Seller may use the proceeds of the sale contemplated hereby to satisfy the same) so that Buyer shall take title to the Property free of the Existing Encumbrances. 4.2 Prorations. (a) Items To Be Prorated. Seller's income and expenses from the Property shall be prorated between Seller and Buyer on the Closing Date, computed as of the Closing Date with income and expenses for the Closing Date itself being allocated to Buyer. (b) Procedure. In the event any prorations, apportionments or computations made under this Section 4.2 shall prove to be incorrect for any reason, then either party shall be entitled to an adjustment to correct the same, provided that it makes written demand on the one from whom it is entitled to such adjustment within one hundred twenty (120) days after the Closing Date. 11 (c) Indebtedness. Seller shall pay all amounts which are due or accrue under the Existing Encumbrances prior to and including the Closing Date, including, without limitation, all interest accrued on all of the same prior to and including the Closing Date. 4.3 Default. (a) Except as otherwise set forth herein, Seller's default under the terms of this Agreement will entitle Buyer, as its sole remedies, to: (i) terminate this Agreement and receive a return of the Escrow Deposit, and/or (ii) file suit for specific performance. (b) Buyer's default under the terms of this Agreement will entitle Seller to terminate this Agreement and retain the Escrow Deposit. (c) The prevailing party shall be entitled to attorneys' fees and expenses as described in paragraph 6.7. ARTICLE 5 REPRESENTATIONS AND WARRANTIES 5.1 Representations and Warranties of Seller. Seller represents and warrants to Buyer the following: (a) Title. Buyer will acquire hereunder good and indefeasible title to, and the entire right, title, and interest in, the Property, free and clear of any and all leases, liens, encumbrances, or other liabilities, subject only to the Permitted Exceptions. (b) Utilities. To the best of Seller's knowledge, the Property has available to its boundaries adequate utilities, including without limitation, adequate water supply, storm and sanitary sewage facilities, telephone, gas, electricity and fire protection, as is required for the operation of the Property as a long term care nursing home. (c) Physical Condition, Completeness. (i) To the best of Seller's knowledge, the Property has been constructed in a good, workmanlike and substantial manner, free from material defects and in accordance with all Laws. (ii) To the best of Seller's knowledge, the Property is properly zoned for its current use. (iii) To the best of Seller's knowledge, the Property, and each portion thereof, is in good condition and repair and is free from material defects. 12 (iv) To the best of Seller's knowledge, there are no soil or drainage conditions adversely affecting the Property. (d) Lease in Full Effect. The Lease, as currently in effect with all amendments and modifications thereto, is attached hereto as Schedule 5.1(6). No default under the Lease exists, on the part of the Seller, or Tenant. As of the Closing Date, the Tenant ROFR has been satisfied or waived. (e) Due Authorization, Execution, Organization, Etc. (i) This Agreement and all agreements, instruments and documents herein provided to be executed or to be caused to be executed by Seller are, and on the Closing Date will be, duly authorized, executed and delivered by and are binding in accordance with their terms upon, Seller, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application and of legal or equitable principles generally and covenants of good faith and fair dealing. (ii) Seller, if other than an individual, is duly organized, validly existing and in good standing under the laws of the State of Delaware and is duly qualified to do business in the State of Texas. Seller has the power and authority to enter into this Agreement and all agreements, instruments and documents herein provided and to consummate the transactions contemplated thereby. (iii) Neither this Agreement nor any agreement, document or instrument executed or to be executed in connection with this Agreement, nor anything provided in or contemplated by this Agreement or any such other agreement, document or instrument, does now or shall hereafter breach, invalidate, cancel, make inoperative or interfere with, or result in the acceleration or maturity of, any agreement, document, instrument, right or interest, affecting or relating to Seller or the Property. (iv) On and immediately after the Closing Date, Seller will be Solvent. As used in this paragraph, the term "Solvent" means, with respect to a particular date, that on such date (i) the present fair market value (or present fair salable value) of the assets of Seller is not less than the total amount required to pay the probable liabilities of Seller on its total existing debts and liabilities (including contingent liabilities) as they become absolute and matured; (ii) Seller is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and commitments as they mature and become due in the normal course of business; and (iii) Seller has not incurred debts or liabilities beyond its ability to pay such debts and liabilities as they mature. In computing the amount of such contingent liabilities at any time, it is intended that such liabilities will be computed at the amount that, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. 13 (f) Existing Agreements. There are no material agreements or understandings (whether written or oral) to which Seller is a party or is bound, including, without limitation, any Business Agreements, relating to the Property or the operation or use thereof other than the Lease, Permitted Exceptions and those documents and instruments which have been delivered to Buyer by Seller prior to the Closing Date. (g) Litigation, Condemnation. Seller has received no written notice of any material actions, suits or proceedings pending or threatened before or by any judicial, administrative or union body, any arbiter or any governmental authority, against or affecting the Property or any portion thereof. Seller has received no written notice of any existing, proposed or threatened eminent domain or similar proceedings which would affect the Land or Improvements in any manner whatsoever. (h) No Intangible Property. Other than any right that Seller may have to use the name of the nursing home located on the Property, there is no Intangible Property owned or held by Seller necessary in any material way to the use or operation of the Property. (i) Nonsolicitation by Seller. Seller will not solicit, directly or indirectly, residents to relocate from the Facilities to third-party facilities or other Seller facilities not subject to the terms of this Agreement, from and after the Effective Date and continuing for a period of twenty-four (24) months after the Closing Date. Breach of this Seller's representation and warranty shall entitle Buyer to pursue all judicial and equitable remedies available and if Buyer prevails, to have Seller pay expenses and reasonable attorney's fees. (j) Claims. To the best of Seller's knowledge without due inquiry, on or prior to the Closing Date, there exists no intentional act or omission on the part of Seller which is or may be the basis of any Claim with respect to the Property. 5.2 Representations and Warranties of Buyer. Buyer represents and warrants to Seller as follows: (a) Execution. This Agreement and all agreements, instruments and documents herein provided to be executed or to be caused to be executed by Buyer are and on the Closing Date will be duly authorized, executed and delivered by and are binding upon Buyer, subject to the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws of general application and by legal or equitable principles relating to, limiting or affecting the enforceability of creditors' rights generally. (b) Authorization. Buyer has the authority to enter into this Agreement and consummate the transactions herein provided and nothing prohibits or restricts the right or ability of Buyer to close the transactions contemplated hereunder and carry out the terms hereof. (c) Continuing Representation and Warranties. Buyer will reaffirm at Closing its representations and warranties herein and prior to Closing its 14 representations and warranties herein and prior to Closing will immediately notify Seller if Buyer discovers that an event, past, present or future, renders any of the representations and warranties no longer accurate. (d) Nonsolicitation by Buyer. Buyer, its agents and employees, will maintain in strict confidence all information obtained pursuant to this Agreement; will return all information to Seller obtained from Seller or in the Due Diligence Period to Seller if there is no Closing; and Buyer will not solicit or hire, directly or indirectly, any of Seller's agents or employees to work for Buyer for a period of twenty-four (24) months if this transaction does not close. Breach of this Buyer's representation and warranty will entitle Seller to pursue all judicial and equitable remedies available and if Seller prevails, to have Buyer pay expenses and reasonable attorney's fees. 5.3 Indemnifications. (a) Indemnification by Seller. Seller shall hold harmless, indemnify and defend Buyer and the Property from and against any Claim that (i) results from any breach of any representation or warranty of Seller contained in this Agreement or in any document executed in connection with this Agreement, or (ii) results from any other breach or default by Seller under this Agreement or in any document executed in connection with this Agreement. (b) Indemnification by Buyer. Buyer shall hold harmless, indemnify and defend Seller from and against any Claim that (i) results from any breach of any representation or warranty of Buyer contained in this Agreement or in any document executed in connection with this Agreement, (ii) results from any breach or default by Buyer under this Agreement or in any document executed in connection with this Agreement, or (iii) arises out of the intentional act or omission of Buyer, to the extent such Claim arises out of such negligent or intentional act or omission of Buyer occurring after the Closing Date, provided Buyer has actual knowledge of such intentional act or omission, or occurring during the course of Buyer's inspection of the Property prior to the Closing Date. 5.4 No Additional Representations or Warranties by Seller. BUYER ACKNOWLEDGES AND AGREES THAT, EXCEPT AS SPECIFICALLY PROVIDED ABOVE, SELLER HAS NOT MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO, CONCERNING OR WITH RESPECT TO: (A) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY INCLUDING, WITHOUT LIMITATION, THE WATER, SOIL AND GEOLOGY; (B) THE INCOME TO BE DERIVED FROM THE PROPERTY; (C) THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH BUYER MAY CONDUCT THEREON; (D) THE COMPLIANCE OF OR BY THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES, OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY 15 OR BODY; (E) THE HABITABILITY, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE OF THE PROPERTY; OR (F) ANY OTHER MATTER WITH RESPECT TO THE PROPERTY. WITHOUT LIMITING THE FOREGOING, AND EXCEPT AS PROVIDED HEREIN, SELLER DOES NOT AND HAS NOT MADE ANY REPRESENTATION OR WARRANTY REGARDING THE PRESENCE OR ABSENCE OF ANY HAZARDOUS MATERIALS ON, UNDER OR ABOUT THE PROPERTY OR THE COMPLIANCE OR NONCOMPLIANCE OF THE PROPERTY WITH THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION AND LIABILITY ACT, THE SUPERFUND AMENDMENT AND REAUTHORIZATION ACT, THE RESOURCE CONSERVATION RECOVERY ACT, THE FEDERAL WATER POLLUTION CONTROL ACT, THE FEDERAL INSECTICIDE, FUNGICIDE AND RODENTICIDE ACT, THE CLEAN WATER ACT, THE CLEAN AIR ACT, THE TEXAS NATURAL RESOURCES AND ADMINISTRATIVE CODES, THE TEXAS WATER CODE, THE TEXAS SOLID WASTE DISPOSAL ACT, THE TEXAS HAZARDOUS SUBSTANCES SPILL PREVENTION AND CONTROL ACT, ANY SO CALLED FEDERAL, STATE OR LOCAL "SUPERFUND" OR "SUPERLIEN" STATUTE, OR ANY OTHER STATUTE, LAW, ORDINANCE, CODE, RULE, REGULATION, ORDER OR DECREE REGULATING, RELATING TO OR IMPOSING LIABILITY (INCLUDING STRICT LIABILITY) OR STANDARDS OF CONDUCT CONCERNING ANY HAZARDOUS MATERIALS. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT, BEING GIVEN THE OPPORTUNITY TO INSPECT THE PROPERTY, BUYER WILL BE PURCHASING THE PROPERTY PURSUANT TO ITS INDEPENDENT EXAMINATION, STUDY, INSPECTION AND KNOWLEDGE OF THE PROPERTY, AND BUYER IS RELYING UPON ITS OWN DETERMINATION OF THE VALUE OF THE PROPERTY AND USES TO WHICH THE PROPERTY MAY BE PUT, AND NOT ON ANY INFORMATION PROVIDED OR TO BE PROVIDED BY SELLER. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY INFORMATION PROVIDED OR TO BE PROVIDED WITH RESPECT TO THE PROPERTY WAS OR WILL BE OBTAINED FROM A VARIETY OF SOURCES AND THAT, EXCEPT AS PROVIDED HEREIN, SELLER HAS NOT MADE AND WILL NOT BE OBLIGATED TO MAKE ANY INDEPENDENT INVESTIGATION OR VERIFICATION OF SUCH INFORMATION AND, EXCEPT AS PROVIDED HEREIN, SELLER MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR COMPLETENESS OF SUCH INFORMATION. THE OCCURRENCE OF THE CLOSING SHALL CONSTITUTE AN ACKNOWLEDGMENT BY BUYER THAT THE PROPERTY WAS ACCEPTED WITHOUT REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED (EXCEPT FOR THE SPECIFIC WARRANTIES SET FORTH HEREIN AND THE WARRANTIES OF TITLE SET FORTH IN THE DEED AND BILL OF SALE, IF ANY), AND OTHERWISE IN AN "AS IS," "WHERE IS," AND "WITH ALL FAULTS" CONDITION BASED SOLELY ON BUYER'S OWN INSPECTION. THE PARTIES AGREE THAT THIS PROVISION WAS A SUBSTANTIAL FACTOR IN DETERMINING THE PURCHASE PRICE OF THE PROPERTY AND THAT THE ACKNOWLEDGMENTS AND AGREEMENTS OF BUYER SET FORTH IN THIS PARAGRAPH SHALL SURVIVE THE CLOSING AND SHALL NOT BE MERGED THEREIN. 16 ARTICLE 6 MISCELLANEOUS 6.1 Brokers and Consultants. Seller represents and warrants to Buyer that no broker or consultant has been or will be engaged by Seller with respect to this transaction, other than Capital Realty Group Senior Housing, Inc., which shall be paid by Seller. Buyer represents and warrants to Seller that no broker or consultant has been or will be engaged by Buyer with respect to this transaction other than the Frey Group, which shall be paid by Buyer. 6.2 Survival of Representations and Warranties. All warranties and representations contained in Sections 5.1, 5.2 and 6.1 of this Agreement shall survive the Closing hereunder and the transfer and conveyance of the Property hereunder and any and all performances hereunder for a period of one (1) year unless otherwise specified. 6.3 Further Instruments. Each party will, whenever and as often as it shall be reasonably requested so to do by the other, cause to be executed, acknowledged or delivered, any and all such further instruments and documents as may be necessary or proper, in the reasonable opinion of the requesting party, in order to carry out the intent and purpose of this Agreement. 6.4 Entire Agreement; Amendments; Captions. This Agreement contains the entire agreement between the parties respecting the matters herein set forth and supersedes all prior or contemporaneous agreements or understandings, verbal or written, between the parties hereto respecting such matters. This Agreement may be amended by written agreement of amendment executed by both parties thereto, but not otherwise. Section headings shall not be used in construing this Agreement. 6.5 Consents and Approvals. Except as otherwise expressly provided herein, any approval or consent provided to be given by a party hereunder may be given or withheld in the absolute discretion of such party. 6.6 Time of the Essence; Non-Business Days. Subject to the next full sentence, time is of the essence of this Agreement. Whenever action must be taken (including the giving of notice or the delivery of documents) under this Agreement during a certain period of time or by a particular date that ends or occurs on a non-business day, then such period or date shall be extended until the immediately following business day. As used herein, "business day" means any day other than Saturday, Sunday or a federal holiday. 6.7 Attorneys' Fees. In the event any legal action or proceeding is commenced to interpret or enforce the terms of, or obligations arising out of, this Agreement, or to recover damages for the breach thereof, the party prevailing in any such action or proceedings shall be entitled to recover from the non-prevailing party all reasonable attorneys' fees and reasonable costs and expenses incurred by the prevailing party, including such fees and costs incurred with respect to appeals, arbitrations and bankruptcy proceedings. 6.8 Cumulative Remedies. Except as provided in Section 4.3, no remedy conferred upon a party in this Agreement is intended to be exclusive of any other remedy herein or by law provided or permitted, but each shall be 17 cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law, in equity or by statute (except as otherwise expressly herein provided). 6.9 Governing Law. This Agreement shall be construed and enforced in accordance with the internal laws of the State of Texas, without regard to the rules governing choice of law. 6.10 Successors and Assigns. Either Buyer or Seller may assign or transfer its rights or obligations under this Agreement with the prior written consent of the other party which shall not be unreasonably withheld. 6.11 Notices. Any notice which a party is required or may desire to give the other shall be in writing and shall be sent by personal delivery or by either (i) United States registered or certified mail, return receipt requested, postage prepaid, or (ii) Federal Express or similar generally recognized overnight carrier regularly providing proof of delivery, addressed as follows: To Seller: Healthcare Properties, LP c/o Capital Realty Group Senior Housing, Inc. 14160 Dallas Parkway, Suite 300 Dallas, Texas 75240 Attention: Mr. David Brickman with copy to: Dewey Leggett David, Goodman & Madole 5420 LBJ Freeway, Suite 1200 Dallas, Texas 75240 To Buyer: HHC Round Rock NC, LP 13915 Burnet Road, Suite 400 Austin, TX 78728 Attention: Mr. Lew Little Any notice so given by mail shall be deemed to have been given as of the date of delivery (whether accepted or refused) established by U.S. Post Office return receipt or the overnight carrier's proof of delivery, as the case may be, whether accepted or refused. Any such notice not so given shall be deemed given upon receipt of the same by the party to whom the same into be given. Any party hereto may designate a different address for itself by notice to the other party in accordance with this Section 6.11. In the event a party is not a natural person, delivery to an officer, director or partner of such party shall be deemed delivery to such party. 