LEASE

 

between

 

CHP FRIENDSWOOD SNF, LLC,
a Delaware limited liability company

 

as Landlord

 

and

 

MASON FRIENDSWOOD OP, LLC
a Texas limited liability company

 

as Tenant

 

Date of Lease: As of September 14, 2012

 

 

 

 

Table of Contents

 

    Page       1. Fundamental Lease Provisions; Definitions 1       2. Premises
5       3. No Merger of Title 5       4. Renewal Options 6       5. Use;
Licensing Requirements and Operating Covenants 6       6. Rent 9       7. Net
Lease; True Lease 11       8. Condition 11       9. Liens 12       10. Repairs
and Maintenance 12       11. Compliance With Laws 14       12. Access to
Premises 15       13. Waiver of Subrogation 16       14. Damage; Destruction 16
      15. Condemnation 18       16. Assignment and Subletting 19       17.
Alterations 20       18. Signs 21       19. Surrender 21       20. Subordination
of Lease; Mortgage Reserves 22       21. Tenant’s Obligation to Discharge Liens
23       22. Utilities 23       23. Tenant Default 23       24. HUD Loan
Requirements 28

 

 

 

 

Table of Contents

(continued)

 

    Page       25. Rent Payments 32       26. Holdover 32       27. Notices 32  
    28. Indemnity 33       29. Tenant to Comply with Matters of Record 34      
30. Taxes 35       31. Insurance 36       32. Landlord Exculpation 38       33.
Landlord’s Title 38       34. Quiet Enjoyment 38       35. Broker 38       36.
Transfer of Title 39       37. Management Agreements 39       38. Hazardous
Materials 39       39. Estoppel Certificate 44       40. Notice of Lease 44    
  41. Miscellaneous 44       42. Guaranty of Lease 47

 

ii

 

 

LIST OF SCHEDULES AND EXHIBITS

 

Schedule 1

Base Rent Schedule

 

Exhibit A

Legal Description of Premises

 

Exhibit B

Permitted Encumbrances

 

Exhibit C

Approved Management Agreement

 

Exhibit D Guaranty of Lease

 

iii

 

 

LEASE

 

This Lease (this “Lease”) is made on the Date of Lease specified below, between
the Landlord and the Tenant specified below.

 

1.           Fundamental Lease Provisions; Definitions.

 

1.1          Fundamental Lease Provisions. The following list sets out certain
fundamental provisions pertaining to this Lease:

 

(a)          Date of Lease. As of September _____, 2012.

 

(b)Landlord. CHP Friendswood SNF, LLC (“Landlord”).

 

Landlord notice address: CHP Friendswood SNF, LLC
c/o Cornerstone Real Estate Funds
1920 Main Street, Suite 400
Irvine, California 92614
Attn: Kent Eikanas
Email: KEikanas@crefunds.com
Phone: (949) 812-4335
Fax: (949) 250-0592     with copy to:

DLA Piper LLP (US)

2000 University Avenue

East Palo Alto, California 94303

Attn: James E. Anderson, Esq.

Email: jim.anderson@dlapiper.com

Phone: (650) 833-2078

Fax: (650) 687-1158

 

(c)          Tenant. Mason Friendswood OP, LLC, a Texas limited liability
company (“Tenant”).

 

Tenant notice address: Mason Friendswood OP, LLC
4949 Westgrove, Suite 200
Dallas, Texas 75248
Attn: M. Craig Kelly
Email: mcraigkelly@aol.com
Phone: (469) 341-2720
Fax:____________________________

 

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with copy to: Underwood Law Firm, P.C.
P.O. Box 9158
Amarillo, Texas 79105
Attn: Sharon White
Email: Sharon.White@uwlaw.com
Phone: (806) 376-5613
Fax: (806) 349-9486     with copy to:

HMG Services, LLC

4 Waterway Square Place, Suite 350

The Woodlands, Texas 77380

Telephone No.: (281) 419-5520

Facsimile No.: (281) 419-5527

 

1.2          Definitions. The following list sets out certain definitions used
in this Lease:

 

(a)          “Adverse Healthcare Event”. The occurrence of any of the following
at the Facility: any termination or suspension placed upon Tenant or the
Healthcare Use of any portion of the Facility, the operation of the Healthcare
Business conducted within the Facility or the ability to admit residents or
patients for a period in excess of thirty (30) days or if the certification or
licensure of any portion of the Property under any Legal Requirements is
revoked, or suspended or materially limited for a period in excess of thirty
(30) days, including, without limitation, (i) termination of provider agreements
without Landlord's consent; or (ii) failure to maintain Tenant's qualifications
for licenses, permits, certifications and any other healthcare requirement
necessary to continue to operate the Facility for its Healthcare Use.

 

(b)          “Approved Management Agreement.” That certain management agreement,
dated February 1, 2012 for the Premises by and between Tenant and Manager
attached hereto as Exhibit C.

 

(c)          “AR Lender.” A third party institutional lender providing an AR
Loan or AR Financing (as defined below in Section 1.2(c)) to Tenant.

 

(d)          “AR Loan or AR Financing.” A loan obtained by Tenant from a third
party institutional lender secured by the accounts receivable from Tenant’s
business operations within the Facility.

 

(e)          “AR Loan Documents.” All loan documents entered into by Tenant
and/or AR Lender evidencing an AR Loan or AR Financing.

 

(f)          “Base Rent” (See Section 6). The amounts set forth on Schedule 1
hereto for the respective periods specified thereon.

 

(g)          “Broker.” Neither Landlord nor Tenant used a Broker in connection
with this Lease.

 

(h)          “C&C Threshold Repair Amount.” Fifty Thousand Dollars ($50,000).

 

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(i)          “Capital Reserve Deposits.” The deposits required to be made by
Tenant in the amount of Four Hundred Fifty Dollars ($450) per bed annually.

 

(j)          “Date of Rent Commencement.” September ____, 2012.

 

(k)          “EBITDAR.” Earnings before interest, taxes, depreciation,
amortization and Rent.

 

(l)          “Exhibits.” All Exhibits and Schedules to this Lease are
incorporated herein by this reference.

 

(m)        “Facility.” The skilled nursing facility located at 1500 Sunset
Drive, Friendswood, Texas, and commonly known as Friendship Haven Healthcare and
Rehabilitation Center.

 

(n)          “FF&E.” All furnishings, furniture, fixtures, and equipment owned
by Landlord and used in or about the Premises, but expressly excluding any
personal property owned by the residents of the Premises.

 

(o)          “FHA.” The Federal Housing Administration.

 

(p)          “Guarantor.” As defined below in Section 42.

 

(q)          “Healthcare Business.” The business of operating the Facility for
the Healthcare Use.

 

(r)          “Healthcare Use.” The use of the Facility for skilled nursing.

 

(s)          “HUD.” The United States Department of Housing and Urban
Development.

 

(t)          “HUD Lender.” A Lender providing a HUD Loan to Landlord on the
Premises.

 

(u)          “HUD Loan.” A new loan secured by the Premises from a Lender
insured by HUD.

 

(v)         “HUD Loan Documents.” The Loan Documents evidencing a HUD Loan on
the Premises.

 

(w)          “HUD Program Requirements.” All applicable statutes and
regulations, including all amendments to such statutes and regulations, as they
become effective, and all applicable requirements in HUD handbooks, notices and
mortgagee letters that apply to the Premises and all requirements by HUD that
Tenant’s AR Lender subordinate to HUD Loan in accordance with this Lease,
including all updates and changes to such handbooks, notices and mortgagee
letters that apply to the Premises, except that changes subject to notice and
comment rulemaking shall become effective upon completion of the rulemaking
process.

 

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(x)          “Late Charge.” Five percent (5%) of the amount past due.

 

(y)          “Laws.” As defined below in Section 11.1.

 

(z)          “Lease Default Rate.” The lower of (a) fourteen percent (14%) per
annum, or (b) the highest rate permitted to be contracted for under applicable
Law.

 

(aa)         “Lease Deposit.” A deposit made by Tenant to Landlord in the amount
of three (3) months initial Base Rent.

 

(bb)         “Legal Requirements.” As defined below in Section 11.1.

 

(cc)         “Lender.” Any institutional entity that makes a loan or loans (such
loan or loans collectively referred to herein as the “Loan”) to Landlord which
is secured by a mortgage, deed of trust or similar instrument (the “Mortgage”)
with respect to the Premises and of which Tenant is advised in writing by
Landlord, and which may be insured by HUD pursuant to Sections 232 and 223(f) of
the National Housing Act, as amended. Any such Loan may be evidenced by one or
more promissory notes (collectively referred to herein as the “Note”).