6.12 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same document. Facsimile signatures to this Agreement shall be effective for all purposes. Signature Page Follows 18 IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written. BUYER: HHC ROUND ROCK NC, LP, its general partner By: CapWest - Texas, LLC By: ------------------------------------ Printed Name: -------------------------- Title: --------------------------------- SELLER: HEALTHCARE PROPERTIES, LP By: Capital Realty Group Senior Housing, Inc., its general partner By: /s/ Robert Lankford ------------------------------------ Printed Name: Robert Lankford -------------------------- Title: President -------------------------- ACKNOWLEDGE RECEIPT OF $____________ AS THE ESCROW DEPOSIT ON ___________, 2001 REPUBLIC TITLE COMPANY OF TEXAS By: --------------------------------------- Printed Name: ----------------------------- Title: ------------------------------------ 19 EXHIBIT "A" PROPERTY DESCRIPTION Exhibit A TRACT 1: LOT 22, BLOCK "K", OF AMENDED PLAT OF THE OAKLANDS SECTION TWO REVISED, a subdivision in Williamson County, Texas, according to the map or plat thereof recorded in Cabinet J. Slide(s) 160-161, Plat Records of Williamson County, Texas. TRACT 2: The reciprocal and non-exclusive easements created, defined, and limited by that certain Reciprocal Easement Agreement dated July 10, 1987, recorded in Volume 1633, Page 61, official Records, Williamson County, Texas, by and between Lifemark Hospitals, Inc., a Delaware corporation, and National Living Centers, Inc. dba ARA Living Centers, a Delaware corporation, in over, upon and under the properties described in Exhibits "A", "B" and "C" of said agreement. EXHIBIT "B" BILL OF SALE BILL OF SALE THE STATE OF TEXAS ss. ss. KNOW ALL PERSONS BY THESE PRESENTS: COUNTY OF TRAVIS ss. That Healthcare Properties, LP, a Delaware limited partnership, flea Jacques-Miller Healthcare Properties, LP ("Grantor") for and in consideration of Ten and No/100 Dollars ($10.00) and other good and valuable consideration to Grantor in hand paid by HHC Round Rock NC, LP, a Texas limited partnership ("Grantee") the receipt of which is hereby acknowledged, has BARGAINED, SOLD AND DELIVERED, and by these presents does BARGAIN, SELL AND DELIVER, unto the said Grantee all of Grantor's rights, titles, and interests in and to the following described personal property in Williamson County (collectively, the "Personal Property"), to wit: (a) any and all buildings, improvements, structures, and tenements (the "Improvements" now or hereafter attached to or placed, erected, constructed, or developed on the real property described in more detail on Exhibit "A" attached hereto (the "Real Property"); (b) all equipment, fixtures, furnishings, inventory, building materials, and articles of personal property (the "Personalty") attached to or used in or about the Improvements; (c) all water and water rights, timber, crops, and mineral interests pertaining or allocable to the Real Property; (d) all plans and specifications for the Improvements; (e) all rights under any documents, contracts, contract rights, accounts, commitments, construction contracts (and all payment and performance bonds, statutory or otherwise, issued by any surety in connection with any such construction contracts, and the proceeds of such bonds), architectural contracts, engineering contracts, and general intangibles arising from or by virtue of any transactions related to the Real Property, the Improvements, or the Personalty; and (f) all other interests of every kind and character that Grantor now has in and to the Real Property, Improvements and Personalty and all property that is used or useful in connection therewith, including rights of ingress and egress and all reversionary rights or interests of Grantor with respect to such property. This Bill of Sale is made and accepted free of any liens and security interests affecting the Personal Property. TO HAVE AND TO HOLD the aforesaid Personal Property unto Grantee, its successors and assigns forever, and Grantor does hereby bind itself, its successors and assigns, to forever WARRANT and DEFEND the title to the Personal Property unto the said Grantee, its successors and assigns, against any person whomsoever lawfully claiming, or to claim the same, or any part thereof, by, through or under Grantor, but not otherwise. EXECUTED on December _____, 2001. GRANTOR: HEALTHCARE PROPERTIES, LP By: Capital Realty Group Senior Housing, Inc., its general partner By: ------------------------------------ Printed Name: -------------------------- Title: --------------------------------- EXHIBIT "C" FORM OF CLOSING CERTIFICATE COMPLIANCE CERTIFICATE THIS COMPLIANCE CERTIFICATE is made as of the _____ day of December, 2001, by Healthcare Properties, LP, a Delaware limited partnership, fka Jacques-Miller Healthcare Properties, LP ("Seller") to HHC Round Rock NC, LP, a Texas limited partnership ("Buyer"). RECITALS A. Seller and Buyer are parties to that certain Purchase and Sale Agreement (the "Agreement"), dated as of the date hereof, pursuant to which and subject to the terms and conditions therein set forth, Seller agrees to sell to Buyer the 120-bed, long-term care nursing home located at 401 Oakwood Boulevard, Round Rock, Texas, as more particularly defined and described in the Agreement. B. Section 3.2(a)(v) of the Agreement requires the delivery of this Closing Certificate. NOW THEREFORE, pursuant to Section 3.2(a)(v) of the Agreement, Seller does hereby represent and warrant to Buyer that each and all of the representations and warranties of Seller contained in the Agreement, including but not limited to those set forth in Section 5.1 of the Agreement, are true and correct as of the date hereof as if made on and as of the date hereof. FURTHER, Seller has performed and complied in all respects with all covenants, agreements, obligations and conditions contained in the Agreement that are required to be performed or complied with by it on or before the Closing, except as may have been otherwise waived by Buyer. IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the day and year first written. SELLER: HEALTHCARE PROPERTIES, LP By: Capital Realty Group Senior Housing, Inc., its general partner By: ----------------------------------- Printed Name: ------------------------- Title: -------------------------------- EXHIBIT "D" CLOSING PROCEDURE LETTER Not included. EXHIBIT "E" FORM OF SPECIAL WARRANTY DEED SPECIAL WARRANTY DEED Healthcare Properties, LP, a Delaware limited partnership, fka Jacques-Miller Healthcare Properties, LP ("Grantor") for $10.00 and other valuable consideration paid to Grantor for which no lien either express or implied is retained, does Grant, Sell, and Convey unto HHC Round Rock NC, LP, a Texas limited partnership ("Grantee") the following described real property, together with all improvements thereon, situated in Williamson County, Texas (the "Property"): That certain tract of land in Williamson County, Texas and being more particularly described in Exhibit "A" attached hereto and made a part hereof. To Have And To Hold the Property, together with all and singular the rights and appurtenances thereto in anywise belonging unto Grantee, Grantee's successors and assigns, forever. And Grantor does hereby bind Grantor, Grantor's successors and assigns, to Warrant And Forever Defend, all and singular, the Property unto Grantee, Grantee's successors and assigns, against every person whomsoever lawfully claiming, or to claim the same, or any part thereof, by, through or under Grantor, but not otherwise. Grantee's Mailing Address: 13915 Burnet Road Suite 400 Austin, Texas 78728 Executed as of the _____ day of December, 2001. GRANTOR: HEALTHCARE PROPERTIES, LP By: Capital Realty Group Senior Housing, Inc., its general partner By: ------------------------------------ Printed Name: -------------------------- Title: --------------------------------- ACCEPTED BY GRANTEE: HHC ROUND ROCK NC, LP By: CapWest- Texas, LLC, its general partner By: ------------------------------------- Printed Name: --------------------------- Title: ---------------------------------- THE STATE OF TEXAS ss. ss. COUNTY OF ___________ ss. This instrument was acknowledged before me on the _____ day of ____________, _____, by ________________, _______________ of Capital Realty Group Senior Housing, Inc., the General Partner of Healthcare Properties, LP, on behalf of said limited partnership. ---------------------------------------- Notary Public - State of Texas Print Name: ----------------------------- My commission expires: ------------------ THE STATE OF TEXAS ss. ss. COUNTY OF____________ ss. This instrument was acknowledged before me on the _____ day of ____________, _____, by ________________, ________________ of CapWest - Texas, LLC, the General Partner of HHC Round Rock NC, LP, on behalf of said limited partnership. ---------------------------------------- Notary Public - State of Texas Print Name: ----------------------------- My commission expires: ------------------ EXHIBIT "F" FORM OF ESTOPPEL CERTIFICATE LEASE ESTOPPEL CERTIFICATE THIS LEASE ESTOPPEL CERTIFICATE (this "Certificate") is made this _____ day of December, 2001, by Hearthstone Health Center, Inc., a Texas corporation ("Tenant"), to and for the benefit of Healthcare Properties, LP, a Delaware limited partnership, fka Jacques-Miller Healthcare Properties, LP ("Landlord"), and may be relied upon by Landlord and by HHC Round Rock NC, LP, a Texas limited partnership ("Buyer"), together with any and all lenders to Buyer and any and all of the respective immediate and remote successors and/or assigns of any of the foregoing (all of the foregoing, individually and/or collectively, the "Addressees"). WITNESSETH: WHEREAS, Tenant is the tenant under that certain lease, dated as of January 31, 2001 (the "Lease"), covering certain premises designated as 401 Oakwood Boulevard, Round Rock, Texas, as more particularly defined and described in the Lease (the "Leased Premises"); and WHEREAS, Landlord has requested that Tenant provide certain certifications with respect to the Lease which may be relied upon by the Addressees; NOW, THEREFORE, Tenant hereby certifies as follows: 1. The Lease has not been modified, is in full force and effect and represents the entire agreement between Landlord and Tenant as to Tenant's interest in the Leased Premises. The Lease is guaranteed by ___________________ and such guaranty(s) is/are in full force and effect. 2. The fixed annual rent currently payable under the Lease (excluding electricity charges) is $ ______ per month). With respect to additional rent payable under the Lease for real estate taxes, the base tax year is ______and Tenant's pro rata share is 100%; and for utility charges, the base year is N/A and Tenant's pro rata share is 100%. 3. Fixed annual rent under the Lease has been paid to and including the monthly installment due and payable on ___________________. 4. The commencement date for the Lease occurred on ___________________. The scheduled expiration date for the Lease is ___________________, and there are no renewal options other than ___________________. All free rent periods under the Lease have expired and Tenant is not entitled to any future rent concessions other than ___________________. 5. No part of the Leased Premises has been subleased, nor has the Lease been assigned. 6. The total security originally posted by Tenant under the Lease, whether in the form of cash or otherwise, was $______________. 7. Neither Landlord nor Tenant is in default of its obligations under the Lease. 8. Tenant has taken possession of the Leased Premises, all work to be performed by Landlord under the Lease, if any, has been completed in accordance with the Lease and all contributions, reimbursements, rent concessions, work credits and allowances due to Tenant under the Lease in connection with any work have been paid in full. 9. No actions, whether voluntary or otherwise, are pending against Tenant under the bankruptcy laws of the United States or any state and there are no claims or actions pending against Tenant which if decided against Tenant would materially and adversely affect Tenant's financial condition or ability to perform Tenant's obligations under, or in respect of, the Lease. 10. This certificate has been duly authorized, executed and delivered by Tenant. Tenant acknowledges and agrees that this certificate may be relied upon by, and shall inure to the benefit of the Addressees. IN WITNESS WHEREOF, Tenant has executed this Certificate as of the date above first written. TENANT HEARTHSTONE HEALTH CENTER, INC. By: ---------------------------------------- Printed Name: ------------------------------ Title: ------------------------------------- EXHIBIT "G" FORM OF SNDA Subordination, Nondisturbance and Attornment Agreement SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT This Subordination, Nondisturbance and Attornment Agreement ("Agreement"), dated _________, 20_________, is between ________________ (the "Tenant") and ________________ (the "Lender"). Recitals A. Tenant has entered into a certain lease (the "Lease") of premises (the "Premises") more particularly described in Schedule 1 hereof. B. Tenant has been advised that Lender intends to make certain loans (collectively, the "Loan") to the owner of the Premises ("Mortgagor"), subject to the terms and conditions set forth in a mortgage (the "Mortgage") to be granted by Mortgagor to Lender covering the Premises. C. The term "Landlord" shall mean Mortgagor, or any other person (other than Lender) who has been, is or becomes the owner of the Premises during-the term of the Lease. D. As a condition precedent to the disbursement of funds on the Loan, Lender requires Mortgagor to obtain this Agreement from Tenant. AGREEMENT NOW, THEREFORE, in consideration of the premises, Tenant and Lender hereby agree as follows: Section 1. Subordination. Tenant agrees that the Lease and all of the terms, covenants and provisions thereof, and all rights, remedies and options of Tenant thereunder are and shall at all times continue to be subject and subordinate in all respects to the Mortgage, to the lien thereof, to all modifications and extensions thereof, and to the Loan and all other sums secured thereby. Section 2. Nondisturbance. Lender agrees that if any action or proceeding is commenced by Lender for the foreclosure of the Mortgage or for the seizure and sale of the Premises, or if Lender acquires the Premises through foreclosure, deed in lieu of foreclosure (or dation en paiement), Lender shall maintain the Tenant in possession under the terms of the Lease, provided that at all of such times the Lease shall be in full force and effect and shall not have expired or been terminated, and Tenant shall not be in default under the terms, covenants and conditions of the Lease or of this Agreement. Section 3. Attornment. Tenant agrees that if the Lender shall become the owner of the Premises by reason of the foreclosure of the Mortgage or the acceptance of a deed in lieu of foreclosure (dation en paiement) or otherwise, the Lease shall not be terminated or affected thereby, but shall continue in full force and effect as a direct lease between Tenant and Lender upon all the terms, covenants and conditions set forth in the Lease. In such event, Tenant agrees to attorn to Lender, and Lender agrees to accept such attornment provided, however, that Lender shall not be liable for any accrued obligation of the Landlord or for any act or omission of the Landlord, whether prior to or after such foreclosure or other acquisition, or be subject to any offsets or counterclaims which shall have accrued to Tenant against the Landlord, prior to the date upon which Lender acquires ownership of the Premises through foreclosure, deed in lieu of foreclosure (dation en paiement) or otherwise. Section 4. Representations and Warranties. Tenant represents and warrants in favor of Lender as follows: . (i) The Lease described on Schedule 1 is the only Lease Agreement between the Tenant and the Landlord covering the Premises; the Lease has not been modified or amended except as set forth on Schedule 1 hereof, and the Lease remains in full force and effect as of the date hereof. (ii) There are no agreements with the Landlord or any other person concerning free rent, partial rent, rebate of rental payments or any other type of rental concession, except as set forth in the Lease. (iii) There are no existing defaults under the Lease by the Tenant or the Landlord, and no state of facts exist which, together with notice to the Tenant or the Landlord (as the case may be) or the passage of time, or both, would entitle the Tenant or the Landlord to terminate the Lease. The foregoing representation, as it relates.to defaults by the Landlord or any person other than Tenant, shall apply only to the best of Tenant's knowledge, information and belief. (iv) As of the date hereof, the Tenant does not have any existing defense or off set against the enforcement of the Lease by the Landlord or any outstanding claims against the Landlord. (v) The minimum rent required by the Lease is in effect; all rent has been paid under the Lease through the date set forth on Schedule 1 hereof; and no rent has been prepaid more than one month. Section 5 Covenants of Tenant. Tenant covenants and agrees as follows: (i) Tenant shall faithfully perform all of the terms, covenants and conditions imposed on Tenant under the Lease. (ii) Tenant shall not alter, modify, amend or terminate or accept a surrender of the Lease in any manner whatsoever, without the prior written consent of Lender. (iii) Tenant shall not pay any rentals accruing under the Lease for more than one month in advance of the time when said rentals become due under the terms of the Lease. (iv) Tenant shall not assign, sublease, mortgage, pledge or otherwise encumber the Lease without-the prior written consent of Lender. (v) Tenant shall give prompt written notice to Lender of any default by Landlord under any of the terms and provisions of the Lease. (vi) Upon request of Lender, Tenant shall' promptly provide Lender with a duly executed estoppel certificate in form reasonably required by Lender. Section 6. Disclaimer by Lender. Notwithstanding any of the provisions hereof, Lender shall have no obligation in favor of Tenant to perform any term, covenant or condition contained in the Lease, unless and until Lender acquires ownership of the Premises through foreclosure, deed in lieu of foreclosure (dation en paiement) or otherwise. Section 7. Notices. Any notice or demand which, by provision of this Agreement, is required or permitted to be given or served by the Lender to or on the Tenant shall be deemed to have been sufficiently given and served for all purposes (if mailed) three calendar days after being deposited, postage prepaid, in the United States mail, registered or certified mail, or (if delivered by express courier) one business day after being delivered to such courier, or (if delivered in person) the same day as delivery, in each case addressed (until another address or addresses is given in writing by Borrower to Lender) as follows: Any notice or demand which, by any provision of this Agreement, is required or permitted to be given or served by Tenant to or on Lender shall be deemed to have been sufficiently given and served for all purposes (if mailed) three calendar days after being deposited, postage prepaid, in the United States mail, registered or certified mail, or (if delivered by express courier) one business day after being delivered to such