 

(dd)         “Loan Documents.” Collectively, the Note, the Mortgage and all
other documents entered into in connection with the Loan by Landlord and/or
Tenant, including, but not limited to, the Regulatory Agreement for a HUD Loan.

 

(ee)         “Management Agreement.” The management agreement between Tenant and
the manager of the Facility.

 

(ff)         “Manager.” The manager of the Facility pursuant to the Management
Agreement, which currently is HMG Services, LLC under the Approved Management
Agreement.

 

(gg)         “Minimum Licensed Beds.” 150 licensed beds (consisting of 150
skilled).

 

(hh)         “Minimum Rent Coverage.” For any trailing six (6) month period, a
ratio of EBITDAR to all Base Rent and all other rent payable under this Lease of
not less than 1.3 to 1.0.

 

(ii)         “Payment of Base Rent.” As set forth in Section 6.1, Base Rent
shall be paid monthly by wire transfer to the account set forth in the rent
direction letter from Landlord to Tenant delivered concurrently with the
execution and delivery of this Lease.

 

(jj)         “Permitted Encumbrances.” All taxes (as defined in Section 30),
Legal Requirements (as defined in Section 11), the Mortgage and associated
encumbrances in favor of the Lender, any matters consented to by Landlord,
Tenant and Lender in writing, those covenants, restrictions, reservations,
liens, conditions, encroachments, easements, encumbrances and other matters of
title that affect the Premises as of the date hereof (including, without
limitation, those listed on Exhibit B hereto) or which arise due to the acts or
omissions of Tenant with Landlord’s written consent, or due to the acts or
omissions of Landlord with Tenant’s written consent, after the date hereof.

 

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(kk)         “Premises.” That certain lot or parcel of real estate which is
described on Exhibit A hereto, together with the Facility(ies) and all
improvements now or hereinafter situated on said property (together with all
right, title and interest of Landlord in and to the lighting, electrical,
mechanical, plumbing and heating, ventilation and air conditioning systems used
in connection with said property, and all other carpeting, appliances and other
fixtures and equipment attached or appurtenant to said property), and all
rights, easements, rights of way, and other appurtenances thereto.

 

(ll)         “Regulatory Agreement.” Collectively, the Regulatory Agreement with
Landlord and the Regulatory Agreement with Tenant.

 

(mm)       “Regulatory Agreement with Landlord.” That certain Regulatory
Agreement to be entered into between HUD and Landlord relating to the Premises.

 

(nn)         “Regulatory Agreement with Tenant.” That certain Regulatory
Agreement to be entered into between HUD and Tenant relating to the Premises.

 

(oo)         “Renewal Option(s).” The Tenant shall have the following Renewal
Option(s) (herein so called) to extend the Term of this Lease for up to a total
of two (2) Extension Period(s) (herein so called) of five (5) years each upon
the same terms and conditions as are set forth in this Lease (except as
otherwise expressly set forth herein), and for the Base Rent set forth on
Schedule 1 hereto.

 

(pp)         “Required Advance Notice to Exercise Renewal Options.” Notice to
exercise a renewal option shall be provided no earlier than nine (9) months and
no later than six (6) months prior to the expiration of the then-current Term.
(See Section 4).

 

(qq)         “State.” The State of Texas.

 

(rr)         “Term.” The term of this Lease shall commence on the Date of Rent
Commencement, and shall expire on the tenth (10th) anniversary of the Date of
Rent Commencement; all subject to all terms and conditions of this Lease.

 

(ss)         “Threshold Repair Amount.” Fifty Thousand Dollars ($50,000).

 

2.          Premises. Landlord hereby leases to Tenant, and Tenant hereby leases
from Landlord, for the Term and on the conditions herein provided, the Premises,
subject, however, to the Permitted Encumbrances.

 

3.          No Merger of Title. There shall be no merger of this Lease nor of
the leasehold estate created hereby with the fee estate in or ownership of the
Premises by reason of the fact that the same entity may acquire or hold or own
(i) this Lease or the leasehold estate created hereby or any interest therein
and (ii) the fee estate or ownership of any of the Premises or any interest
therein. No such merger shall occur unless and until all persons having any
interest in (x) this Lease and the leasehold estate created hereby, and (y) the
fee estate in the Premises including, without limitation, Lender’s interest
therein, shall join in a written, recorded instrument effecting such merger.

 

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4.          Renewal Options. Tenant has the Renewal Options, and may extend the
Term of this Lease for each of the Extension Periods, upon all of the terms set
forth in this Lease with the Base Rent in the amounts specified on Schedule 1
hereto for the respective Extension Periods. The Term of this Lease shall be
extended if Tenant provides Landlord written notice of Tenant’s exercise of the
Renewal Option in accordance with the Required Advance Notice to Exercise
Renewal Options. Notwithstanding the foregoing, if (a) Tenant is in default
beyond the applicable cure period on the date of giving Landlord notice of
Tenant’s exercise of the Renewal Option, or (b) Landlord has previously given
Tenant two (2) or more notices of default under this Lease during the previous
twelve (12) month period, Tenant shall have no right to extend the Term and this
Lease shall expire at the end of the existing Term.

 

5.          Use; Licensing Requirements and Operating Covenants.

 

5.1           Use. Tenant may use the Premises for the Healthcare Use and for no
other use or purpose. Tenant’s use of the Premises must be in accordance with
all applicable Laws, including, without limitation, applicable zoning and land
use Laws. In no event shall the Premises be used for any purpose which shall
violate any of the provisions of any Permitted Encumbrance or any covenants,
restrictions or agreements hereafter created by or consented to by Tenant
applicable to the Premises; provided, however, that this sentence shall not
apply with respect to any Permitted Encumbrance in effect on the Date of Rent
Commencement so long as (i) the title insurance policy obtained by Landlord in
connection with its purchase of the Premises (and the simultaneously issued
Lender’s policy of title insurance) contains affirmative insurance against any
loss arising due to a violation of such Permitted Encumbrance or if such
affirmative title insurance is subsequently provided to Landlord and Lender at
Tenant’s cost with respect to such Permitted Encumbrance on terms and conditions
satisfactory to Landlord and Lender in their sole discretion, and (ii) violation
of such Permitted Encumbrance could not result in Landlord or Lender suffering
(A) any criminal liability, penalty or sanction, (B) any civil liability,
penalty or sanction for which Tenant has not made provisions reasonably
acceptable to Landlord and Lender, or (C) defeasance or loss of priority of its
interest in the Premises; provided, further, however, that TENANT SHALL
NONETHELESS BE OBLIGATED TO INDEMNIFY, DEFEND AND HOLD HARMLESS LANDLORD, LENDER
AND ALL OTHER INDEMNIFIED PARTIES, FROM ANY AND ALL LOSSES, LIABILITIES,
PENALTIES, ACTIONS, SUITS, CLAIMS, DEMANDS, JUDGMENTS, DAMAGES, COSTS OR
EXPENSES SUFFERED AS A RESULT OF THE VIOLATION OF ANY SUCH PERMITTED ENCUMBRANCE
BY TENANT. Tenant agrees that with respect to the Permitted Encumbrances and any
covenants, restrictions or agreements hereafter created by or consented to by
Tenant, Tenant shall observe, perform and comply with and carry out the
provisions thereof required therein to be observed and performed by Landlord.
Notwithstanding the foregoing, Tenant shall not use, occupy or permit the
Premises to be used or occupied, nor do or permit anything to be done in or on
the Premises in a manner which would constitute a public or private nuisance or
waste.

 

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5.2          Licensing Requirements. During the term of this Lease, the Premises
shall be used by Tenant with not less than the Minimum Licensed Beds. Tenant
shall at all times maintain in good standing and full force a probationary or
non-probationary license issued by the State and any other governmental agencies
permitting the operation on the Premises of a skilled nursing facility of no
less than the Minimum Licensed Beds (subject to any reduction in the number of
licensed beds required by any governmental authority solely as a result of
changes in laws, rules and regulations relating to the physical attributes of
the improvements on the Premises) and shall at all times maintain in good
standing and full force a provider agreement pursuant to which the Premises
shall be entitled to participate in the Medicaid reimbursement program, and when
applicable Medicare reimbursement program in order to receive reimbursement for
the services provided at the Premises. Except as otherwise specifically provided
herein no reduction in the number of licensed beds shall entitle Tenant to any
reduction or adjustment of the Base Rent or Additional Rent payable hereunder,
which shall be and continue to be payable by Tenant in the full amount set forth
herein notwithstanding any such reduction in the number of licensed beds. Tenant
shall, within five (5) business days following its receipt thereof, provide
Landlord with a copy of any notice from the Texas Department of Aging and
Disability Services or any federal, state or municipal governmental agency or
authority regarding any reduction in the number of licensed beds and Landlord
shall have the right, but not the obligation, to contest, by appropriate legal
or administrative proceedings, any such reduction.

 

5.3          Operating Covenants.

 

(a)          Financial Reporting.

 

(i)          Within sixty (60) days after the end of each of its fiscal years,
Tenant shall furnish to Landlord full and complete unaudited financial
statements of the operations of the Facility for such annual fiscal period,
which shall be compiled by an independent Certified Public Accountant if
required by Lender, and such financial statements shall present fairly the
financial condition of Tenant, and which shall contain a statement of capital
changes, balance sheet and detailed income and expense statement (collectively
called “Financial Statements”) as of the end of the fiscal year. Tenant shall
also furnish to Landlord a copy of its cost report within ten (10) days after
filing thereof. Each such cost report shall be certified as being true and
correct by an officer of Tenant.

 

(ii)         Tenant shall also furnish to Landlord and to Lender copies of all
financial statements for the Facility for the preceding calendar month by the
twenty-fifth (25th) day following the last day of said month.

 

(iii)        With thirty (30) days after the date for filing Tenant’s tax return
(as the same may be extended), Tenant shall furnish (and cause its auditor to be
permitted to furnish if required by Lender) to Tenant and to Lender with a copy
of the tax return for Tenant for said year, certified by an officer of Tenant to
be true, correct and complete.

 

(iv)        At least twenty-five (25) days prior to the commencement of Tenant's
fiscal year, Tenant shall provide Landlord with an annual budget covering the
operations of the Facility including any proposed capital expenditures for the
forthcoming fiscal year. Tenant shall also provide Landlord with such other
information with respect to Tenant or the operations of the Facility as Landlord
may reasonably request from time to time. Tenant acknowledges that Landlord's
receipt of the budgets shall not constitute or be deemed an assumption of any
obligation or liability of Landlord in connection with Tenant's business or
operations, nor shall Landlord be deemed to be involved in Tenant's business or
operations in any manner other than as Landlord under this Lease.

 

7

 

 

 

(v)         In addition to the above financial statements, Tenant shall also
provide to Landlord such other financial statement(s) or information relating to
its operation as reasonably required by Landlord which is customarily maintained
by Tenant, which shall be furnished to Landlord and to Lender not later than the
date reasonably required and set forth in a notice to Tenant.

 

(vi)        Tenant shall keep and maintain or cause to be kept and maintained at
all times at the Facility, or such other place as Landlord or Landlord's Lender
may approve in writing, complete and accurate books of accounts and records
adequate to reflect the results of the operation of the Property and to provide
the financial statements required to be provided under this Section 5.3 and
copies of all written contracts, correspondence, reports in connection with
Landlord's loan, if any, and other documents affecting the Facility. Landlord
and Landlord's Lender and its designated agents shall have the right to inspect
and copy any of the foregoing during normal business hours and upon at least 24
hours notice to Tenant. Additionally, Tenant acknowledges that Landlord's Lender
shall have the right to audit such records, and Tenant shall reasonably
cooperate with such audit(s). The costs and expenses of the audit shall be paid
by Tenant if the audit discloses a monetary variance in any financial
information or computation equal to or greater than the greater of: (a) five
percent (5%); or (b) Twenty-Five Thousand Dollars ($25,000.00) more than any
computation submitted by Tenant.

 

(b)          Regulatory Reporting. Tenant shall deliver to Landlord copies of
all regulatory survey’s conducted by the State or any Federal agency, Reports of
Contract (“ROCs”), Plans of Corrections (“POCs”) and Substantial Compliance
notices within three (3) business days of receiving or preparing.

 

(c)          Minimum Rent Coverage. Tenant shall maintain on a monthly basis the
Minimum Rent Coverage. If Tenant fails to maintain the Minimum Rent Coverage,
then Tenant shall deposit on a monthly basis with Landlord an additional Lease
Deposit equal to five percent (5%) of the monthly revenue that Tenant derives
from the business operated from the Premises. The funding of such additional
Lease Deposit shall continue until the earlier of (i) the Lease Deposit equaling
six (6) months of the then Base Rent payable under this Lease, or (ii) Tenant
coming back into compliance with the Minimum Rent Coverage. Additional Lease
Deposits funded pursuant to this Section 5.3(c) shall be held by Landlord until
the end of the Term.

 

(d)          Occupancy. On a rolling three (3) month basis, Tenant shall
maintain an occupancy level of no less than ninety percent (90%) of the
occupancy existing on the Date of this Lease. Tenant represents and warrants to
Landlord that there were [need #] residents in the Facility on the Date of this
Lease.

 

8

 

 

6.           Rent.

 

6.1          Payment of Base Rent. Commencing as of the Date of Rent
Commencement, Tenant shall pay Base Rent to Landlord, or to Lender if directed
by Landlord in writing, at the business address of Landlord or Lender, as the
case may be, specified herein, or at such other address as Landlord or Lender,
as the case may be, shall from time to time designate by written notice to
Tenant. The Base Rent shall be due and payable in the amounts set forth on
Schedule 1 hereto, which Schedule 1 is incorporated herein by this reference.
Tenant shall commence paying Base Rent on the Date of Rent Commencement (which
Date of Rent Commencement is not required to occur on the first day of a month),
and to the extent that the Date of Rent Commencement does not fall on the first
day of a calendar month, then Base Rent for the calendar month in which the Date
of Rent Commencement occurs shall be prorated based on the number of days in the
calendar month in which the Date of Rent Commencement occurs. Other than payment
of Base Rent on the Date of Rent Commencement (to the extent that the Date of
Rent Commencement does not occur on the first day of a calendar month), Base
Rent shall be due and payable on the first day of each month (or if such first
day is not a business day, the first business day of each month) during the Term
(each such date being referred to herein as a “Due Date”). Notwithstanding the
foregoing, from the Date of Rent Commencement until Tenant is notified otherwise
by Landlord and Lender, Base Rent shall be paid by wire transfer to the account
specified in the rent direction letter from Landlord to Tenant.

 

6.2          Partial Months. Any Base Rent paid for a partial period of
occupancy shall be allocated to such partial period. The foregoing
notwithstanding, Tenant’s obligation to pay insurance charges pursuant to
Section 31 of this Lease, taxes pursuant to Section 30 of this Lease, and all
other Additional Rent shall commence upon the Date of Rent Commencement.

 

6.3          Payment of Additional Rent. Commencing as of the Date of Rent
Commencement, all taxes, costs, expenses, and other amounts which Tenant is
required to pay pursuant to this Lease (other than Base Rent), including, but
not limited to insurance required pursuant to Section 31 of this Lease together
with every fine, penalty, interest and cost which may be added for non-payment
or late payment thereof, shall constitute additional obligations hereunder
(“Additional Rent”). All Additional Rent shall be paid directly by Tenant to the
party to whom such Additional Rent is due. If Tenant shall fail to pay any such
Additional Rent or any other sum due hereunder when the same shall become due
(and if no due date is specified, then such amounts shall be payable within ten
(10) business days following written notice of demand therefor), Landlord shall
have all rights, powers and remedies with respect thereto as are provided herein
or by Law in the case of non-payment of any Base Rent and shall, except as
expressly provided herein, have the right, not sooner than ten (10) days after
notice to Tenant (except in the event of an emergency, as reasonably determined
by Landlord, in which case prior notice shall not be necessary) of its intent to
do so, to pay the same on behalf of Tenant, and Tenant shall repay such amounts
to Landlord on demand. Tenant shall pay to Landlord interest at the Lease
Default Rate on all overdue Additional Rent and other sums due hereunder, in
each case paid by Landlord or Lender on behalf of Tenant, from the date of
payment by Landlord or Lender until repaid by Tenant.

 

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6.4          Late Payments. If any installment of Base Rent, Additional Rent or
any other sum due from Tenant shall not be received by Landlord or Landlord’s
designee by the due date therefor, then Tenant shall pay to Landlord the Late
Charge calculated off of the past due amount plus any attorneys’ fees incurred
by Landlord by reason of Tenant’s failure to pay such amount. The late charge
shall be deemed Additional Rent and the right to require it shall be in addition
to all of Landlord’s other rights and remedies hereunder, at law and/or in
equity and shall not be construed as liquidated damages or as limiting
Landlord’s remedies in any manner. In addition to the Late Charge, any Base
Rent, Additional Rent or other amounts owing hereunder which are not paid within
five (5) days of the date that they are due shall thereafter bear interest until
paid at the Lease Default Rate.