courier, or (if delivered in person) the same day as delivery, in each case addressed (until another address or addresses are given in writing by Lender to Tenant) as follows: Section 8. Amendment. Neither this Agreement nor any provisions hereof may be changed, waived, discharged or terminated orally or in any manner other than by an instrument in writing signed by the party against whom enforcement of the change, waiver, discharge or termination is sought. Section 9. Cumulative Rights. The rights and remedies of the Lender under this Agreement shall be cumulative, and the exercise or partial exercise of any such right or remedy shall not preclude the exercise of any other right or remedy. Section 10. Governing Law. This Agreement is, and the Note will be, contracts made under and shall be construed in accordance with and governed by the laws of the United States of America and the State of Louisiana. Section 11. Counterparts. This Agreement may be executed in two or more counterparts, and it shall not be necessary that the signatures of all parties hereto be contained on any one counterpart hereof, each counterpart shall be deemed an original, but all of which together shall constitute one and the same instrument. THUS DONE AND SIGNED as of the date hereinabove first written. TENANT: LENDER: EX-2 4 ex2-2_dec3120018k.txt EXHIBIT 2.2 PURCHASE AGREEMENT This Purchase Agreement (the "Agreement") is made this ____ day of December, 2001, by and between Healthcare Properties, L.P., a Delaware limited partnership, ("Seller") and PRESTON HOLLOW PROPERTIES, LLC, a Texas limited liability company, with offices at 800 Arbrook, Suite 210, Arlington, Texas 76015 ("Buyer"). WHEREAS, Seller is the owner of a certain 114 licensed bed, Nursing Home facility situated in Benbrook, Texas, located at 1000 McKinley Street, Benbrook, Texas, consisting of a tract of approximately _____ acres of land and related appurtenances located in Benbrook, Texas. The properties more particularly described in Exhibit "A" hereto (the "Real Property"), the buildings and improvements thereon (the "Improvements"), Seller's furnishings and equipment used and useful to the operation of said facilities, if any (the "Equipment"), and Seller's rights, if any, in the Certificate of Need or Medical Certification relating to the Real Property and Improvements (the "Certification"), which Real Property, Improvements, Equipment, and Certification are hereinafter collectively referred to as the "Facility". WHEREAS, both Seller and Buyer have agreed that Seller shall sell and Buyer shall purchase the Facility upon terms and conditions herein contained. NOW THEREFORE, in consideration of the mutual covenants herein contained and intending to be legally bound hereby, the parties hereto agree as follows: l. SALE. Subject to the terms and conditions hereof, Seller shall, as of the closing, by appropriate deed, bills of sale, and assignments, sell, assign, transfer, convey and deliver the Facility and Buyer shall purchase the same from Seller. 2. CONSIDERATION. The purchase price for the Facility is One Million Eight Hundred Thousand Dollars ($1,800,000.00) (the "Purchase Price") immediately available federal funds at Closing. 3. DEPOSIT. Buyer has delivered to Title Company (defined below) Twenty Thousand Dollars ($20,000.00) and shall, within forty-eight (48) hours of execution hereof, deliver an additional Fifty Thousand Dollars ($50,000.00) (collectively, the "Earnest Money") as an earnest money deposit. The Earnest Money is non-refundable to Buyer, but shall be applied against the Purchase Price at Closing (defined below). 4. CLOSING. The closing of the transaction contemplated herein (the "Closing") shall take place on or before February 28, 2002, unless extended or shortened by mutual written agreement of Seller and Buyer. Closing shall take place at the offices of Republic Title Company (the "Title Company"), c/o Brian Fricke, 2626 Howell Street, 10th Floor, Dallas, Texas (telephone 214-855-8888; facsimile 214-855-8852), or at such other place and/or such other time as may be agreed in writing signed by both Seller an Buyer, which other place and time shall then be the Closing Date. 5. CONDITION OF TITLE. Seller shall convey or cause to be conveyed, as applicable, title to the Facility, as follows: a. Title to Real Property and the Improvements shall be conveyed in fee simple by Special Warranty Deed ("Deed") and shall be good and indefeasible and free and clear of all liens and encumbrances (except those created by this transaction) or other matters affecting title, other than the Permitted Exceptions (as hereinafter defined) pursuant to a standard Texas Owner's policy of insurance for the full amount of the Purchase Price, which policy shall show and insure that legal title will be vested in Buyer and will be good and indefeasible subject only to the Permitted Exceptions. b. Title to all Equipment of Seller, if any, shall be free and clear of all liens, security interests and other encumbrances. c. Buyer acknowledges that the Facility is currently leased and agrees to make arrangements with such lessee ("Lessee") concerning its occupancy or vacating of the Facility. Senior Management Services of Benbrook, Inc., Buyer's affiliate, also intends to execute a Lease Agreement with Seller for the Facility, which will be an exception to title as well. 6. TITLE/SURVEY/FACILITY REVIEW. a. Title Commitment. Within twenty (20) days after execution of the Agreement, Seller, at its sole cost and expense, shall procure and deliver to Buyer a current Title Commitment ("Title Commitment") covering the Real Property. The Title Commitment shall set forth the state of title to the Real Property, together with all exceptions or conditions to such title, including, but not limited to, all easements, restrictions, rights-of-way, covenants, reservations, and all other encumbrances affecting the Real Property which would appear in an Owner's Title Policy. The Title Commitment shall contain the express commitment of the Title Company to issue the Title Policy to Buyer in the amount of the Purchase Price insuring such title to the Real Property as is specified in the Title Commitment. The Title Company shall provide Buyer with true, correct and legible copies of all instruments referred to in the Title Commitment as conditions or exceptions to title to the Real Property including liens. b. Survey. Within sixteen (16) days after the execution of the Agreement, Seller shall deliver to Buyer a survey ("Survey") of the Real Property and Improvements prepared by a qualified surveyor licensed by the State of Texas. The Survey shall be certified to Buyer, Seller and the Title Company, shall state the acreage of the Real Property, accurate to one-one hundredth of an acre, shall set forth the metes and bounds (or lot and block, if platted) legal description of the Real Property, and shall otherwise be in a form satisfactory to the Title Company to amend the standard survey exception on the title insurance policy to be issued at Closing (but such amendment shall be at Buyer's cost). Page 2 c. Review by Buyer. Buyer shall have the right, until December 31, 2001, to conduct and approve its due diligence and inspections, to its sole and exclusive satisfaction, of the title, physical plans, assets, financial, regulatory and operational information, and any other factors Buyer deems reasonably necessary regarding the facility and its assets and operations. Should Buyer decide, during such may terminate this Agreement and the parties shall have no further obligation except as hereinafter set forth; and the earnest money will be returned to the buyer. Seller agrees to make available for inspection and copying all information in its immediate possession, if any, including financial data, records, operating data and other information reasonably requested by Buyer, including the most recent financial statements, cost reports, inspection reports (3 prior years), plans of correction (3 prior years), current room rates including dates and amounts of increases, census data and patient mix, payroll information, employment agreements, personnel policies, occupancy agreements with patients, leases, and all contracts, agreements, and other documents relating to outside contractors, vendors, consultants, or other outside parties relating to the Facility and to which the Facility is, or may be, a patty. Notwithstanding the foregoing or any other provision of this Agreement, Seller shall not be required to divulge any information related to the Facility where such disclosure is reasonably prohibited by Seller's contractual obligations to a third party. Further, Buyer agrees to treat all such information as confidential and, in the event the transactions contemplated hereby are not consummated, Buyer agrees to return all information and copies thereof to Seller. d. Title Policy. Following Closing, Seller, at its sole cost and expense, shall cause the Title Policy to be furnished to Buyer. The Title Policy shall be issued in the amount of the Purchase Price and shall insure fee simple, indefeasible title to the Real Property in Buyer. The Title Policy may contain the Permitted Exceptions, but shall contain no additional exceptions to title to the Real Property other than the standard printed exceptions. 7. RESPONSIBILITY AND INDEMNIFICATIONS AS TO LIABILITIES. The parties shall indemnify each other as follows: a. Buyer shall indemnify and hold harmless Seller and its partners and its and their officers, directors, members, shareholders, employees, agents and controlling persons against any and all claims, demands, suits, damage, liability, loss and expense, including, without limitation, reasonable attorneys' fees (collectively "Losses") which Seller may sustain or suffer or to which Seller may become subject as a result of events which occur subsequent to the date of closing. The foregoing shall survive Closing. b. Seller shall indemnify and hold harmless Buyer and its officers, directors, members, shareholders, employees, agents and controlling persons against any Losses which Buyer may sustain or suffer or to which Buyer may become subject as a result of any material, intentional, or knowing misrepresentation under Section 8 of this Agreement. 8. SELLER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. a. Seller represents and warrants to Buyer as of the execution of this Agreement and as of the Closing that: Page 3 i. Seller is a duly organized and validly existing limited partnership in existence under the laws of the State of Delaware. ii. Seller is the owner of the Facility with all requisite power and authority to own the Facility, and carry on its business as now being conducted, and further has the power and authority to sell and dispose of the Facility upon the terms and conditions herein contained. iii. The execution, delivery, and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby have been duly and effectively authorized by the partners of Seller, and will not violate any indenture, mortgage, deed of trust or other instrument or agreement, or any order, judgment or decree to which Seller is subject. b. Seller covenants with Buyer as follows: i. From and after the date of this Agreement, Seller shall make no contracts or commitments which purport to bind the Facility after the date of Closing, other than those made in the ordinary course of business, without the written consent of the Buyer. ii. As soon as practicable after the execution of this Agreement and prior to the Closing, Seller shall furnish to Buyer or its authorized representatives copies of. such records and documents in Seller's possession that are related to the Facility (e.g. surveys, building plans, equipment warranties, etc.) and to the operation thereof (e.g. patient records, fiscal statements, etc.) as Buyer shall reasonably request and shall afford Buyer and Buyer's counsel, auditors and authorized representatives for purposes of inspections, verifications and related matters full access during normal business hours to all personnel, properties, records and documents of Seller and the Facility. iii. Seller shall cooperate as necessary (without the expenditure of funds except as specifically provided herein) to bring about the consummation of the transactions contemplated by this Agreement. iv. Seller shall continue to maintain all of Seller's insurance policies, if any, relating to the Facility, or any part thereof, in full force and effect until the Closing Date. v. Seller shall provide Buyer with a copy of any written governmental notice received by Seller after the date hereof and prior to the Closing Date related to any violations of any federal, state or municipal laws, ordinances, orders, regulations and requirements affecting the Facility. c. The representations and warranties of Seller in this Section 8 shall survive Closing for a period of one year. Page 4 9. BUYER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. a. Buyer hereby represents and warrants to Seller as follows: i. Except as provided in Section 8, Buyer is purchasing the Facility AS-IS, WHERE-IS, and WITH ALL FAULTS. Buyer relied on its own investigation of all aspects of the property being sold hereunder and such was a factor in determining the Purchase Price. b. Buyer covenants with Seller as follows: i. Examinations and inspections by Buyer and its authorized agents and representatives prior to Closing shall be undertaken in a manner that does not unnecessarily hinder, restrict or interfere with the operation of the Facility. Further, Buyer agrees to indemnify, defend, and hold Seller harmless from and against any and all claims, damages, expenses, or losses incurred by or threatened against Seller based on Buyer's actions at the Facility prior to Closing. ii. Buyer shall cooperate as necessary to bring about the consummation of the transactions contemplated by this Agreement including, without limitation, all necessary regulatory approvals from state, federal, and local agencies. iii. Buyer shall negotiate a transition agreement with the current lessee of the Facility acceptable to the State of Texas and shall be properly licensed with all applicable governmental authority approvals. 10. PRORATION OF EXPENSES. The following shall be prorated between Buyer and Seller (or Seller's lessee, if applicable) at Closing as follows: a. Ad valorem real property taxes on a calendar year basis, provided they are not the responsibility of the Lessee; b. Operating and utility expenses for the month of Closing not otherwise the responsibility of the Lessee; c. All deposits, insurance, or other prepaid items paid by Seller, in connection with the operation of the Facility and which are to be retained by Buyer, d. All rental income received by Seller for the month in which the closing occurs. e. All other customary prorations for transactions in the State of Texas. 11. ENVIRONMENTAL MATTERS AND HAZARDOUS MATERIAL. For purposes of this Section 11, "Hazardous Materials" means any "chemical substances", "hazardous or toxic wastes" and "oil", as such terms now are respectively defined under the Federal Comprehensive Environmental Response, Conservation and Liability Act of 1980, 42 U.S.C. Section 9601 et seq., the Hazardous Sites Cleanup Act of October 18, 1988, P.L. 756, No. 108, the Federal Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Section Page 5 1321 et seq., the Federal Clean Water Act, 33 U.S.C. Section 1251, et seq., and the regulations promulgated under all of the foregoing, as all of the foregoing may have been amended, or similar laws, rules, regulations, orders and decrees now enacted, including, without limitation, asbestos, asbestos-containing materials, oil or other petroleum products, polychlorinated biphenyl and other toxic waste and substances. Seller represents and warrants to Buyer concerning the Facility that: a. To the best of Seller's knowledge, Seller has not: i. caused, suffered or permitted to occur any condition which may cause a release, threat of release or discharge of any Hazardous Materials at, upon, under or within the Facility, and contiguous or adjacent real estate owned, operated or occupied by Seller. ii. received notification from any federal, state or other governmental authority of any potential, known, or threatened release of any Hazardous Materials on or from the Facility or any adjacent property owned, occupied, or operated either by Seller or any person for whose conduct Seller is responsible and which may result in a lien on the Facility or the application of any penalty, fine, charge or expense against the Facility by any such governmental authority, or by any other person or entity, in connection with the assessment, containment, or removal of any release or threatened release, of any Hazardous Materials from the Facility or any adjacent property. b. Seller has no knowledge of any release, threat of release, deposit, storage, disposal, burial, discharge, spillage, uncontrolled seepage or filtration of any Hazardous Materials at, upon, under or within the Facility or any contiguous or adjacent real estate (other than minor, incidental spillage of fuel or oil during the construction of the Facility) owned, operated or occupied by Seller. c. Within thirty (30) days after the execution of this Agreement, Seller shall order, for the benefit of Buyer, a current Phase I environmental report, which shall be at Seller's cost and expense. d. For purposes of this Section 11, "Seller's knowledge" or similar phrase or concept shall mean the current, actual knowledge of the president or vice-president of Capital Realty Group Senior Housing, Inc., the general partner of the Seller. 12. CLOSING EVENTS. a. At Closing, Seller shall deliver to Buyer: i. The fully executed Deed conveying the Real Property and Improvements in fee simple, to Buyer; ii. A fully executed Bill of Sale conveying the personal property, if any, to be delivered to Buyer pursuant to this Agreement; iii. An Assignment and Assumption of Contracts assigning to Buyer all of Seller's interest in any assignable contracts; Page 6 iv. An Assignment of Warranties and Guaranties, if any and if assignable; v. Assignment of Permits and Licenses, to the extent assignable; vi. A standard form title company owner's affidavit as reasonably required by the Title Company for the elimination of any standard exceptions except parties in possession listed as exceptions; and vii. A certificate of non-foreign status (FIRPTA Certificate) of Seller. b. At Closing, Buyer shall (i) pay to Seller the Cash Portion of the Purchase Price, (ii) execute and deliver to Seller the Note and Deed of Trust, and (iii) deliver organizational documents to Seller confirming Buyer is a single purpose entity and containing the requirements of Section 9.b.iv. c. At Closing, Seller and Buyer shall each: i. Deliver to the Title Company, as closing agent, and to the other party, evidence reasonably sufficient to satisfy the Title Company that: (1) Such party is duly organized; (2) As of the date of Closing, such party is validly existing, qualified to do business and in good standing in the state of its formation and, if different, in the State of Texas; and (3) The execution, delivery and performance of this Agreement has been duly authorized and approved by Seller and Buyer. d. The delivery of the documents and the payment of the sums to be delivered and paid at Closing shall be accomplished through the Title Company. e. Possession of the Facility shall be delivered to Buyer immediately upon Closing. f. Seller's obligation to close shall be contingent upon Seller obtaining a full release from the existing lessee at the facility, but may be waived by Seller. 