 

6.5          Lease Deposit. The Lease Deposit shall be deposited by Tenant with
Landlord in accordance with Section 1.2(u) of this Lease. The Lease Deposit
shall serve as security for the payment and performance of the obligations,
covenants, conditions and agreements contained herein. The Lease Deposit shall
not constitute an advance payment of any amounts owed by Tenant under this
Lease, or a measure of damages to which Landlord shall be entitled upon a breach
of this Lease by Tenant or upon termination of this Lease. Landlord may, without
prejudice to any other remedy, use the Lease Deposit to the extent necessary to
remedy any default which has lapsed beyond applicable notice and cure period in
the payment of Base Rent or Additional Rent or to satisfy any other obligation
of Tenant hereunder and to remedy any Event of Default hereunder. In the event
that any portion of the Lease Deposit is used by Landlord as set forth herein,
Tenant shall promptly, on demand, restore the Lease Deposit to its original
amount. Landlord will keep the Lease Deposit separate from its own funds in a
separately segregated, interest bearing account. The Lease Deposit will not be a
limitation on Landlord’s damages or other rights under this Lease, or a payment
of liquidated damages, or an advance payment of the Base Rent. Landlord will
return the unused portion of the Lease Deposit to Tenant within thirty (30) days
after the end of the Term. If Landlord transfers its interest in the Premises
during the Term, Landlord shall assign the Lease Deposit to the transferee who
shall become obligated to Tenant for its return pursuant to the terms of this
Lease, and thereafter Landlord shall have no further liability for its return,
provided assignee shall assume such obligations in writing to Tenant.

 

6.6          Determination of Charges. Landlord and Tenant agree that each
provision of this Lease for determining charges and amounts payable by Tenant
(including provisions regarding Base Rent and Additional Rent) is commercially
reasonable and, as to each charge or amount, constitutes a statement of the
charge or a method by which the charge is to be computed for purposes of Section
93.012 of the Texas Property Code.

 

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7.           Net Lease; True Lease.

 

7.1          Net Lease. The obligations of Tenant hereunder shall be separate
and independent covenants and agreements, and Base Rent, Additional Rent and all
other sums payable by Tenant hereunder shall continue to be payable in all
events, and the obligations of Tenant hereunder shall continue during the Term,
unless the requirement to pay or perform the same shall have been terminated
pursuant to the provisions of Section 14.4 or Section 15. This is an absolutely
net lease and Base Rent, Additional Rent and all other sums payable hereunder by
Tenant shall be paid without notice or demand (except as specifically set forth
in this Lease), and without setoff, counterclaim, recoupment, abatement,
suspension, reduction or defense. This Lease is the absolute and unconditional
obligation of Tenant, and the obligations of Tenant under this Lease shall not
be affected by any interference with Tenant’s use of any of the Premises for any
reason except as specifically set forth in this Lease, including, but not
limited to, the following: (i) any damage to or destruction of any of the
Premises by any cause whatsoever (except as otherwise expressly provided in
Section 14.4), (ii) any Condemnation (except as otherwise expressly provided in
Section 15), (iii) the prohibition, limitation or restriction of Tenant’s use of
any of the Premises, (iv) Tenant’s acquisition of ownership of any of the
Premises other than pursuant to an express provision of this Lease, (v) any
default on the part of Landlord under this Lease or under any other agreement,
(vi) any latent or other defect in, or any theft or loss of any of the Premises,
(vii) any violation of Section 34 by Landlord (provided, that this
Section 7.1(vii) shall not limit Tenant’s rights, if any, to seek injunctive
relief against Landlord for violation of said Section 34), or (viii) any other
cause, whether similar or dissimilar to the foregoing, any present or future Law
to the contrary notwithstanding. Except as otherwise set forth herein, all costs
and expenses (other than depreciation, interest on and amortization of debt
incurred by Landlord, and costs incurred by Landlord in financing or refinancing
the Premises) and other obligations of every kind and nature whatsoever relating
to the Premises and the appurtenances thereto and the use and occupancy thereof
which may arise or become due and payable with respect to the period which ends
on the expiration or earlier termination of the Term in accordance with the
provisions hereof (whether or not the same shall become payable during the Term
or thereafter) shall be paid and performed by Tenant. Tenant shall pay all
expenses related to the maintenance and repair of the Premises, and taxes and
insurance costs. This Lease shall not terminate and Tenant shall not have any
right to terminate this Lease (except as otherwise expressly provided in this
Lease), or to abate Base Rent or Additional Rent during the Term.

 

7.2          True Lease. Landlord and Tenant agree that this Lease is a true
lease and does not represent a financing arrangement. Each party shall reflect
the transaction represented hereby in all applicable books, records and reports
(including income tax filings) in a manner consistent with “true lease”
treatment rather than “financing” treatment.

 

7.3          No Termination of Lease. Tenant shall remain obligated under this
Lease in accordance with its terms and shall not take any action to terminate,
rescind or avoid this Lease, notwithstanding any bankruptcy, insolvency,
reorganization, liquidation, dissolution or other proceeding affecting Landlord
or any action with respect to this Lease which may be taken by any trustee,
receiver or liquidator or by any court.

 

8.           Condition. Tenant acknowledges that it or one of its affiliates
owned and occupied the Premises immediately prior to the commencement of the
Term. Accordingly, Tenant is fully familiar with the physical condition of the
Premises as of the date hereof, and that Landlord makes no representation or
warranty express or implied, with respect to same, except as expressly set forth
herein. EXCEPT FOR LANDLORD’S COVENANT OF QUIET ENJOYMENT SET FORTH IN
SECTION 34 AND ANY OTHER REPRESENTATIONS EXPRESSLY SET FORTH HEREIN, LANDLORD
MAKES NO AND EXPRESSLY HEREBY DENIES ANY REPRESENTATIONS OR WARRANTIES REGARDING
THE CONDITION OR SUITABILITY OF THE PREMISES TO THE EXTENT PERMITTED BY LAWS,
AND TENANT WAIVES ANY RIGHT OR REMEDY OTHERWISE ACCRUING TO TENANT ON ACCOUNT OF
THE CONDITION OR SUITABILITY OF THE PREMISES, OR (EXCEPT WITH RESPECT TO
LANDLORD’S WARRANTY SET FORTH IN SECTION 34) TITLE TO THE PREMISES, AND TENANT
AGREES THAT IT TAKES THE PREMISES “AS IS,” WITHOUT ANY SUCH REPRESENTATION OR
WARRANTY, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES. Tenant has
examined the Premises and title to the Premises, and has found all of the same
satisfactory for all purposes.

 

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9.           Liens. Tenant shall not, directly or indirectly, create, or permit
to be created or to remain, and shall remove and discharge (including, without
limitation, by any statutory bonding procedure or any other bonding procedure
reasonably satisfactory to Landlord and Lender which shall be sufficient to
prevent any loss of the Landlord’s or Lender’s interest in the Premises) within
thirty (30) days after obtaining knowledge thereof any mortgage, lien,
encumbrance or other charge on the Premises or the leasehold estate created
hereby or any Base Rent or Additional Rent payable hereunder which arises for
any reason, other than: the Landlord’s Mortgage (and any assignment of leases or
rents collateral thereto); the Permitted Encumbrances or which subsequently
arise with the prior written consent of Landlord and Lender; and any mortgage,
lien, encumbrance or other charge created by or resulting from any act or
omission by Landlord or those claiming by, through or under Landlord (other than
Tenant). Landlord shall not be liable for any labor, services or materials
furnished to Tenant or to any party holding any portion of the Premises through
or under Tenant and no mechanic’s or other liens for any such labor, services or
materials shall attach to the Premises or the leasehold estate created hereby.

 

10.         Repairs and Maintenance.

 

10.1        Tenant’s Repair and Maintenance Obligations. Tenant shall keep,
maintain and repair, at its sole cost and expense, the Premises, including,
without limitation, the roof walls, footings, foundations, HVAC, mechanical and
electrical equipment and systems in or serving the Premises and structural and
nonstructural components and systems of the Premises, parking areas, sidewalks,
roadways and landscaping in safe and good condition and repair, and shall make
all repairs and replacements (substantially equivalent in quality and
workmanship to the original work) of every kind and nature, whether foreseen or
unforeseen, which may be required to be made, in order to keep and maintain the
Premises in good repair and condition, except for ordinary wear and tear and
(other than for any Restoration required by the terms of this Lease) any damage
to the Premises by any Major Condemnation of the Premises. Tenant shall prevent
deferred maintenance from accumulating at the Premises. Landlord shall have the
right to enter the Premises at reasonable times and upon reasonable notice to
Tenant to perform annual inspections of the Premises to ensure that the Premises
are maintained in good working order and that the Premises are free from
maintenance issues and any other issues which would decrease the value of the
Premises once returned to Landlord at the end of the Term. Tenant shall do or
cause others to do all shoring of the Premises or of the foundations and walls
of the Facility as may be reasonably required and every other act reasonably
necessary for the preservation and safety thereof (including, without
limitation, any repairs required by Law as contemplated by Section 11), by
reason or in connection with any excavation or other building operation upon the
Premises, and Landlord shall have no obligation to do so. Landlord shall not be
required to make any repair, replacement, maintenance or other work whatsoever,
or to maintain the Premises in any way. Nothing in the preceding sentence shall
be deemed to preclude Tenant from being entitled to insurance proceeds or awards
for any taking to the extent provided in this Lease. Tenant shall, in all
events, make all repairs, replacements and perform maintenance and other work
for which it is responsible hereunder, in a good, proper and workmanlike manner.
Without limiting the generality of the foregoing, Tenant shall be responsible
for the performance of all maintenance and repairs of the Facility.

 

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10.2        Encroachments and Non-Compliance Issues. If all or any part of the
Facility shall encroach upon any property, street or right-of-way adjoining or
adjacent to the Premises, or shall violate the agreements or conditions
affecting the Premises or any part thereof or shall violate any Laws or Legal
Requirements, or shall hinder, obstruct or impair any easement or right-of-way
to which the Premises is subject, then, promptly after written request of
Landlord (unless such encroachment, violation of any agreements or conditions of
record, hindrance, obstruction or impairment (a) existed or was constructed
prior to the Date of Rent Commencement and constituted an encroachment,
violation, hindrance, obstruction or impairment as of the Date of Rent
Commencement; (b) is a Permitted Encumbrance in existence as of the Date of Rent
Commencement and constituted an encroachment, violation, hindrance, obstruction
or impairment as of the Date of Rent Commencement, or (c) subsequently arises
with the prior written consent of Landlord and Lender, and Landlord and Lender
have obtained, at Tenant’s cost, affirmative title insurance coverage against
any loss arising due to any such matter on terms and conditions satisfactory to
Landlord and Lender in their sole discretion, provided that this clause (c)
shall not relieve Tenant from any liability for the removal, remedying, repair
or replacement of any such encroachment, violation, hindrance, obstruction or
impairment to the extent that the same exists) or of any person affected
thereby, Tenant shall, at its sole expense, either (i) obtain valid and
effective waivers or settlements of all claims, liabilities and damages
resulting therefrom, or (ii) make such changes, including alterations to the
Facility (subject, however, to Tenant’s maintenance and repair obligations in
Section 10.1) and take such other action as shall be necessary to remove or
eliminate such encroachments, violations, hindrances, obstructions or
impairments, provided that, if Landlord’s or Lender’s consent is required for
such changes pursuant to this Lease, Landlord’s or Lender’s consent shall not be
unreasonably withheld, conditioned or delayed. Tenant shall have no liability
for and shall not be required to take any action to remove or eliminate any
Permitted Encumbrance in existence as of the Date of Rent Commencement that
constituted an encroachment, violation, hindrance, obstruction or impairment as
of the Date of Rent Commencement.

 

10.3        Tenant’s Failure to Perform. If Tenant shall be in default under any
of the provisions of this Section 10, Landlord may, after thirty (30) days
written notice to Tenant and failure of Tenant to cure during said period (or
such longer period of time as may reasonably be necessary, but under no
circumstances longer than a total of ninety (90) days, if the default may not be
cured within thirty (30) days but Tenant has commenced and is diligently
pursuing a cure of such default), but without notice in the event of an
emergency, do whatever is necessary to cure such default as may be appropriate
under the circumstances for the account of and at the expense of Tenant. If an
emergency exists, Landlord shall use reasonable efforts to notify Tenant of the
situation by phone or other available communication before taking any such
action to cure such default. All reasonable sums so paid by Landlord and all
reasonable costs and expenses (including, without limitation, reasonable
attorneys’ fees and expenses) so incurred, together with interest at the Lease
Default Rate from the date of payment or incurring of the expense, shall
constitute Additional Rent payable by Tenant under this Lease and shall be paid
by Tenant to Landlord on demand.

 

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10.4        Inspection Prior to Expiration of Term. One (1) year prior to the
expiration of the Term of this Lease, Tenant shall at its own expense cause the
Premises to be inspected, the results of which shall be made available to
Landlord and Lender not less than eleven (11) months prior to the end of the
Term, to determine whether the condition of the Premises complies with the
requirements of this Lease. In addition to any document or information which
Tenant is expressly required to deliver pursuant to this Lease, Tenant will also
deliver to Landlord, promptly upon request, information with respect to the
Premises reasonably (both as to content and frequency) requested by Lender
pursuant to the Mortgage or any other documents evidencing or securing the Loan;
provided that this shall not increase the obligations of Tenant to deliver
environmental reports beyond that required in Section 38.

 

10.5        Lender Required Repairs. Tenant shall be responsible for any repairs
to the Facility or reserves for repairs to the Facility required by Lender in
accordance with the Loan Documents.

 

10.6        Life Safety Repairs. Tenant shall make such repairs and replacements
relating to items covered by temporary life safety code waivers if such
temporary life safety code waivers are not continued or are otherwise removed
and shall correct any deficiencies or violations previously covered by such
waivers, at Tenant’s sole cost, within the time periods required by applicable
governmental authorities.

 

10.7        Capital Reserve Deposits. Tenant shall be required to make Capital
Reserve Deposits and shall make monthly deposits with Landlord, in an amount
equal to one-twelfth (1/12) (or such greater amount as may be reasonably
required by Lender) of the Capital Reserve Deposit to fund future anticipated
capital expenditures. The Capital Reserve Deposits shall be due and payable on
the first (1st) day of each month as Additional Rent. The Capital Reserve
Deposits shall not bear interest, unless interest on the Capital Reserve
Deposits is paid to Landlord by Lender. The Capital Reserve Deposits shall be
held by Landlord and/or Lender and shall be used to pay the capital expenditures
as they become due and payable. If the amount of Tenant’s payments as made under
this Section 10.7 shall be less than the total amount due or otherwise required,
then Tenant shall pay the full deficiency. Tenant shall provide all capital
expenditure draw requests to Landlord in writing along with receipts and or
invoices documenting the amount of the capital expenditure to be reimbursed by
Landlord. Upon receipt of such receipts, invoices and/or additional
documentation reasonably requested by Landlord, Landlord shall reimburse Tenant
for such costs up to the amount of Capital Reserve Deposits made by Tenant and
then being held by Landlord and/or Lender.

 

11.         Compliance With Laws.

 

11.1        Tenant’s Obligations. During the Term, Tenant shall comply with all
Laws and Legal Requirements relating to the Premises. As used herein, (i) the
term “Laws” shall mean all present and future laws, statutes, codes, ordinances,
orders, judgments, decrees, injunctions, rules, regulations and requirements,
even if unforeseen or extraordinary, of every duly constituted governmental
authority or agency (but excluding those which by their terms are not applicable
to and do not impose any obligation on Tenant, Landlord or the Premises or which
are due to take effect after expiration of the Term), and (ii) the term “Legal
Requirements” shall mean all Laws and all covenants, restrictions and conditions
now or in the future of record which may be applicable to Tenant, Landlord (with
respect to the Premises) or to all or any part of or interest in the Premises,
or to the use, manner of use, occupancy, possession, operation, maintenance,
alteration, repair or reconstruction of the Premises.