13. FAILURE OF CLOSING. If the Closing does not occur by reason of Sellers' failure to complete the Closing without proper cause, then Buyer shall be entitled to the return of its Earnest Money as its sole remedy. In no case shall any of the partners, officers or directors of either Buyer or Seller have any personal liability whatsoever arising under or in connection with the Agreement. If the Closing does not occur by reason of the Buyer's failure to complete the Closing without proper cause, then Seller shall retain the Earnest Money deposit as liquidated damages. Page 7 14. NOTICES OF VIOLATIONS. Seller shall notify Buyer of all notices of violations of local ordinances or requirements issued by legal authority or prosecutions in any court on account of such violations affecting the Facility and received by Seller prior to Closing. 15. RISK OF LOSS. Until execution and delivery of the Deed, the risk of loss or damage to the Facility by fire or other casualty is assumed by Seller. 16. CONDEMNATION. If, at or prior to Closing, any portion of the Facility shall be condemned or taken pursuant to any governmental or other power of eminent domain, any written notice of taking or condemnation is issued, or any proceedings are instituted by any governmental authority having the power of eminent domain, then Buyer shall have the right to (a) terminate this Agreement by giving Seller written notice to that effect within ten (10) days after receiving written notice from Seller advising of the condemnation or taking, whereupon both Seller and Buyer shall be relieved of further liability under this Agreement, at law or in equity, or (b) proceed to Closing with a reduction in Purchase Price equal to the amount of all condemnation awards paid to Seller, or (c) proceed to Closing without a reduction irk the Purchase Price, in which case Buyer shall receive at Closing all condemnation awards paid to Seller subsequent to the date of this Agreement for any part of the Facility. If Seller has knowledge of any pending or threatened condemnation proceedings or action or any notices thereof affecting the Facility, Seller will promptly advise Buyer in writing of the matters and facts relating thereto. 17. COMPLETE AGREEMENT/MODIFICATION. This Agreement sets forth all of the promises, covenants, agreements, conditions and understandings between the parties hereto and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. Thus Agreement may not be modified other than by an agreement in writing, signed by both Seller and Buyer. 18. ASSIGNMENT. This Agreement may not be assigned by Buyer without the prior written consent of Seller. 19. NOTICES. All notices and other communications under this Agreement shall be in writing and shall be deemed duly given when received if personally delivered or delivered via overnight courier, or within three (3) days of the postmark if mailed by registered mail or certified mail, return receipt requested, first class, postage prepaid: If to Seller: Healthcare Properties, L.P. 14160 Dallas Parkway, Suite 300 Dallas, Texas 75254 Attn: David Brickman With a copy to: Robert Lankford, President Capital Realty Group Senior Housing, Inc. 14160 Dallas Parkway, Suite 300 Dallas, Texas 75254 If to Buyer. c/o Troy Clanton 800 W. Arbrook, Suite 210 Arlington, Texas 76015 Page 8 The parties shall be responsible for notifying each other of any change of address. 20. SURVIVAL. Except as provided herein, the terms and provisions of this Agreement shall not survive Closing. 21. PARTIAL INVALIDITY. If any term, covenant or condition of this Agreement is held invalid or unenforceable, it shall be severed and shall not affect the validity or enforceability of the remaining terms, covenants or conditions of the Agreement. Each term, covenant and condition shall be valid and enforceable to the fullest extent permitted by law. 22. INTERPRETATION. The paragraph headings used in this Agreement are for reference and convenience only and shall not enter into the interpretation of this Agreement. If any date upon which action is required under this Agreement shall be a Saturday, Sunday or legal holiday, the date for such action shall be extended to the first regular business day after such date which is not a Saturday, Sunday or legal holiday. 23. BINDING EFFECT. Subject to Section 18, all of the covenants, conditions and obligations contained in this Agreement shall be binding upon and inure to the benefit of the respective heirs, legal representatives, successors and assigns of Seller and Buyer. 24. NON-EXCLUSIVE. The parties agree that Seller may continue to market the Facility during the term of this Agreement; provided, however, that Seller will notify Buyer of any letters of intent received by Seller for the Facility during December, 2001, and will not execute any letter of intent, lease (other than with Buyer), or purchase agreement for the Facility prior to January 3, 2002. 25. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas. 26. EXECUTION OF DOCUMENT. This Agreement maybe executed in multiple counterparts provided each of the parties hereto executes at least one counterpart. Each such counterpart hereof shall be deemed an original instrument, but all such counterparts together shall constitute but one Agreement. Page 9 IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. BUYER: PRESTON HOLLOW PROPERTIES, LLC By: ---------------------------------------- Name: -------------------------------------- Title: ------------------------------------- SELLER: HEALTHCARE PROPERTIES, L.P. By: Capital Realty Group Senior Housing, Inc., its General Partner By: ------------------------------------ Name: ---------------------------------- Title: --------------------------------- Page 10 EXHIBIT "A" Legal Description of Property EXHIBIT "B" Form Note and Deed of Trust EX-10 5 ex10-1_dec3120018k.txt EXHIBIT 10.1 BROOK FACILITY LEASE HEALTHCARE PROPERTIES, L.P., a Delaware limited partnership. with its principal place of business at 211 Seventh Avenue North, Nashville, Tennessee 37219 ("Lessor"), SENIOR MANAGEMENT SERVICES OF BENBROOK, INC., a Texas corporation, with its principal place of business at 800 W. Arbor, Suite 210, Arlington, TX 76015 ("Operator"), and Troy Clanton, whose address is 800 W. Arbor, Suite 210, Arlington, TX 76015 (the "Guarantor") agree as follows: Recitals WHEREAS, Lessor owns certain real property and improvements located at 1000 McKinley Street, Benbrook, Tarrant County, Texas, more particularly described in Exhibit A, comprising a nursing home licensed for 114 beds, _____ of which are certified for Medicaid, and related facilities (the "Facility") (the Facility, together with all other personal property located therein and thereat, and its replacements or additions, is hereinafter collectively, the "Property"); and WHEREAS, Operator desires to lease the Property from Lessor and Lessor desires to lease the Property to Operator. Agreements NOW, THEREFORE, it is agreed that the occupancy of the Facility and the use of the Property shall be subject to and in accordance with the terms, conditions, and provisions of this Lease. As used herein, "Lease Year" shall mean a twelve (12) month period commencing on the Commencement Date (as hereinafter defined) and ending each anniversary date of the Commencement Date thereafter, except that if the Commencement Date is other than the first day of a calendar month, then the first Lease Year shall be the period from the Commencement Date through the date twelve (12) months after the last day of the calendar month in which the Commencement Date occurs, and each subsequent Lease Year shall be the period of twelve (12) months following the last day of the prior lease Year. 1. Lease Term. Except as expressly provided below, the term of this Lease shall be for a period of five (5) years commencing on a date that is the later to occur of (a) the date Operator files with the Texas Department of Human Services a complete application for licensure and Medicaid certification or (b) the date on which Arbor Living Centers of Texas, Inc.(which entity is currently in bankruptcy), the party currently occupying the Facility, vacates the property and delivers possession to Lessor or Operator (the later of such date being referred to herein as the "Commencement Date"), on the terms and conditions set forth in this Lease, and expiring on the last day to the fifth (5th) anniversary of the Commencement Date, unless terminated earlier as provided for herein. Notwithstanding anything contained herein to the contrary, if the Commencement Date occurs on any date other than the first day of a calendar month, then the term of the Lease shall commence on the Commencement Date and shall expire on the fifth (5th) anniversary of the last day of the calendar month in which the Commencement Date occurs, unless terminated earlier as provided for herein (the "Initial Term"). When the Commencement Date has been determined, Lessor and Operator agree to execute and deliver a written statement confirming the actual Commencement Date. In the event that the Commencement Date has not occurred on or before March 1, 2002, either Lessor or Operator may terminate this Lease by delivering written notice to the other party at any time before the Commencement Date occurs, and the parties shall have no liability to the other hereunder or otherwise. 2. Security Deposit. Upon execution this Lease, operator will initially pay to Lessor a deposit ("Security Deposit") of $71,820.00, which is in an amount equivalent to the Minimum Monthly Rent for the last three (3) months of the Initial Term. The Security Deposit shall be held by Lessor in an interest bearing account, with interest to be added to the Security Deposit is it accrues. In no event, however, shall Lessor be liable for the performance of Page 1 such account or interest earned thereon. The Security Deposit shall be held as security for the performance by Operator of its obligations under this Lease, it being expressly understood that the Security Deposit shall not be considered an advance payment of Minimum Monthly Rent (except as otherwise specifically provided herein), any other rent hereunder, or a measure of Lessor's damages in the event of Operator's default or upon termination of the Lease. Lessor may use the Security Deposit to the extent necessary to cure any Default by Operator hereunder. Following any such application of the Security Deposit, Operator shall pay to Lessor, upon demand, the amount so applied in order to restore the Security Deposit to its original amount. If Operator is not in default in its obligations hereunder at the termination of the Lease, the Security Deposit (or balance, if portions have been applied and not replaced) shall be returned by Lessor to Operator within thirty (30) days following the expiration of the Lease Term. In the event Healthcare Properties, L.P. transfers its interest in the Building during the term of the Lease, and Healthcare Properties, L.P. assigns the Security Deposit to its transferee, who specifically accepts Lessor's obligations hereunder, Healthcare Properties, L.P. shall have no further liability for the return of the Security Deposit. 3. Minimum Rent. Commencing on (a) the first (1st) day of the first (1st) month of the Initial Term and continuing until the last day of the third (3rd) month of the Initial Term, Operator will pay monthly on or before the first (1st) day of each calendar month the sum of $18,000.00, (b) the first (1st) day of the fourth (4th) month of the Initial Term and continuing until the last day of the sixth (6th) month of the Initial Term, Operator will pay monthly on or before the first (1st) day of each calendar month the sum of $21,000.00, and (c) the first (lst) day of the seventh (7th) month of the Initial Term and continuing until the expiration or earlier termination of this Lease, Operator will pay monthly on or before the first (1st) day of each calendar month, the sum of $23,940.00 ("Minimum Monthly Rent"). The Minimum Monthly Rent shall be prorated for the first and last months of the term of this Lease. 4. Additional Rent. Additional Rent for the Property shall be calculated as follows: a. The "Revenue Base" shall be $205,348.00. b. For each calendar month throughout the term of this Lease, Lessor shall be entitled to Additional Rent in the amount of five percent (5%) of the difference between Gross Monthly Revenue and the Revenue Base. Payments of Additional Rent are to be paid within fifteen (15) days of the end of each calendar quarter (i.e., the 15th days of April, July, October, and January), with an appropriate payment made within fifteen (15) days of the termination or expiration of this Lease. For purposes of this Lease, "Gross Monthly Revenue" shall mean gross patient revenues relating to the Property and the services provided thereon. c. Notwithstanding subparagraphs a. and b. above, no Additional Rent shall be due for the first six (6) months of the Lease Term. 5. Late Charge. For any rental payment not made by Operator within ten (10) days after such payment is due, Operator will pay an additional "late charge" payment of one (1.0%) percent of the monthly rental. This late charge will not be construed as interest or penalty, but will be for the purpose of reimbursing Lessor for extra bookkeeping and collection expenses incurred by reason of such delinquency. All past due rental payments also will accrue interest at the lesser of (a) the "prime rate" (as published in The Wall Street Journal on the next business day after the due date of such rental payment) or (b) the highest rate allowed by law. Except as otherwise provided in this Lease, Operator will pay all rental payments without set-off or any other claim or demand. 6. Place of Payment. All rental payments will be made to Lessor at Lessor's address set forth above or at such other place as Lessor may designate in writing. 7. Options for Extended Terms. Unless Operator has delivered written notice to Landlord, at least six (6) months prior to the end of the Initial Term, that it does not desire to renew this lease, then the term of this Lease shall automatically be extended for one additional period of five (5) years (the "Extended Term"), subject to the following conditions precedent: a. The Lease has not been terminated during the Initial Term. Page 2 b. Operator is not in default under the terms of the Lease during the Initial Term. The Extended Term will be upon the same terms, covenants and conditions as provided in ,, this Lease for the Initial Term, other than Minimum Monthly Rent, which will be increased to reflect the increase in the "Fixed Capital Asset Fee Component" of the Texas Medicaid per diem reimbursement rate from the Commencement Date to the fifth (5th) anniversary thereof (provided that in no event shall such Minimum Monthly Rent be less than the Minimum Monthly Rent for the Initial Term). The Minimum Monthly Rent for each year of. the Extended Terms shall thereafter increase proportionately with the increase in the Fixed Capital Asset Fee Component of the Texas Medicaid per diem reimbursement rate during the prior Lease year (provided that in no event shall such Minimum Monthly Rent be less than the Minimum Monthly Rent for the prior Lease year). 8. License and Certifications. Operator shall promptly apply for, procure, comply with all the requirements of, and keep in full force and effect, all necessary licenses, permits, provider agreements, and certifications required by any governmental authority for the purpose of maintaining and operating the Facility as a Medicaid and Medicare certified nursing home, having no less than 114 licensed beds, ____ of which are certified for Medicaid, and such Facility shall at all times be qualified to participate in the Medicaid and Medicare reimbursement programs. Notwithstanding the foregoing, Operator's receipt of notice of its non-compliance with any such licenses, permits, provider agreements, or certifications shall not be deemed a default under this Lease provided that either (a) Operator contests such notice of non-compliance in accordance with all of the terms, restrictions and conditions of Section 14, or (b) Operator diligently proceeds to cure or correct any deficiencies set forth in such notice of non-compliance, Operator promptly pays in full any fines or penalties imposed in connection therewith, no lien or charges imposed against the Property or any portion thereof as a result of such notice or any deficiency noted thereon, all such licenses, permits, provider agreements, and certifications remain in full force and effect, and there is no material adverse affect on the financial condition or operations of the Facility. Lessor agrees to reasonably cooperate with Operator, at Operator's expense, in obtaining any licenses, authorizations, or certifications necessary or desirable for the operation of the Facility. Upon written request from Lessor, Operator shall provide evidence of all current licenses and certifications required for the operation of the facility as a nursing home, including, but not limited to, the most recent inspection reports and similar documents from the Texas Department of Health and the Texas Department of Human Services (subject to no waivers, variances, or violations concerning the improvements constituting any portion of the Property, except for waivers or variances required by new regulations [or changes in existing regulations] which have been "grandfathered" with respect to the Property and do not adversely affect its current operations), and evidence reasonably satisfactory to Lessor of compliance with all state, local, and federal laws governing the operation of the Facility as a nursing home, as required under the provisions of Section 12, below. Upon expiration or termination of this Lease for any reason, Operator will return to Lessor the Property, qualified and sufficient for licensing and certification by all governmental agencies having jurisdiction over the Property as a Medicaid and Medicare certified nursing home facility having no less than 114 licensed and ____ Medicaid certified beds, with licenses, certifications, and provider agreements in full force and effect; provided, however, that Operator shall not be required to make any repair or replacement to or of the Property upon expiration or termination of the Lease to the extent that the law, order, rule, or regulation requiring such repair or replacement was enacted or became effective as to the Property or the operator thereof only after the expiration or termination of the Lease and the Operator's vacation of the Facility. The Property shall be surrendered in good order, condition and repair. 