 

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11.2        Tenant’s Right to Contest. Notwithstanding anything herein to the
contrary, after prior written notice to Landlord, Tenant, at Tenant’s own
expense, may contest by appropriate legal proceeding promptly initiated and
conducted in good faith and with due diligence, the validity of any Law or Legal
Requirement, the applicability of any Law or Legal Requirement to Tenant or the
Premises or any alleged violation of any Law or Legal Requirement, provided that
(i) Tenant is not in default of any of the provisions of this Lease, which
default has lapsed beyond any applicable notice and cure period; (ii) such
proceeding shall be permitted under and be conducted in accordance with the
provisions of any instrument to which Tenant is subject and shall not constitute
a default thereunder and such proceeding shall be conducted in accordance with
all applicable statutes, laws and ordinances; (iii) neither the Premises, nor
any part thereof or interest therein will be in imminent danger of being sold,
forfeited, terminated, cancelled or lost; (iv) Tenant shall promptly upon final
determination thereof comply with any such Law or Legal Requirement determined
to be valid or applicable or cure any violation of any Law or Legal Requirement;
(v) such proceeding shall suspend the enforcement of the contested Law or Legal
Requirement against Tenant or the Premises; and (vi) Tenant shall furnish such
security as may be required in the proceeding to insure compliance with such Law
or Legal Requirement, together with all interest and penalties payable in
connection therewith. Landlord may apply any such security, as necessary to
cause compliance with such Law or Legal Requirement at any time when, in the
reasonable judgment of Landlord, the validity, applicability or violation of
such Law or Legal Requirement is finally established or the Premises (or any
part thereof or interest therein) shall be in danger of being sold, forfeited,
terminated, cancelled or lost.

 

12.         Access to Premises.

 

12.1        Access Rights. Upon reasonable notice to Tenant, Landlord and Lender
and their respective employees, contractors, agents and representatives may
enter onto the Premises to (i) show the Premises to purchasers and potential
purchasers, and to mortgagees and potential mortgagees, or (ii) for the purpose
of inspecting the Premises or performing any work which Landlord is permitted to
perform under this Lease; provided, that, for purposes of subpart (ii) of this
sentence, Landlord and Lender shall not be required to give notice prior to
entry onto the Premises in the event of an emergency situation. Upon reasonable
notice to Tenant, during the six (6) months preceding the expiration or earlier
termination of this Lease, Landlord also may enter onto the Premises to show the
Premises to persons wishing to rent the same, at reasonable times and
accompanied by a representative of Tenant. No such entry shall constitute an
eviction of Tenant but any such entry shall be done by Landlord in such
reasonable manner as to minimize any disruption of Tenant’s business operations.

 

12.2        Lender Meetings. Upon request of Lender, Tenant will arrange for
meetings between such Lender (or its representatives) and a representative of
Tenant designated by Tenant to discuss operations at the Premises; provided,
that Tenant shall not be obligated to arrange for such meetings more than once
in each calendar quarter.

 

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12.3        Lender’s Rights under Mortgage. Further, Tenant hereby agrees to the
licenses and other rights to enter onto the Premises which are granted to Lender
under the Mortgage, and Tenant shall cause each and every subtenant and assignee
of Tenant to agree thereto.

 

13.         Waiver of Subrogation. Notwithstanding anything in this Lease to the
contrary, Landlord and Tenant each waive any rights of action for negligence
against the other party, which may arise during the Term for damage to the
Premises or to the property therein resulting from any fire or other casualty,
but only to the extent covered by insurance or to the extent the same would have
been covered by the insurance had Tenant maintained the insurance to be
maintained under this Lease.

 

14.         Damage; Destruction.

 

14.1        In the event of any damage to or destruction of the Premises by
fire, the elements or other casualty during the Term (a “Casualty”), Tenant
shall give Landlord and Lender, if any, prompt written notice thereof. Tenant
shall adjust, collect and compromise any and all claims covered by insurance.

 

14.2        In the event of any such Casualty (whether or not insured against)
the Term shall continue and there shall be no abatement or reduction of Base
Rent, Additional Rent or of any other sums payable by Tenant hereunder.

 

14.3        All proceeds of any insurance required to be carried hereunder less
any and all expenses of Landlord or Lender in collecting such proceeds, if any
(the “Net Proceeds”) shall be delivered to Tenant to apply in accordance with
the terms of this Lease if (i) the estimated cost of restoring or repairing the
Premises to as nearly as possible to its value, condition, character, utility
and useful life immediately before such Condemnation or Casualty, but in any
event assuming the Premises have been maintained in accordance with the
requirements of Section 10 (such restoration or repair of the Premises, whether
in connection with a Condemnation or a Casualty, as the context requires, herein
called a “Restoration”), shall be the C&C Threshold Repair Amount or less,
(ii) no Event of Default or Disqualifying Default (as hereinafter defined) has
occurred and is continuing, and (iii) the long-term unsecured debt of Tenant is
rated at least BBB by Standard & Poor’s Ratings Services, a division of the
McGraw Hill Companies, Inc. (“S&P”) and at least Baa2 by Moody’s Investors
Service, Inc. (“Moody’s”) (the “Minimum Rating”). In all other events the Net
Proceeds shall be delivered to a trustee which shall be a federally insured bank
or other financial institution, selected by Landlord and Tenant and reasonably
satisfactory to Lender (the “Trustee”) to be held and disbursed in accordance
with the provisions of Section 14.5; provided, however, that if at the time of
the delivery of the Net Proceeds a Mortgage is in existence, the Lender or the
servicer of the Loan may act as Trustee without the consent of either Landlord
or Tenant. As used herein, a “Disqualifying Default” shall mean and include (i)
any uncured failure to make any payment of Base Rent when due hereunder, and
(ii) the occurrence of any event or condition described in subparts (vi) or
(vii) of Section 23.1 hereof without regard to any notice or lapse of time set
forth in such subparts which may be required for such events or conditions to
mature into an Event of Default.

 

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14.4        Tenant shall, whether or not the Net Proceeds of such insurance are
sufficient for the purpose or delivered to Tenant, promptly complete the
Restoration of the Improvements damaged by any such Casualty in compliance with
all requirements set forth in this Lease and all Legal Requirements, and such
Restoration shall be completed in such a manner as not to impair the market
value or usefulness of the Premises for use in Tenant’s ordinary course of
business, all at Tenant’s sole cost and expense. Tenant shall notify Landlord in
writing of the estimated cost thereof (the “Restoration Cost”). Landlord and its
agents, employees and contractors shall have the right to enter the Premises for
the purpose of assessing and adjusting the amount of the Restoration Cost, and
Landlord shall have the right in its reasonable discretion to reasonably approve
the amount of the Restoration Cost. Tenant shall not have any right to abate the
payment of Fixed Rent or Additional Rent as a result of any Casualty.

 

14.5        Net Proceeds held by the Trustee shall be invested in accordance
with prudent investment standards adopted by the Landlord, Lender and Tenant
from time to time, and shall be disbursed from time to time in accordance with
the following conditions:

 

(a)          Before commencing the Restoration the architects, general
contractor(s), and plans and specifications for the Restoration shall be
approved by Landlord and Lender, which approval shall not be unreasonably
withheld or delayed; and which approval shall be granted to the extent that the
plans and specifications depict a Restoration which is substantially similar to
the improvements and equipment which existed prior to the occurrence of the
Casualty or Taking, whichever is applicable, or, if the Facility was under
construction prior thereto, which depict a Restoration to the condition to which
the Facility was to have been constructed.

 

(b)          At the time of any requested disbursement, no Event of Default or
Disqualifying Default shall exist and no mechanics’ or materialmen’s liens shall
have been filed and remain undischarged or unbonded, with the exception of any
mechanics’ or materialmen’s liens caused by Landlord.

 

(c)          Disbursements shall be made from time to time in an amount not
exceeding the hard and soft cost of the work and costs incurred since the last
disbursement upon receipt of (A) satisfactory evidence, including architects’
certificates of the stage of completion, of the estimated costs of completion
and of performance of the work to date in a good and workmanlike manner in
accordance with the contracts, plans and specifications, (B) partial releases of
liens, if the same are obtainable or, if such partial releases are not
obtainable, endorsements to Landlord’s and Lender’s title insurance policies
showing no exceptions for mechanics’ or materialmen’s or any similar liens, and
(C) other reasonable evidence of cost and payment so that Landlord can verify
that the amounts disbursed from time to time are represented by work that is
completed in place or delivered to the site and free and clear of mechanics’
lien claims.

 

(d)          Each request for disbursement shall be accompanied by a certificate
of Tenant or its architect describing the work, materials or other costs or
expenses for which payment is requested, stating the cost incurred in connection
therewith and stating that Tenant has not previously received payment for such
work or expense and the certificate to be delivered by Tenant upon completion of
the work shall, in addition, state that the work has been substantially
completed and complies with the applicable requirements of this Lease.

 

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(e)          The Trustee may retain ten percent (10%) of the Net Proceeds until
the Restoration is at least eighty percent (80%) complete and five percent (5%)
of the Net Proceeds thereafter, which amount may continue to be held as
retainage until the completion of all punch list items following substantial
completion of the Restoration.

 

(f)          At all times the undisbursed balance of the Net Proceeds held by
Trustee plus any funds contributed thereto by Tenant, at its option, shall be
not less than the cost of completing the Restoration, free and clear of all
liens.

 

(g)          In addition, before commencement of Restoration and at any time
during Restoration, if the estimated cost of Restoration, as reasonably
determined by an independent architect mutually agreed upon by the parties in
their reasonable discretion, exceeds the amount of the Net Proceeds available
for such Restoration, the amount of such excess shall (i) be paid by Tenant to
the Trustee to be added to the Net Proceeds, (ii) be secured by Tenant by
posting a payment bond or other security in form and in the amount of such
excess, as reasonably satisfactory to Landlord, (iii) be secured by Tenant by
providing Landlord with an irrevocable letter of credit (“Letter of Credit”) in
a form reasonably satisfactory to Landlord and issued by a bank which is a
commercial bank or trust company reasonably satisfactory to Landlord and insured
by the Federal Deposit Insurance Corporation (FDIC), having banking offices at
which the Letter of Credit may be drawn down upon in Irvine, California, payable
at sight to Landlord, or (iv) Tenant shall fund at its own expense the costs of
such Restoration until the remaining Net Proceeds are sufficient for the
completion of the Restoration. For purposes of determining the source of funds
with respect to the disposition of funds remaining after the completion of
Restoration, the Net Proceeds shall be deemed to be disbursed prior to any
amount added by Tenant.

 

(h)          Provided no Event of Default or Disqualifying Default exists and is
continuing, any Net Proceeds remaining after final payment has been made for
such Restoration shall be promptly delivered to Tenant. Notwithstanding any
contrary provision hereof, if an Event of Default or a Disqualifying Default has
occurred and is continuing, Landlord shall be entitled to retain any remaining
Net Proceeds and to apply the same to either repair the damages or to pay other
amounts accrued and payable to Landlord hereunder or Lender under the Mortgage,
at Lender’s or, if there is then no Lender, Landlord’s sole option. No such
retention by Landlord shall impose on Landlord any obligation to repair the
Premises or relieve Tenant of its obligations to repair the Premises.

 

15.         Condemnation.

 

15.1        Promptly upon obtaining knowledge of any proceeding for condemnation
or eminent domain with respect to the Premises (a “Taking” or “Condemnation”),
Tenant and Landlord shall each notify the other and Lender, and Tenant shall be
entitled to participate in such proceeding at Tenant’s sole expense. Subject to
the provisions of this Section 15, Tenant hereby irrevocably assigns to
Landlord’s Lender or to Landlord, in that order, any award or payment in respect
of any Condemnation of the Premises, except that (except as hereinafter
provided) nothing in this Lease shall be deemed to assign to Landlord or Lender
any award relating to the value of the leasehold interest created by this Lease
or any award or payment on account of an interruption of Tenant’s business at
the Premises or the Tenant’s trade fixtures, moving expenses and out-of-pocket
expenses incidental to the move, if available, to the extent Tenant shall have a
right to make a separate claim therefor against the condemnor, it being agreed,
however, that Tenant shall in no event be entitled to any payment that reduces
the award to which Landlord is or would be entitled for the condemnation of
Landlord’s interest in the Premises.

 

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15.2        If (i) the entire Premises or (ii) a material portion of the
Facility or land comprising a portion of the Premises the loss of which would,
in Tenant’s commercially reasonable judgment, render the Premises unsuitable for
Restoration or for the continued use and occupancy in Tenant’s business after
Restoration, shall be the subject of a Taking (a “Major Condemnation”), then not
later than ninety (90) days after such Taking has occurred, Tenant shall serve
written notice upon Landlord and Lender (“Tenant’s Termination Notice”) of
Tenant’s intention to terminate this Lease on any Base Rent payment Due Date
specified in such notice, which Due Date (the “Involuntary Conversion
Termination Date”) shall be no sooner than sixty (60) days and no later than one
hundred twenty (120) days after Tenant’s Termination Notice but, in any event,
not later than the last day of the Term of this Lease.

 

15.3        In the event of any Taking of a portion of the Premises which does
not result in a termination of this Lease, the net award resulting from the
Taking, i.e., after deducting therefrom all expenses incurred in the collection
thereof shall be held in accordance with Section 14.3. In the event of any such
Taking, Tenant shall promptly commence and diligently complete the Restoration
(as defined in Section 14.3) of the Premises in accordance with all Laws and
Legal Requirements and all other terms of this Lease. Any net award from
Condemnation not resulting in a termination of this Lease shall be disbursed in
the same manner as set forth with respect to Net Proceeds in Section 14.5,
provided, however, that Net Proceeds remaining after final payment has been made
for such Restoration shall be promptly delivered to Landlord and shall be owned
by Landlord.

 

15.4        No agreement with any Taking authority in settlement of or under
threat of any Taking shall be made by Landlord or Lender without Tenant’s prior
written consent (provided, that Tenant’s consent shall, not be required if an
Event of Default or a Disqualifying Default then exists and is continuing), or
by Tenant without Landlord’s and Lender’s prior written consent.

 

15.5        In the case of any Taking, all Base Rent, Additional Rent and other
obligations of Tenant shall continue unabated until the termination of this
Lease.

 

16.         Assignment and Subletting.

 

16.1        Tenant shall not have the right to assign this Lease or any interest
therein, or to sublet the whole or any part of the Premises without the prior
written consent of Landlord, which consent may be withheld in Landlord’s sole
and absolute discretion. In the event of any permitted assignment or sublease of
this Lease, Tenant shall remain liable for the obligations of Tenant hereunder,
which liability of Tenant shall be and remain that of a primary obligor and not
a guarantor or surety. Tenant agrees that in the case of a permitted assignment
of this Lease, Tenant shall, within fifteen (15) days after the execution and
delivery of any such assignment, deliver to Landlord (i) a duplicate original of
such assignment in recordable form and (ii) an agreement executed and
acknowledged by the assignee in recordable form wherein the assignee shall agree
to assume and agree to observe and perform all of the terms and provisions of
this Lease on the part of the Tenant to be observed and performed from and after
the date of such assignment. In the case of a permitted sublease, Tenant shall,
within fifteen (15) days after the execution and delivery of such sublease,
deliver to Landlord a duplicate original of such sublease. In no event shall
Tenant be permitted to assign or sublet this Lease to an entity with long-term
unsecured debt rated below the Minimum Rating. Any sublease or license shall be
subject and subordinate to this Lease.

 

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16.2         For the purposes of this Section 16.2, the term “assign” or
“assignment” shall include the following events: if Tenant is a partnership, a
withdrawal or change (voluntary, involuntary or by operation of law or
otherwise) of any of the general partners thereof or of general and limited
partners owning in the aggregate fifty percent (50%) or more of the capital and
profits of the partnership, or the dissolution of the partnership; or if Tenant
consists of more than one person, a purported assignment, transfer, mortgage or
encumbrance (voluntary, involuntary or by operation of law or otherwise) from
one thereof unto the other or others thereof; or, if Tenant is a corporation,
any dissolution merger, consolidation or other reorganization of Tenant or any
change in the ownership of fifty percent (50%) or more of its capital stock or
fifty percent (50%) or more of its voting stock from the ownership existing on
the date of execution hereof; or, the sale of fifty percent (50%) or more of the
value of the assets of Tenant.

 

16.3         Upon the occurrence of an Event of Default under this Lease,
Landlord shall have the right to collect and enjoy all rents and other sums of
money payable under any sublease of any of the Premises, and Tenant hereby
irrevocably and unconditionally assigns such rents and money to Landlord, which
assignment may be exercised upon and after (but not before) the occurrence of an
Event of Default.

 

17.         Alterations.

 

17.1         Tenant may make non-structural, interior and/or exterior
alterations, changes, additions, improvements, reconstructions or replacements
of any of the Premises (“alterations”), other than those which would result in a
diminution in the value of the Premises, that do not exceed the Threshold Repair
Amount in the aggregate. Unless required by applicable federal, state or local
law or regulation, Tenant shall obtain the prior written consent of Landlord and
Lender to any alteration (i) which would result in a diminution in the value of
the Premises, (ii) the cost of which in the aggregate exceeds the Threshold
Repair Amount or (iii) which is structural in nature, which consent to a
structural alteration shall not be unreasonably withheld. Without limitation, in
determining whether a structural alteration is “reasonable” for purposes of
subsection (iii) of the preceding sentence, Landlord shall have the right to
consider whether such alteration would impair the structural integrity of the
Premises, would impair the fair market value of the Premises, or would otherwise
adversely affect the overall marketability of the Premises, as determined in
Landlord’s reasonable discretion.