9. Net Lease. As an additional rental during the term of this Lease, Operator will pay directly to the appropriate governmental authorities, subject to proration as of the day of commencement and termination of the Initial Term or the Extended Term all taxes and assessments levied against the Property or any portion thereof, public utilities and related costs and expenses, insurance premiums, expenses of operating, maintaining or repairing the Property, and any other expenses or charges which are levied, assessed or imposed by any governmental authority upon or with respect to, or incurred in connection with, the possession, operation, alteration, maintenance; repair and use of the Property. It is intended that this Lease shall be a "net lease" and will result in a rental to be paid to Lessor, without additional costs to Lessor or diminution or offset in the monthly rental set forth above. Operator will be under no obligation, however, to pay interest or principal on any debt of Lessor secured by the Property, any franchise or income tax payable by Lessor, any gift, inheritance, transfer, estate or succession tax by reason of any present or future law which may be enacted during the term of this Lease. Page 3 10. Utilities. Operator will contract in its own name and pay all charges for water, gas, sewer, electricity, light, heat, air conditioning, power, telephone, waste removal or other services used by, rendered or supplied to Operator in connection with the Facility. 11. Maintenance and Repairs. a. Operator, at its sole cost and expense and without obligation on the part of Lessor, will keep and maintain the Property in good and sanitary order, condition and repair, including structural and nonstructural, foreseen and unforeseen, repairs and replacements, and will paint the interior and exterior of the buildings throughout the term of this Lease, reasonable wear and tear excepted, all as are necessary to maintain the quality of the Property. In the event any such repairs and replacements are covered by any warranties or guarantees in favor of Lessor, Lessor will cooperate with Operator to the end that such replacements and repairs are made either without cost or at the least cost possible under the circumstances. Except with the prior written consent of Lessor, which consent will not be withheld or delayed unreasonably, Operator will make such repairs or replacements without creating alien or security interest in or against the Property. b. All replacing, repairing, and restoring required of Operator shall be new and, in the reasonable opinion of Lessor, of good and workmanlike quality, and shall be in compliance with all standards and requirements of law, licenses, and municipal ordinances necessary to operate the Facility as a Medicaid and Medicare certified nursing home facility having no less than 114 licensed and ____ Medicaid certified beds. All Property that is uneconomical to repair shall be replaced by new items of good and workmanlike quality and all replacement items shall become part of the Property. None of the Property shall be removed from the Facility except in connection with repair or replacement of such items. Operator may, from time to time, place at the Facility such personal property as is owned by Operator to the extent it consists of facsimile machines, photocopiers, computer software, computer printers, or other computer hardware, or items of a like nature. Within 60 days of the Commencement Date, Operator shall provide Lessor with a list of all such property and, thereafter, Operator shall notify Lessor in writing, within 60 days after the commencement of each Lease year, of any additional such items owned by Operator placed at the Facility during such calendar year. Any such property not removed from the Facility within 10 days after the expiration or termination of this Lease shall become the exclusive Property of Lessor and Lessor may thereupon use or dispose of such property as it determines in its sole discretion. c. To provide for major maintenance and repairs, operator agrees to include in its annual operating budget sufficient monies to pay for all reasonably expected maintenance and repairs contemplated hereunder 12. Compliance with Laws. Operator, at its sole cost and expense, will observe and comply promptly with all laws, orders, regulations, rules, ordinances, and requirements of federal, state, county and local governments and of all of their administrative departments, bureaus and officials, the local fire insurance rating organization, and of all insurance companies writing policies covering the Property, whether such laws, orders, regulations, rules or requirements relate to structural repairs, changes or alterations to or in and about the Facility or any buildings or improvements thereon or to repairs, changes or alterations incident to or resulting from any use or occupancy of the Facility by Operator, whether they are now in force, or at any time in the future may be enacted or directed (provided that any waiver Operator may obtain from any of the foregoing governmental entities shall constitute substantial compliance, and further provided that if such waiver concerns the improvements constituting any portion of the Property, it must be the result of new regulations {or changes in existing regulations] which have been "grandfathered"). Operator shall pay all costs, expenses, claims, fines, penalties and damages that may arise out of or be imposed as a result of the failure of Operator to comply with this Section_ Operator will operate the Property in accordance with all applicable regulations regarding qualification for Medicaid, Medicare, and Vocational Rehabilitation (if applicable) payments and reimbursements, if Operator elects to operate the Property pursuant to the Vocational Rehabilitation programs. 13. Mechanics' Liens. Operator will have no power to subject the Property or Lessor's interest in the Property to any mechanics' or other liens. If any mechanics' or other liens or orders for the payment of money are filed against the Property or any building or improvement thereon by reason of or arising out of any labor or material furnished or alleged to have been furnished or to be furnished to or for Operator at the Facility, or for or by reason of any change, alteration or addition, or the cost or expense thereof, or any contract relating thereto, Operator will cause the same to be canceled and Page 4 discharged of record, by bond or otherwise as allowed by law at the expense of Operator, within thirty (30) days after written demand, and also will defend on behalf of Lessor at Operator's sole cost and expense, any action, suitor proceeding which may be brought for the enforcement of such liens or orders, and Operator will pay any damages and satisfy and discharge any judgment entered therein and save and bold Lessor harmless from any claim or damage resulting therefrom. Failure to comply with this Section will constitute an event of default under Section 24 below upon the expiration of said demand without any additional notice. 14. Good Faith Contesting. Operator, after notice to Lessor, by appropriate proceedings conducted promptly at its own expense and in its name (or when necessary, Lessor's name), may contest in good faith the validity or enforcement of any such law, ordinance, governmental rule, regulation, requirement, order, taxes, utilities or mechanic liens referred to in Sections 8. 9. 10. 12 and 13, above, and 23, below, and may defer compliance therewith provided that (i) such noncompliance will not constitute a crime on the part of Lessor, (ii) Operator will prosecute diligently such contest to final determination by a court, department or governmental authority or body having final jurisdiction, and (iii) Operator will furnish Lessor with such security, by bond or otherwise, as Lessor reasonably may request in connection with such contest. Lessor will cooperate reasonably with Operator, and will execute any documents or pleadings reasonably required for the purpose of any such contest, provided that Operator will discharge any expense or liability of Lessor in connection therewith. 15. Surrender at End of Term. a. Operator will surrender and deliver the Property to Lessor at the expiration or earlier termination of this Lease (including the Extended Term) in good repair and condition, reasonable wear and tear excepted. If Operator shall continue to hold any property after the termination of this Lease, whether the termination occurs by lapse of time or otherwise, such holding over shall, unless otherwise agreed by Lessor in writing, constitute and be construed as a tenancy-at-will at a daily rental equal to one-thirtieth (1/30th) of an amount equal to two (2) times the amount of the monthly minimum rent plus two (2) times any additional rental which may have accrued during the last calendar month prior to the termination of this Lease, and upon and subject to all the other terms, provisions, covenants and agreements set forth herein except the right, if any, at that time, to renew the term of this Lease or the option, if any, shall exist at such time, to purchase the Property, or any similar rights, provisions or options. In addition to such rent, Operator shall be liable to Lessor for all damages sustained by Lessor in connection with such holding over. b. For purposes of this subparagraph, the date on which this Lease either terminates or expires pursuant to its terms shall be referred to as the "Closing Date." On the Closing Date, this Lease shall be deemed and construed as an absolute assignment for purposes of vesting in Lessor (or its designee) all of Operator's right, title, and interest in and to the following intangible property which is now or hereafter used in connection with the operation of the Facility (the "Intangibles") and an assumption by Lessor of Operator's obligations under the Intangibles from and after the Closing Date; provided that, from and after the Closing Date, Operator shall indemnify, defend, and hold Lessor harmless from and against any and all claims, losses, costs, damages, and expenses (including reasonable attorneys' fees) incurred or arising by reason of Operator's obligations under the Intangibles prior to the Closing Date: i. To the extent assignable, service contracts and equipment leases for the Property, and which can be terminated without penalty by Operator within 60 days or less notice, or which Lessor requests be assigned to Lessor pursuant to this Section 15; ii. To the extent assignable by Operator, any provider agreements with Medicare, Medicaid, or any other third-party payor programs (excluding the rights to any reimbursement for periods prior to the Closing Date) entered into in connection with the Facility; iii. All existing agreements with residents (and any guarantors thereof) of the Facility, to the extent assignable by Operator (excluding the right to any payments for periods prior to the Closing Date) and any and all patient trust fund accounts; and Page 5 iv. At Lessor's option, the business of Operator as conducted at the Facility as a going concern, including, but not limited to, the name of the business conducted thereon and all telephone numbers presently in use therein, but excluding any trademarks, tradenames, and brands of Operator, other than the name of the Facility. c. Lessor shall be responsible for and pay all accrued expenses with respect to the Property accruing on or after the Closing Date and shall be entitled to receive and retain all revenues from the Property accruing on or after the Closing Date. Within 15 business days after the Closing Date, the following adjustments and prorations shall be determined as of the Closing Date: i. All taxes relating to the Properly, including ad valorem taxes, real property assessments, personal property taxes, intangible and use taxes, and other like taxes and assessments. if the information as to the actual amount of any of the foregoing taxes and assessments are not available for the tax year in which the Closing Date occurs, the proration of such taxes and assessments shall be estimated based upon reasonable information available to the parties, including information disclosed by the local tax office or other public information, and an adjustment shall be made between the parties when actual figures become available; ii. Operator will terminate the, employment of all employees on the closing date and shall be and remain liable for any and all wages, accrued vacation, and sick leave pay for employees of the Facility with respect to the period prior to and including the Closing Date; iii. Lessor shall receive a credit equal to any advance payments by patients at the Facility to the extent attributable on and after the Closing Date; iv. The present insurance coverage on the Property shall be terminated as of the Closing Date and there shall be no proration of insurance premiums; v. All other income from, and expenses of, the Facility (other than mortgage payments) including, but not limited to, public utility charges and deposits, maintenance charges, and service charges, shall be prorated between Operator and Lessor as of the Closing Date. Operator shall obtain final utility meter readings as of the Closing Date. To the extent that information for any such proration is not available, the parties shall effect such proration within 60 days following the Closing Date; vi. Operator shall be and remain responsible for any employee severance pay and accrued benefits which may be payable as a result of any termination of an employee's employment on or prior to the Closing Date. d. All necessary arrangements shall be made to provide possession of the Property to Lessor on the Closing Date, at which time of possession Operator shall deliver to lessor all medical records, patient records and other personal information concerning all patients residing at the Facility as of the Closing Date and other relevant records used or developed in connection with the business conducted at the Facility, but excluding any trademarks, tradenames and brands of Operator, other than the name of the Facility. Such transfer and delivery shall be in accordance with all applicable laws, rules and regulations concerning the transfer of medical records and other types of patient records. e. For the period commencing on the Closing Date and ending on the date Lessor, or its designee, obtains any and all appropriate state or other governmental licenses and certifications required to operate the Facility, Operator hereby agrees that Lessor, or Lessor's designee, shall have the right, but not the obligation, to manage and operate the Facility, on a triple net basis, and shall be entitled to all revenues of the Facility during such period, and to use any and all licenses, certifications and provider agreements issued to Operator by any federal, state or other governmental authority for such operation of the Facility, if permitted by any such governmental authorities. If Lessor or its designee exercises the right described above in this Section 15, the provisions of this Section 15 shall be self-operative and shall constitute a management agreement between Operator, on the one hand, and Lessor or its designee, on the other hand, on the terms set forth above in this Section 15; Page 6 provided, however, that upon the request of Lessor or its designee, Operator shall enter into a separate management agreement on the terms set forth in this Section 15 and on such other terms and provisions as may be specified by Lessor or its designee. f. Operator shall provide Lessor with an accounting within 15 days after the Closing Date of all funds belonging to patients at the Facility which are held by Operator in a custodial capacity. Such accounting shall set forth the names of the patients for whom such funds are held, the amounts held on behalf of each such patient and Operator's warranty that the accounting is true, correct and complete. Additionally, Operator, in accordance with all applicable rules and regulations, shall make all necessary arrangements to transfer such funds to a bank account designated by Lessor, and Lessor shall in writing acknowledge receipt of and expressly assume all Operator's financial and custodial obligations with respect thereto. Notwithstanding the foregoing, Operator will indemnify, defend and hold Lessor harmless from all liabilities, claims and demands, including reasonable attorneys' fees, in the event the amount of funds, if any, transferred to Lessor's bank account as provided above, did not represent the full amount of the funds then or thereafter shown to have been delivered to Operator as custodian that remain undisbursed for the benefit of the patient for whom such funds were deposited, or with respect to any matters relating to patient funds which accrued during the term of this Lease. g. All cash, checks and cash equivalent at the Facility and deposits in bank accounts (other than patient trust accounts) relating to the Facility on the Closing Date shall remain Operator's property after the Closing Date. Subject to the provisions of Section 24(g) hereof, all accounts receivable, loans receivable and other receivables of Operator, whether derived from operation of the Facility or otherwise, shall remain the property of Operator after the Closing Date. Operator shall retain full responsibility for the collection thereof. Lessor shall assume responsibility for the billing and collection of payments on account of services rendered by it on and after the Closing Date. In order to facilitate operator's collection efforts, Operator agrees to deliver to Lessor, within a reasonable time after the Closing Date, a schedule identifying all of those private pay balances owing for the period prior to the Closing Date and Lessor agrees to apply any payments received which are specifically designated as being applicable to services rendered prior to the Closing Date to reduce the pre-Closing Date balances of said patients by promptly remitting said payments to Operator. All other payments received shall be retained by Lessor as being applicable to services rendered after the Closing Date. Lessor shall, at no cost to Lessor, cooperate with Operator in Operator's collection of its preclosing account receivable. Lessor shall have no liability for uncollectible receivables and shall not be obligated to bear any expense as a result of such activities on behalf of Operator. Subject to the provisions of Section 24(g) hereof, Lessor shall remit to Operator or its assignee those portions of any payments received by Lessor which are specifically designated as repayment or reimbursement arising out of cost reports filed for the cost reporting periods ending on or prior to the Closing Date. h. With respect to residents at the Facility on the Closing Date, Lessor and Operator agree as follows: i. With respect to Medicare and Medicaid residents, Lessor and Operator agree that, subject to the provisions of Section 24(g), payment for in-house residents covered by Medicare or Medicaid on the Closing Date will be made (on a per diem basis) by Medicare or Medicaid under current regulations directly to Operator for services rendered at the Facility prior to the Closing Date. Said payments shall be the sole responsibility of Operator and Lessor shall in no way be liable therefor. After the Closing Date, Lessor and Operator shall each have the right to review supporting books, records and documentation that are in the possession of the other relating to Medicaid or Medicare payments. ii. If, following the Closing Date, Lessor receives payment from any state or federal agency or third party provider which represents reimbursement with respect to services provided at the Property prior to the Closing Date, Lessor agrees that, subject to the provisions of Section 24(g), it shall remit such payments to Operator. Payments by Lessor to Operator shall be accompanied by a copy of the appropriate remittance. i. In addition to the obligations required to be performed hereunder by Operator and Lessor on and after the Closing Date, Operator and Lessor agree to perform such other acts, and to execute, acknowledge, and/or deliver subsequent to the Closing Date such other instruments, documents and materials, as the other may reasonably request in order to effectuate the consummation of the transaction contemplated herein. Page 7 j. Operator for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Lessor and its successors and assigns harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys' fees, costs and expenses) which any of them may suffer as a result of the breach by Operator in the performance of any of its commitments, covenants or obligations under this Section 15, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use by Operator of the Facility during the Lease Terms or for any liability which may arise from operation of the Facility as a nursing home during the Lease Term, including without limitation, any amounts due or to be reimbursed to any governmental authority based upon any audit or review of Operator or of the Facility or the operation thereof and pertaining to the period prior to the Closing Date or any amounts recaptured under Title XIX based upon applicable Medicaid/Medicare recapture regulations. The rights of Lessor under this subsection j are without prejudice to any other remedies not inconsistent herewith which Lessor may have against Operator pursuant to the terms of this Lease. The foregoing indemnity shall survive the expiration or termination of this Lease, whether due to lapse of time or otherwise. k. So long as the termination of this Lease is not due to a default by Operator hereunder and provided further that Operator has performed in accordance with Section 1 herein, Lessor for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Operator and its successors and assigns harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorneys' fees, costs and expenses) which any of them may suffer as a result of the breach by Lessor in the performance of any of its commitments, covenants or obligations under this Section 15, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use of the Property after the Lease Term or for any liability which may arise from operation of the Facility as a nursing home after the Lease Term. The rights of Operator under this paragraph are without prejudice to any other remedies not inconsistent herewith which Operator may have against Lessor pursuant to the terms of this Lease or otherwise. l. Lessor shall have the right to offset against any monies due Operator pursuant to the terms of this Section 15, any amounts due by Operator to Lessor pursuant to this Lease or due by Operator to any third party, including without limitation any amounts due for taxes, utilities, unemployment insurance premiums, payroll obligations or any other obligation arising from the operation of the Facility. m. Anything to the contrary contained in this Section 15 notwithstanding, in the event the termination of this Lease is due to a default by Operator hereunder, none of the provisions of this Section 15 shall in any way limit, reduce, restrict or modify the rights granted to Lessor herein, and to the extent any monies are due to Operator pursuant to this Section 15, such sums shall be applied by Lessor to any damages suffered by Lessor as a result of Operator's default hereunder. 16. Inspection. Operator will permit Lessor and its agents to enter upon and inspect the Property at reasonable hours upon reasonable notice. 17. Indemnification. Operator will indemnify, defend (with counsel acceptable to Lessor), and hold Lessor harmless from all liability, damages, costs and expenses, including but not limited to reasonable attorney's fees, for anything and everything whatsoever arising from or out of the occupancy of the Facility by or under Operator, Operators agents or employees (other than that arising from the negligence or acts or omission of Lessor or its agents or employees) and from any loss or damage arising from any fault or negligence by Operator or any failure on the part of Operator to comply with any of the covenants, terms and conditions contained in this Lease. 18. Insurance. a. Operator, at its sole cost and expense, will insure and keep insured with responsible insurance companies authorized to do business in the jurisdiction in which the Facility is located, the Property and all alterations, extension, and improvements thereto mid replacements thereof, against loss or damage by fire and the risks contemplated within the extended coverage endorsement (as such endorsement in the broadest form may customarily be written in such jurisdiction from time to time) and against such other risks as may be reasonably required by Lessor all in such amounts and with such deductibles as may be reasonably required by Lessor or by any lender holding a mortgage superior to this Lease, but in no event in an amount less than an amount which, if the Property were substantially or totally destroyed, would provide sufficient proceeds to completely repair or replace the Property, as such amounts may change from time to tune. Operator will pay the premium for Page 8 such insurance as it becomes due and will deliver to Lessor insurance certificates evidencing the existence of all such policies of insurance. All policies of fire and other insurance will be for the benefit of, and with loss payable to Lessor, Operator and any lender holding a mortgage superior to this Lease, as their interests may appear. The interest of any such lender will be covered by the standard mortgagee endorsement used in the jurisdiction in which the Facility is located. b. In the event any buildings at the Facility are damaged or destroyed during the term of the Lease, subject to the consent of any lender holding a mortgage superior to thus Lease to the use of any insurance proceeds for repair or replacement by Operator, and receipt of any insurance proceeds by any such lender, Lessor, or Operator, then Operator will repair and replace the same at its expense with reasonable promptness so that such buildings after such repair and replacement are as nearly as possible in the same condition as prior to such damage or destruction, and will do so even though the proceeds of any insurance policies are insufficient to reimburse Operator therefor. Operator will not be entitled to any abatement of rent, nor will its obligations under this Lease be terminated during the term of this Lease, not withstanding any destruction or damage to the Property. c. In the event of damage to any of the buildings at the Facility during the term of this Lease, Lessor (if received by Lessor) will pay or, subject to provisions of subsection b, above, cause any lender (if received by such lender) to pay to Operator proceeds of any insurance policy paid for by Operator covering the loss. If any loss covered by insurance as adjusted exceeds One Hundred Thousand and no/100 ($100,000.00) Dollars, Lessor, at its election. may pay the amount of insurance proceeds to Operator in staged payments as the work of restoration is completed by Operator. Unless Operator provides Lessor with other sufficient collateral or security, each staged payment will be in an amount equal to ninety percent (90%) of the cost of the work duly certified to have been completed from the time of the making of the prior stage payment to the date of requisition of the then current payment, and any balance remaining will be paid upon due certification of completion of the restoration to Lessor. All payments will be received by Operator in trust to pay the cost of restoration, and will not be commingled with any of Operator's other funds. Without limiting the foregoing, however, Lessor reserves the right to make direct payment to Operator's contractors and vendors. No payment of any insurance proceeds will be required to be made by Lessor to Operator until Operator has expended for restoration an amount equal to the excess of any loss over the amount paid by the insurance carrier on the loss as adjusted, and due proof of payment for such excess has been submitted by Operator to Lessor. Certificate of the cost of work will be made by the architect of Operator supervising the restoration, with the privilege, however in Lessor to examine Operator's contracts and its books and records pertaining to the work of. restoration. Without limiting the foregoing, if Lessor elects staged payments of insurance proceeds then Lessor, as a condition to the making of such payments, may require that Operator submit drawings and specifications of the proposed restoration for its written approval, which approval will not be unreasonably withheld or delayed. The foregoing provisions of this Section are subject to such conditions as may be required by any lender holding a mortgage on the Property superior to this Lease, relative to the disbursement of. insurance proceeds. d. Operator also will carry and maintain at all times during the term of this Lease insurance against claims for personal injury or property damage under a policy of general liability insurance in an amount of at least Two Million and No/100 Dollars ($2,000,000.00) per occurrence and One Hundred Thousand and No/100 Dollars ($100,000.00) property damage (but in no event less than the requirements of Lessor's lenders). Operator also will carry adequate workmen's compensation insurance (or, in lieu thereof, may include the Facility in its program for work-related death and injury to employees, so long as such program meets all the requirements of Texas law). Operator shall also obtain and maintain a minimum of Seven Hundred Fifty Thousand and No/) 00 Dollars ($750,000.00) business interruption insurance. e. Omitted. f. Operator, at its sole cost and expense, will maintain such other usual and customary policies of insurance in such amounts as may be required by law or as reasonably required by Lessor's lenders. g. All insurance maintained by Operator pursuant to this Section 18 shall provide that such insurance may not be cancelled except after thirty (30) days written notice to Lessor. Page 9 19. Condemnation and Destruction. a. If any person or corporation, municipal, public, private or otherwise, at any time during the term of this Lease lawfully condemns and by reason thereof acquires title to Lessor's interest in the Property, in or by condemnation proceedings in pursuance of the law, general, specific or otherwise, Lessor will be entitled to and will receive the entire award that may be made, except (i) the award, if any, to Operator for the value of the unexpired term. of this Lease and/or (ii) any award for taking of or damage to the personal property of Operator (provided Operator is not then in default hereunder), and/or (iii) any award related to business interruption or moving expenses. As between Operator and any lender holding a mortgage inferior to this Lease, this relinquishment of Operator's interest in any portion of any award in favor of Lessor is not intended to lodge in any such lender, or any other inferior lienor, any right to the interest so relinquished, which in all circumstances, will belong absolutely to Lessor, and is made on that condition accordingly, to be disbursed to Operator as part of the award for restoration as provided below should such restoration be made in the circumstances set forth below. b. In the event of a taking by condemnation, this Lease, except as set forth below, will continue and Lessor will apply any sutra awarded for damage to a building toward the cost of restoring such building as nearly as possible to the condition before such taking. In any event, but subject to the consent of any lender holding a mortgage superior to this tease to the use of any condemnation award for repair or restoration by Operator and the receipt of any such award by such tender, Lessor, or Operator, Operator will make such restoration to the extent of the award and Lessor, upon payment of the award, will apply toward the cost of such restoration such award as and when Operator is required to pay the cost of such restoration upon and according to the certificate of the architect in charge of such work. The amounts for restoration will be disbursed by Lessor to Operator in staged payments as the work of restoration progresses, upon due proof that no lien has attached in respect to the work performed by Operator. All payments to Operator will be received in trust to pay for the improvements, with the privilege in Lessor to make direct payments to contractors and vendors. In the event of partial condemnation, if the monies received by the Lessor are not sufficient to fully restore the property, Lessor shall have the option to (i) pay for the additional costs necessary for such restoration or (ii) cancel and terminate this Lease, and shall notify Operator in writing of its decision within thirty (30) days after receipt of the condemnation award, unless Operator notifies Lessor of its intention to fully pay for such restoration and keep this Lease in effect. c. In the event of either (i) destruction of over fifty percent (50%) of the Property occurs during any part of the last two (2) years of the Initial Term or Extended Terms of this Lease (whether or not covered by insurance), or (ii) at any time a major taking by condemnation of a portion of the Property materially adversely affecting Operator's ability to effectively carry on its business in the manner prior to such taking, then Operator, at its option, upon thirty (30) days' notice in writing to Lessor, given at any time within sixty (60) days after the vesting of title in the condemnor may cancel and terminate this Lease. 20. Curing Operator's Defaults. In the event Operator fails to perform any of the terms of this Lease on its part to be performed, following any required notice under Section 24, Lessor may perform the same and add any such sum or sums paid or expended in such performance to any rent then due or thereafter falling due with like effect as if an original part of such installment, and such sum or sums shall be and become additional rental. The foregoing, however, does not grant Operator any license or privilege to allow the Property to be without the insurance coverage as set forth in Section 18, above. 21. Operator's Right to Pay Mortgages. In the event Lessor fails to pay the principal and interest due under the terms of any debt secured by a lien on the Property, and as a result Lessor's lender actively commences to foreclose its lien, Lessor shall promptly give Operator notice of the commencement of such action by Lessor's lender, and Operator, as its Sole remedy, may pay all amounts necessary to cure any such default and offset such payments against rental' due or to become due under this Lease, or if no rental is remaining hereunder, Operator shall restore the property with such proceeds. 22. Mortgaging; Assignment; Subletting. Operator will not, without the prior written consent of Lessor, (a) mortgage, assign, or sublet this Lease, nor its interest in the whole or any part of the Property (except that Operator may enter into subleases or similar arrangements for up to twenty percent (20%) of the square footage of the Facility for such ancillary services as commonly found in similar facilities, provided such activities do not reduce the number of nursing home beds at the Facility), (b) permit the Facility to be occupied by Page 10 any third party under any other contractual arrangement which is tantamount to a lease, sublease or assignment of this Lease (except as permitted above), (c) in any event permit the Facility to be occupied for any purpose other than the operation of a nursing home and/or for other health care related activity approved by Lessor, nor for any business or purpose deemed illegal, disreputable, or hazardous on account of fire, or (d) permit anything to be done in the Facility that will injure the reputation of the Facility. The acceptance of rental payments by Lessor from any assignee, subtenant, or successor in interest of Operator, with or without notice, will not relieve Operator from its obligations hereunder, except to the extent such obligations are specifically assumed (with the consent of Lessor) by such assignee, subtenant, or successor in interest, nor will it be deemed to waive the right of Lessor at any time thereafter to elect to terminate this Lease on account of such assignment, subletting or transfer done without the prior consent of Lessor. The Lessor shall have the right to sell, assign, or convey all or part of Lessor's right, title, and interest in and to the Property without the consent of Operator or Guarantor and be relieved of any future liability hereunder; provided, however, that the new assignee assumes the responsibilities of Lessor and agrees and is bound by the terms of the Lease. The parties agree that the execution of a purchase and sale agreement for the Facility by Operator and Lessor shall be permitted hereunder. 23. Taxes. a. Operator will pay and discharge all such duties, taxes (including ad valorem taxes), charges for water, sewer taxes, assessments and payments, extraordinary as well as ordinary, whether foreseen or unforeseen, as are demised, laid, levied, assessed or imposed upon, or become due and payable during the term of this Lease, or liens upon the property, or any part thereof, or any appurtenances thereto, or any personal property located thereon, the leasehold estate hereby created, the sidewalks or streets in front of or adjoining the Facility or any vault or vaults thereunder, by virtue of any present or future federal, state or law, order or ordinance, or of any department, office or bureau thereof, or any other governmental authority. b. Operator will make all payments mentioned in this Section when the same become due and payable without interest or penalty to the department, officer or bureau charged with the collection thereof. Operator will not be required, however, to pay any inheritance, franchise, income, payroll, excise, privilege, rent, capital stock, estate or profit tax, or any tax of similar nature, that is or may be imposed upon Lessor, unless such taxes shall be levied upon the rent herein reserved in the place of taxes upon the property. c. All taxes, assessments and water rents will be prorated and adjusted for the fiscal years in which the term of this Lease begins and ends. d. to the event of assessments for local improvements or betterments which are assessed or imposed during the term of this Lease and which may be payable in installments, Operator will be obligated to pay only such installments as fall due during the term of this Lease. e. In any suit or proceeding of any kind or nature, arising or growing out of the failure of Operator to keep any covenant contained in this Section, the certificate or receipt of the department, officer or bureau charged with collection of the imposition, showing that the tax, water rent, assessment or other charge, affecting the Property, is due and payable, of has been paid, will be prima facie evidence that such tax, water rent, assessment or other charge was due and payable as a lien or charge against the Property or that it has been paid as such by Lessor or Operator as the case may be, f. Operator will have the right to contest or review by legal proceedings or in such manner as Lessor in its opinion shall deem advisable (which proceedings or other steps taken by Operator, if instituted, will be conducted diligently at its own expense and free of expense to Lessor) all taxes or other impositions levied, assigned, or imposed upon or against the Property or the building or improvements thereon, or taxes in lieu thereof, required to be paid by Operator under this Lease. No such contest or review shall be undertaken in a manner that exposes the Property or Lessor's interest therein to jeopardy. g. Operator will deliver promptly to Lessor copies of all paid bills for real estate taxes and assessments, and shall promptly notify Lessor of any default regarding such payments. Page 11 h. It is agreed that, if Lessor makes request of Operator, Operator shall pay to Lessor, as additional rent hereunder, at the same time as the Minimum Monthly Rent is paid, an amount equal to one-twelfth (1/12th) terminated by Lessor in its reasonable discretion) of the projected amount of the taxes and assessments against the Property for the particular calendar year (the "Tax Estimate"). A final adjustment (the "Estimate Reconciliation") shall be made between the parties as soon as practicable following the end of each calendar year, comparing the actual amount of taxes and assessments owing for the Property for the calendar year to the aggregate of the Tax Estimate paid by Operator. To the extent that the Estimate Reconciliation is different from the actual taxes paid to Lessor by Operator for the calendar year just completed, Operator shall pay Lessor the difference in cash within thirty (30) days following receipt by Operator of such statement from Lessor, or receive a credit on future rentals owing hereunder (or cash if there is no future rentals owing hereunder) as the case may be. If, during any particular year, there is a change in the information on which Lessor based the estimate upon which Operator is then making its payment so that such Tax Estimate furnished to Operator is no longer accurate, Lessor shall be permitted to revise such Tax Estimate by notifying Operator, and there shall be such adjustments made in the payments on the first day of the month following the serving of such statement on Operator (by either increasing or decreasing, as the case may be, the amount of such payments then being paid by Operator for the balance of the calendar year, but in no event shall any such decrease result in a reduction of the rent below the Minimum Monthly Rent plus all other amounts of Additional Rent). Lessor's and Operator's responsibilities with respect to the payments under this subsection shall survive the expiration or early termination of this Lease. 24. Defaults. a. Each of the following will be deemed a default ("Default") by Operator and a breach of this Lease: i. A failure on the part of Operator to pay any installment of minimum or additional rent, which failure persists after the expiration of five (5) days from the date Lessor gives written notice to Operator of the existence of such failure (provided that Lessor shall not be required to deliver more than 2 such notices during any 12-month period); ii. A failure on the part of Operator to observe or perform any of the other terms, covenants or conditions of the Lease on the part of Operator to be observed and performed, which failure persists after the expiration of thirty (30) days from the date Lessor has given notice to operator of the existence of such failure, but, if (1) the matter that is the subject of the notice is of such a nature that it cannot be reasonably corrected within thirty (30) days, then no default will be deemed to have occurred if Operator promptly upon the receipt of the notice commences the curing of the default and diligently prosecutes the same to completion or (2) applicable law requires that the failure be corrected by a date certain that is prior to such thirty (30) day period, then such failure must be cured by the date certain; iii. The failure of Operator to adjust and pay the Minimum Monthly Rent payments called for under Section 3 hereof and to provide the additional insurance required by Section 18(d) hereof; iv. The adjudication of Operator in bankruptcy; the taking by Operator of the benefit of any other insolvency act or procedure, which term includes any form of proceeding for reorganization or arrangement or rearrangement under the Federal Bankruptcy Code, and any amendments thereto, as will as an assignment for the benefit of. creditors; or the appointment of a receiver for Operator or Guarantor and such receiver remains undischarged for sixty (60) days. v. The removal by any local, state, or federal agency having jurisdiction over the operation of the Property of 10% or more of the patients located therein; vi. Except as provided in Section 36(b) , the voluntary transfer by Operator of ten or more patients located at the Facility to any facility owned, operated, leased, or managed by Operator, or any of its affiliates or related entities, and such transfer is not for reasons relating to the health and well-being of the patients that were transferred; Page 12 vii. Failure of Operator to give notice to Lessor not later than ten (10) days after receipt by Operator of any notice, claim, or demand from any governmental authority, or any officer acting on behalf thereof, of any violation of any law, order, ordinance, rule, or regulation with respect to the operation of the nursing home located at the Facility; and viii. The suspension or loss of the right to receive Medicaid or Medicare reimbursements based on any actual or alleged fraud or other misfeasance or malfeasance. b. In the event of any Default by Operator or Guarantor, Lessor at any time thereafter, at its option, may give Operator ten (10) days' written notice of intention to end the term of this Lease and at the expiration of such ten (10) day period, the term of this Lease shall expire as fully and completely as if that date were the date fixed for the expiration of the terms of this Lease, and Operator will then quit and surrender the Property to Lessor but Operator will remain liable as set forth below. c. If the notice provided for in Subsection b. of this Section is given and the term so expires, or if Operator abandons the Facility, or if the Lease is taken from Operator as a result of any execution against Operator in any proceeding in which Operator has no appeal or further appeal, then Lessor may re-enter the Facility without notice either by force or otherwise, and Operator or other occupant or occupants of the Facility will remove their effects and hold the Facility as if this Lease had not been made, and Operator waives the service of the notice of intention to re-enter or to institute legal proceedings to that end. d. In the event of any default, re-entry, expiration or dispossession by summary proceedings or otherwise, (i) rent will become due and be paid up to the time of such re-entry, dispossession or expiration, together with such expenses as Lessor may incur for legal expenses of possession, brokerage and putting the Property in good order, or for preparing the same for re-rental; (ii) Lessor may relet all or any part of the Property, either in the name of Lessor or otherwise, for a term or terms which may at its option be less than or exceed the period which would otherwise have constituted the balance of the term of this Lease and may grant concessions or free rent without affecting Operator's liability for the rental payable under this Lease for the period of concession or free rent; and (iii) Operator also will pay Lessor as liquidated damages for the failure of Operator to observe and perform the covenants herein contained any deficiency between the rent payable under this Lease and the net amount, if any, of the rents collected by reason of the reletting of the Property for each month of the period which would otherwise have constituted the balance of the term of this Lease. In computing such liquidated damages, there will be added to such deficiency any expenses as Lessor may incur in connection with the recovery of possession of the Property and reletting, including, but not limited to legal expenses, attorneys' fees, brokerage fees, expense for keeping the Property in good order and for preparing the same for reletting. Any such liquidated damages will be paid in monthly installments by Operator on the rent day specified in this Lease and any suit brought to collect the amount of the deficiency for any month will not prejudice in any way the rights of Lessor to collect the deficiency for any subsequent month by a similar action or proceeding. Lessor may make such alterations and decorations in the Facility as it in its sole judgment considers advisable and necessary for the purpose of reletting the Property; and the making of such alterations or decorations will not operate or be construed to release Operator from any liability under this Lease. In no event will Lessor be liable and Operator's liability will not be affected or diminished for the failure of Lessor to relet the Property, or in the event that the Property is relet, for failure to collect the rent due under such reletting; provided, however, Lessor will use reasonable efforts to mitigate its damages. In the event of a breach or threatened breach of any of the covenants or provisions of this Lease by Operator, Lessor will have the right of injunction and the right to invoke any remedy allowed at law or in equity as if reentry, summary dispossession proceedings or other remedies were not provided for in this Lease. The reference in this Lease to any particular remedy will not preclude Lessor from any other remedy, at law or in equity. e. In the event Lessor enters into and repossesses all or any past of the Property by reason of the default of Operator in the performance of any of the terms, covenants or conditions of this Lease, Operator will not claim the right to redeem the Property, reenter the Facility, or restore the operation of this Lease, and Operator waives the right to such redemption and reentrance. under any present or future law, and further, for any party claiming through or under Operator, further expressly waives its right, if any, to make payment of any sum or sums of rent, or otherwise, of which Operator is in default and to claim any subrogation to the rights of Operator under this Lease by reason of such payment. Page 13 f. Any action taken by Lessor under this Section will not operate as a waiver of any right which Lessor would otherwise have against Operator, and Operator will remain responsible to Lessor for any loss and damage suffered by Lessor by reason of Operators default or breach. The words "reenter" and "reentry" as used in this Lease are not restricted to their technical legal meaning. g. In addition to the foregoing remedies, in the event Operator is in default hereunder, Lessor shall have all of the rights of a secured party under the terms of the Uniform Commercial Code of the state in which the Property is located, including, but not limited to all rights pertaining to the repossession of the Property. h. No fixtures or personal property of Operator shall be removed from the Property after the occurrence of a default under this Lease unless Lessor gives its specific prior written consent. Upon the occurrence of an event of default by Operator under this Lease, Lessor shall have the option, in addition to another remedies provided herein or by law, to enter upon the Property with or without the permission of operator and take possession of any and all personal property of Operator situated on the Property without liability for trespass or conversion. 25. No Reinstatement. a. No receipt of monies by Lessor from Operator after termination or cancellation of this Lease shall reinstate, continue or extend the term of this Lease, or affect any notice theretofore given to Operator, or operate as a waiver of the right of Lessor to enforce the payment of rents then due, or thereafter falling due, or operate as a waiver of the right of Lessor to recover possession of the Property by proper suit, action, proceeding or remedy. After the service of notice to terminate this Lease, or the commencement of a suit, action or summary proceedings, or any other remedy, or after a final order or judgment for the possession of the Property, Lessor may demand, receive and collect any monies due or thereafter falling due, without affecting such notice, proceeding, suit, action, order or judgment; and any and all such monies collected will be deemed to be payments on account of the use and occupancy or Operator's liability under thus Lease. b. The failure of Lessor to enforce any agreement, condition, covenant or term, by reason of a breach by Operator, will not be deemed to void or affect the right of Lessor to enforce the same agreement, condition, covenant or term on the occasion of a subsequent default or breach. 26. Subordination. This Lease will be subject and subordinate to all mortgages which may now or hereafter affect Lessor's interest in the Property, and all renewals, modifications, consolidations, replacements and extensions thereof. This clause will be self-operative and no further instruments of subordination will be required. In confirmation of such subordination, Operator will execute promptly subordination certificates in form reasonably satisfactory to the parties within ten (10) days of request. 27. Quiet Enjoyment. Operator, upon payment of the rent and performing the other terms, covenants and conditions of this Lease on Operator's part to be performed will peaceably and quietly have, hold and enjoy the Property at all times during the term of this Lease free of molestation by Lessor, or any person or entity claiming by, through or under Lessor. 28. Successors and Assigns. The covenants and agreements contained in this Lease inure to the benefit of and are binding upon Lessor and Operator, their successors and assigns, but this Section does not modify the provisions of Section 2 governing assignment. 29. Alterations. Operator may make nonstructural alterations to the Facility without prior consent of Lessor. Structural alterations, however, may be made by Operator only with the prior written consent of Lessor, which consent will not be unreasonably withheld or delayed. 30. Notices. All notices will be addressed to Operator and Lessor at their respective addresses set forth above, or to such other address designated in writing and delivered to the other in the same manner as for giving notice. Notice must be given either by registered or certified mail, return receipt Page 14 requested. In the case of the former, the service of the notice will be deemed complete upon registration with the postal authorities, and in the case of the latter, upon due mailing. 31. No Waiver. The failure of Lessor to insist in any one (1) or more instances upon a strict performance of any of the covenants of this Lease, or to a exercise any option, will not be construed as a waiver of or relinquishment for the future of the performance of such covenant, or the right to exercise such option, but the same will continue and remain in full force and effect. The receipt by Lessor of rent with knowledge of the breach of any covenant of this Lease will not be deemed a waiver of such breach, and no waiver by Lessor of any provision of this Lease shall be deemed to have been made unless expressed in writing and signed by Lessor. The receipt by Lessor of any installment of minimum or additional rent will not be a waiver of any minimum or additional rent then due. 32. Remedies Cumulative. All the rights and remedies given to Lessor for the recovery of the Property in the event of a default by Operator in the payment of any amount payable under this Lease, or upon the breach of any of the terms, covenants, or conditions of this Lease, or the right to reenter the Facility and otherwise take possession of the Property upon the happening of any event of default or breach of such terms, covenants or conditions, or the right to maintain any action for rent or damages and all other rights and remedies allowed at law or in equity, are reserved and conferred upon Lessor as distinct, separate and cumulative remedies, and none of them, whether exercised by Lessor or not, will be deemed to be in exclusion of any of the others. 33. Entire Agreement. This Lease contains the entire agreement between Operator and Lessor, and any subsequent agreement will not operate to change, modify, or discharge this Lease in whole or in part unless such agreement is in writing and signed by all of the parties hereto. 34. Condition f the Property. Operator is fully familiar with the physical condition of the Property, the building, improvements, fixtures and equipment, and Operator takes the Property in its "as is" condition. Lessor has made no representations in connection with the condition of the Property or of the buildings, improvements, fixtures or equipment and Lessor will not be liable for any latent or patent defects therein. Operator hereby specifically waives all implied warranties cinder Article 2 of the Uniform Commercial Code, including, but not limited to, those of habitability and fitness for a particular purpose. 35. Estoppel Certificates. Operator will execute, acknowledge and deliver to Lessor at anytime and from time to time upon not less than ten (10) days' prior written request, a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there have been modifications that this Lease is in full force and effect as modified and stating the modifications), and the dates to which the rent and other charges have been paid in advance, if any. It is intended that any such statement delivered pursuant to this Section may be relied upon by prospective lenders of Lessor and purchasers of Lessor's interest in or a mortgage on the Property. 36. Occupancy and Relocation. a. Operator shall at all times use its best efforts to maximize the number of occupied beds at the Facility. Without Lessor's prior written consent, which Lessor may grant or withhold in its sole discretion, Operator shall not apply for, or consent to,-any reduction in the number of. state licensed beds or Medicare and Medicaid certified beds at the Facility.. In addition, Operator shall not take any action or fail to take any action which would result in a reduction in the number of state licensed beds or Medicare and Medicaid certified beds at the Facility, unless such loss is temporary and is promptly restored by Operator or such loss is based on an alternative use, such as office space, and such alternative use is consented to in writing by Lessor in advance. Notwithstanding the foregoing, if the number of beds certified for Medicaid is unilaterally decreased by action of a governmental authority as part of an action unrelated to Operator's operation of the Facility, then so long as Operator at all times uses its diligent best efforts to restore the Medicaid certification for such beds (including, but not limited to, filing any necessary applications and supporting documents with applicable governmental authorities), then Operator shall not be in default by reason of the Medicaid bed decertification. b. Operator covenants that it will not intentionally take any action to cause any patient at the Facility to move to another facility for other than specialized medical services which are not offered at the Facility. Page 15 Without Lessor's consent, Operator will not lease, operate, or develop a new facility whose purpose is to provide similar services it now provides at the Facility within a five-mile radius of the Facility, unless more than 85% of the beds at the Facility are filled for a continuous 90-day period preceding the first filing of any governmental application in connection with said new facility. Notwithstanding the foregoing, at any time, Operator may buy, lease, operate or manage any facility located in any area, provided such existing facility has been developed, built, and/or operated by a third party unrelated to and unaffiliated with, Operator. c. Operator acknowledges and agrees that the violation of the covenant in this Section will cause irreparable injury to Lessor, and since the remedy at law for any breach or attempted breach of the provisions of this Section will be inadequate, Lessor will be entitled to specific performance and injunctive or other equitable relief in addition to whatever other remedies may be available at law. Operator waives any requirement for the securing or posting of any bond or of proving actual damages in connection with obtaining specific performance or injunctive or other equitable relief. 37. Right of First Refusal. Operator shall have a right of first refusal to purchase the Property pursuant to a bona fide offer of purchase received by, and acceptable to, Lessor, subject to the approval of the limited partners of Lessor. Lessor shall give to Operator full details in writing of any such offer which is acceptable to Lessor at least thirty (30) days prior to the anticipated sale. Operator shall have fifteen (15) days from receipt of such notice in which to notify Lessor of its desire to purchase the Property on the same terms and conditions as set forth in the written notification. If Operator does not exercise its right to purchase the Property, Lessor shall have six (6) months in which to complete such sale on substantially the same terms, following which the right of first refusal shall continue in full force and effect as provided above with respect to the Property. In the event Operator does not exercise its option, on the date Operator transfers the Facility and/or Property to an unrelated third party, this Lease shall terminate and the Deferred Rent, if not previously paid, shall be immediately due and payable. 38. Memorandum of Lease. This Lease shall not be recorded, but a Memorandum of Lease or a Short Form of Lease shall be executed by both parties upon the request of either party, describing the parties and the term of this Lease and setting forth any provision either party deems appropriate. Said instrument will be in a form suitable for recording, and may be recorded at the request of either party, in the real property records of Tarrant County. The Memorandum of Lease shall be prepared and recorded by the requesting party at its expense. 39. Guaranty. The performance of all obligations hereunder by Operator shall be guaranteed by Guarantor pursuant to a separate Lease Guaranty in the form attached hereto as Exhibit C. 40. Single Purpose Entity. Operator shall have as its purpose the operation of the Property as a nursing home facility, and no other purposes, and it shall own no other assets, nor incur any liabilities, other than in relation to the Facility. Operator's Articles of Incorporation shall limit its purpose to the foregoing, which purpose shall not be amended (nor shall Operator ever voluntarily file bankruptcy proceedings or make an assignment for the benefit of creditor(s)) without the unanimous written consent of Operator's Board of Directors ("Board"), which Board shall at all times include a member designated by Lessor. 41. Attorney's Fees. Operator shall be responsible for the payment of Lessor's reasonable attorney's fees should Lessor be required to appear in court to enforce the provisions of this Lease. 42. Condition Precedent. Notwithstanding anything herein to the contrary, this Lease shall be subject to the approval of Lessor's mortgagee and the vacation of the Facility by the current tenant, which operator understands is in bankruptcy. 43. Purchase Agreement. On or about even date herewith, Lessor and Preston Hollow Properties, LLC ("PHP"), an affiliate of Operator, have entered into a Purchase Agreement (herein so called) whereby Lessor has agreed to sell and PHP has agreed to purchase the Property on the terms set forth therein. The parties agree that the Purchase Agreement is a separate and independent agreement and the rights and obligations of the parties therein are separate and independent of this Lease. No claims or setoffs from the Purchase Agreement shall be applicable to this Lease. Page 16 IN WITNESS WHEREOF, the parties hereto have caused this Lease to be executed as of the 12th day of December, 2001. LESSOR: OPERATOR: ------ -------- HEALTHCARE PROPERTIES, L.P. SENIOR MANAGEMENT SERVICES OF BENBROOK, INC., a Texas By: Capital Realty Group Senior corporation Housing, Inc., its General Partner By: By: -------------------------------- ------------------------------ Name: Name: ------------------------------ ---------------------------- Title: Title: ----------------------------- --------------------------- Page 17 EXHIBIT C Standby Lease Guaranty GUARANTY OF LEASE dated as of this 12th day of December, 2001, given by Troy Clanton (the "Guarantor"), given to HEALTHCARE PROPERTIES, L.P., a Delaware limited partnership, having its principal place of business at 211 Seventh Avenue North, Nashville, Tennessee 37219 (the "Lessor"). WITNESSETH: WHEREAS, the Guarantor desires to induce Lessor to enter into a lease with SENIOR MANAGEMENT SERVICES OF BENBROOK, INC., a Texas corporation (the "Operator"), with respect to certain premises, located at 1000 McKinley Street, Benbrook, Tarrant County, Texas (the "Lease"); WHEREAS, the entering into of the Lease by Lessor and Operator will be of pecuniary advantage to Guarantor; and WHEREAS, the execution and delivery hereof and the assumption of liability hereunder have been in all respects authorized and approved by proper action on the part of the Guarantor, and the Guarantor has full authority and power to execute this Guaranty. NOW, THEREFORE, in consideration of One Dollar ($1.00) paid by Lessor to Guarantor, t he receipt and sufficiency of which is hereby acknowledged, the Guarantor hereby covenants and agrees with the Lessor, its successors and assigns, as follows: 1. Each person or entity comprising Guarantor, as a primary obligor, hereby jointly and severally (if more than one) (a) unconditionally guarantees the prompt, punctual and full payment of. the rentals of the Lease in accordance with the terms and tenure thereof as completely and effectually as if such guaranty had been made by Guarantor on the face of the Lease; (b) unconditionally guarantees the prompt, punctual and full performance by Operator of any and all of the agreements, covenants, terms and conditions agreed to be performed by Operator under the provisions of the Lease; (c) unconditionally guarantees any other Obligations (as hereafter defined); and (d) covenants and agrees that in the event the Operator fails to timely make any payments or otherwise timely perform any of the other terms, covenants or conditions thereof, the Guarantor will promptly make or cause such payment to be made or will perform or cause to be performed all such terms, covenants and conditions, irrespective of any invalidity therein, the unenforceability thereof or the insufficiency, invalidity or unenforceability of any security therefor 2. The Guarantor does hereby further agree that Guarantor's liability hereunder as Guarantor shall not be prejudiced, impaired or affected by (a) any renewal or extension which may be made (with or without its knowledge or consent) of the time of payment of the rentals of the Lease or of the time for performance by any party obligated thereto of any of the terms and provisions of the Lease, or (b) by any forbearance or delay in enforcing the payment of the rentals of the Lease or enforcing the obligations of any party or person to the Lease in accordance with the terms thereof, or (c) by any (modification of the terms, tenor or provisions of the Lease. 3. This Guaranty is and shall be construed to be an irrevocable, absolute, unlimited and continuing guaranty of payment and performance, and the liability of Guarantor hereunder shall not be affected, unpaired or discharged, in whole or in part, by reason of an extension or discharge that may be granted to the Operator by any Court in proceedings under the Bankruptcy Code, or any amendments thereof, or of any such extension or discharge. 4. Following any applicable notice requirements, the Lessor shall have the right to proceed against Guarantor upon Operator's failure to timely pay or perform any obligation under the Lease and shall not be required to take any action or proceedings. of any kind against the Operator or any other party Page 18 liable for the Operator's debts or obligations. Should Lessor desire to proceed against Guarantor and Operator in the same action, Guarantor agrees that Guarantor may, at; Lessor's option, be joined in any such action against Operator and that recovery may be had against Guarantor to the extent of Guarantor's liability in such action. However, Guarantor hereby expressly waives the provisions of. (a) Section 34.02 and Section 34.03 of the Texas Business and Commerce Code, and (b) Rule 31 of the Texas Rules of Civil Procedure, to the extent such laws (or any of them) are applicable to the Guaranty, or any other agreements or obligations of Guarantor to Lessor. 5. From such time as Lessor may call upon Guarantor to honor, pay or perform all or part of any obligation of the Operator, and Guarantor fails to honor such demand, the debt or obligation owed the Lessor pursuant to this Guaranty shall bear interest at the highest rate permitted by contract under applicable law (but never to exceed eighteen percent (18%) per annum). In case Guarantor fails or refuses to honor this Guaranty, the Lessor is hereby authorized to utilize such legal means as Lessor deems proper to enforce this Guaranty, through the efforts of its employees, agents, or attorneys, and Guarantor shall pay all costs of enforcement and collection, including reasonable attorneys' fees. 6. The Guaranty shall be binding upon and inure to the benefit of the successors and assigns of Guarantor and the Lessor. The Lessor shall have the right to assign and transfer this Guaranty to any assignee of the Lease. The Lessor's successors and assigns shall have the rights, elections, remedies, and privileges, discretions and powers granted hereunder to the Lessor and shall have the right to rely upon this Guaranty and to enter into and continue other and additional transactions with the Operator in reliance hereon, in the same manner and with the same force and effect as if they were specifically named as the Lessor herein. 7. Deleted. 8. Notice of any default by the Operator (which is not cured within any cure period allowed in the Lease, but which cure period may not be extended by any court or tribunal for purposes of this Guaranty) shall be communicated to Guarantor at least ten (10) days before the Lessor makes demand upon Guarantor for any payment or performance hereunder. Any such notice or demand shall be addressed to Guarantor at its address set forth above, or to such other address designated in writing and delivered in the same manner as for giving notice, and shall be given either by express, registered or certified mail, return receipt requested. In the case of registered mail, the service of notice or demand will be deemed complete upon registration with the postal authorities, and in the case of express or certified mail, upon due mailing. 9. This Guaranty shall constitute a Texas contract, and be governed by the laws of the State of Texas. The undersigned hereby voluntarily submits to the jurisdiction of any court in the State of Texas having jurisdiction over the subject matter of this instrument, and, if. not available by personal service, hereby constitutes the Secretary of State of the State of Texas as its agent for service of process in connection with any suit or proceeding arising hereunder. 10. Failure of the Lessor or its assigns to insist in any one or more instance upon strict performance of any one or more of the provisions of this Guaranty or to take advantage of any of its rights hereunder shall not be construed as a waiver of any such provisions or the relinquishment of any such rights, but the same shall continue and remain in full force and effect. 11. The Lessor or its assigns shall have the right, without affecting Guarantor's obligations hereunder, and without demand or notice, to collect first from the Operator, and to exercise its rights of setoff against any asset of the Operator, and to otherwise pursue and collect from the Operator any other indebtedness of the Operator to the Lessor or its assigns not covered by this Guaranty, and any sums received from the Operator, whether by voluntary payment, offset, or collection efforts, may be applied by the Lessor its assigns as it sees fit, including the application of all such amounts to other debts not guaranteed by Guarantor. Subrogation rights or any other rights of any kind of Guarantor against the Operator, if any, shall not become available until all indebtedness and obligations of the Operator to the Lessor or. its assigns are paid in full. 12. Guarantor agrees that no release of Operator, any co-guarantor, or of any other person primarily or secondarily liable on the Obligations under the Lease (sometimes herein being referred to as the "Obligations"), or any part thereof shall in any manner impair, diminish or affect the liability of Guarantor or the rights of Lessor, hereunder, it being recognized, acknowledged, and agreed by Guarantor that Guarantor maybe required to pay the Obligations in Page 19 full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding, or agreement that other parties will be liable to perform the Obligations, or that Lessor will look to other parties to perform the Obligations. 13. Guarantor specifically agrees that it shall not be necessary or required, and that Guarantor shall not be entitled to require, that Lessor mitigate damages, or file suit or proceed to obtain or assert a claim for personal judgment against Operator for the Obligations from Operator, or foreclose against or seek to realize upon any security or collateral now or hereafter existing for the Obligations, or file suit or proceed to obtain or assert a claim for personal judgment against any other party (whether Operator, guarantor, endorser or surety) liable for the Obligations, or make any effort at collection of the Obligations from any such other party or exercise or assert any other right or remedy to which Lessor is or may be entitled in connection with the Obligations or any security or collateral or other guaranty therefor, or assert or file any claim against the assets or estate of Operator or any other guarantor or other person liable for the Obligations, or any party thereof, before or as a condition of enforcing the liability of Guarantor under this Guaranty or requiring payment of the Obligations by Guarantor hereunder, or at any time thereafter. 14. Guarantor waives all defenses given to sureties or guarantors at law or in equity other than actual satisfaction of the Obligations. Guarantor absolutely and unconditionally covenants and agrees that if all or any part of the Obligations (or any instrument or agreement made or executed in connection therewith), or Operator's liability for the Obligations, is for any reason found to be invalid, illegal, unenforceable, uncollectible or legally impossible, for any reason whatsoever (including, without limiting the generality of the foregoing, upon the grounds that the payment and/or performance of the Obligations is ultra vires or otherwise without authority, is subject to valid defenses, claims or offsets of Operator, or any instrument evidencing any of the Obligations is forged or otherwise irregular); then in any such case Guarantor shall pay and perform the Obligations as herein provided and that no such occurrence shall in any way diminish or otherwise affect Guarantor's obligations; hereunder. 15. In the event any payment of Operator to Lessor is held to constitute a preference under bankruptcy, debtor relief, or similar laws, such payment by Operator to Lessor shall not constitute a release of Guarantor from any liability hereunder, but Guarantor agrees to pay such amount to Lessor upon demand and this Guaranty shall continue to be effective or shall be reinstated, as the case may be, to the extent of any such payment or payments. 16. Until the obligations are paid in full, Guarantor hereby waives and releases any and all rights of subrogation that Guarantor may have against Operator, rights of contribution that Guarantor may have against any other guarantor of, or other person secondarily liable for the payment or performance of, any of the Obligations, or rights of reimbursement that Guarantor may have as against Operator and agrees that any monies received by Guarantor under such rights in a bankruptcy of the Operator shall be held in trust for, and immediately delivered to, Lessor. 17. Notwithstanding anything herein to the contrary, this Guaranty shall expire at such time as the Lease is terminated in accordance with its terms, provided the Operator has fully performed the Obligations under the Lease. 18. Each person or entity comprising Guarantor attests that a true and correct copy of his/her/its most current financial statement is attached to this Guaranty as Exhibit C-1. IN WITNESS WHEREOF, this Guaranty is executed as of the 12th day of December, 2001. ------------------------------------------------- Troy Clanton Page 20 EXHIBIT C-1 GUARANTOR'S CURRENT FINANCIAL STATEMENT Page 21 -----END PRIVACY-ENHANCED MESSAGE-----