 

17.2         Tenant shall do all such work in a good and workmanlike manner, at
its own cost, and in accordance with Laws and Legal Requirements. Tenant shall
discharge, within sixty (60) days after notice of the filing of the same (by
payment or by filing the necessary bond, or otherwise), any mechanics’,
materialmen’s or other lien against the Premises and/or Landlord’s interest
therein, which lien may arise out of any payment due for any labor, services,
materials, supplies, or equipment furnished to or for Tenant in, upon, or about
the Premises.

 

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17.3         At Tenant’s sole cost and without liability to Landlord, Landlord
agrees to reasonably cooperate with Tenant (including signing applications upon
Tenant’s written request) in obtaining any necessary permits, variances and
consents for any alterations which Tenant is permitted or required to make
hereunder; provided none of the foregoing shall, in any manner, result in a
material reduction of access to or ingress to or egress from the Premises, a
diminution in the value of the Premises, a change in zoning having a material
adverse effect on the ability to use the Premises for the Healthcare Business by
Tenant or otherwise have a material adverse effect on the ability to use the
Premises for the Healthcare Business by Tenant.

 

17.4         Tenant agrees that in connection with any alteration: (i) the fair
market value of the Premises shall not be lessened by more than a de minimus
extent after the completion of any such alteration, or its structural integrity
impaired; (ii) all such alterations shall be performed in a good and workmanlike
manner, and shall be expeditiously completed in compliance with all Legal
Requirements; (iii) Tenant shall promptly pay all costs and expenses of any such
alteration; (iv) Tenant shall procure and pay for all permits and licenses
required in connection with any such alteration; and (v) all alterations shall
be made (in the case of any alteration the estimated cost of which in any one
instance exceeds the Threshold Repair Amount) under the supervision of an
architect or engineer and in accordance with plans and specifications which
shall be submitted to Landlord and Lender (for information purposes only) prior
to the commencement of the alterations.

 

17.5         All contracts and payments to contractors, subcontractors,
suppliers and other persons in connection with any alteration, Restoration,
repair or other work performed at the Premises shall be entered into, made and
performed in compliance with all Laws and Legal Requirements.

 

18.         Signs. At Tenant’s sole cost, Tenant may install, replace, relocate
and maintain and repair in and on the Facility, such signs, awnings, lighting
effects and fixtures as may be used from time to time by Tenant (collectively,
“Signs”). At Tenant’s sole cost and without liability to Landlord, Landlord
agrees to cooperate with Tenant (including signing applications upon Tenant’s
written request) in obtaining any necessary permits, variances and consents for
Tenant’s Signs. All Signs of Tenant shall comply with Laws and Legal
Requirements.

 

19.         Surrender.

 

19.1         At the expiration or other termination of this Lease, Tenant shall
surrender the Premises to Landlord in as good order and condition as they were
at the commencement of the Term or may be put in thereafter in accordance with
this Lease, reasonable wear and tear and (other than for any Restoration
required by the terms of this Lease) damage to the Premises by any Major
Condemnation of the Premises excepted. All alterations, except Tenant’s
furniture, trade fixtures, satellite communications dish and equipment, computer
and other similar moveable equipment and shelving (“trade fixtures”), shall
become the property of Landlord and shall remain upon and be surrendered with
the Premises as a part thereof at the termination or other expiration of the
Term. At the expiration or termination of the Term, Tenant shall remove its
trade fixtures, as well as its Signs and identification marks, from the
Premises. Tenant agrees to repair any and all damage caused by such removal.
Trade fixtures and personal property not so removed at the end of the Term or
within thirty (30) days after the earlier termination of the Term for any reason
whatsoever shall become the property of Landlord, and Landlord may thereafter
cause such property to be removed from the Premises. The reasonable cost of
removing and disposing of such property and repairing any damage to any of the
Premises caused by such removal shall be borne by Tenant. Landlord shall not in
any manner or to any extent be obligated to reimburse Tenant for any property
which becomes the property of Landlord as a result of such expiration or earlier
termination. The provisions of this Section 19.1 shall survive the termination
or expiration of this Lease for a period of twenty-four (24) months.

 

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19.2         Upon termination of this Lease for any reason, Tenant will return
to Landlord the Premises licensed by the State of Texas and by any and all
governmental agencies having jurisdiction over the Premises as a skilled nursing
facility with at least the Minimum Licensed Beds (subject to any reduction in
the number of licensed beds required by any governmental authority solely as a
result of changes in laws, rules and regulations relating to the physical
attributes of the improvements on the Premises) with an unrestricted license in
full force and good standing for no less than the Minimum Licensed Beds (subject
to any reduction in the number of licensed beds required by any governmental
authority solely as a result of changes in laws, rules and regulations relating
to the physical attributes of the improvements on the Premises).

 

19.3         Upon the expiration or earlier termination of this Lease, Tenant
shall enter into a mutually agreeable operating transition agreement (the “OTA”)
with Landlord in order to provide for the orderly transition of the operation of
the facility following the termination of this Lease. The OTA shall provide for
a procedure for the assignment and assumption of all resident agreements,
operating agreements and other agreements that Landlord elects to have assigned
from Tenant. In addition, the OTA shall address the transition of licensing
requirements for the Facility under all applicable Legal Requirements.

 

20.         Subordination of Lease; Mortgage Reserves.

 

20.1         Subordination. This Lease shall be subject and subordinate to any
Mortgage and to all advances made upon the security thereof provided that Lender
shall execute and deliver to Tenant an agreement in a form reasonably requested
by Lender (“SNDA Agreement”), providing that Lender recognizes this Lease and
agrees to not disturb Tenant’s possession of the Premises in the event of
foreclosure if Tenant is not then in default hereunder beyond any applicable
cure period. Tenant agrees, upon receipt of such SNDA Agreement, to execute such
SNDA Agreement and such further reasonable instruments) as may be necessary to
so subordinate this Lease. The term “Mortgage” shall include any mortgages,
deeds of trust or any other similar hypothecations on the Premises securing
Lender’s Loan to Landlord, regardless of whether or not such Mortgage is
recorded.

 

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20.2         Attornment. Upon written notice to Tenant, Tenant agrees to attorn,
from time to time, to Lender, and to any purchaser of the Premises, for the
remainder of the Term, provided that Lender or such purchaser shall then be
entitled to possession of the Premises, subject to the provisions of this Lease.
Tenant shall be entitled to rely on the truth of the facts set forth in any such
notice and shall not be liable to Landlord for such reliance or attornment. This
subsection shall inure to the benefit of Lender or such purchaser, shall apply
notwithstanding that, as a matter of Law, this Lease may terminate upon the
foreclosure of the Mortgage (in which event the parties shall execute a new
lease for the remainder of the Term containing the provisions of this Lease),
shall be self-operative upon any such demand, and no further instrument shall be
required to give effect to said provisions. Each such party shall however, upon
demand of the other, execute instruments in confirmation of the foregoing
provisions reasonably satisfactory to the parties acknowledging such
subordination, non-disturbance and attornment and setting forth the terms and
conditions hereof.

 

20.3         Consent to Assignment of Lease to Lender. Tenant hereby consents to
any assignment of this Lease by Landlord to or for the benefit of any Lender.
Without limitation of the preceding sentence, Tenant hereby specifically
consents to any Assignment of Lease and Rents executed by Landlord to and for
the benefit of the Lender named herein.

 

20.4         Mortgage Reserves. Notwithstanding anything to the contrary in this
Lease, all real estate tax, insurance reserve, capital expenditure reserves or
other reserves required by the Lender against the Premises during the term of
this Lease shall be paid by the Tenant to Landlord and shall be repaid to Tenant
to the extent not applied in accordance with this Lease or the Mortgage when
such holder repays such sums to Landlord and to the extent same are not required
to be held for any replacement mortgage or are required to fund obligations of
the Tenant under this Lease. Real estate taxes for the first year of the Lease
Term shall be prorated in the same manner as the real estate taxes were prorated
in connection with Landlord’s acquisition of the Premises. Real estate taxes for
the last year of the Lease Term shall be prorated based on the number of days
which have elapsed as of the date the Lease terminates.

 

21.         Tenant’s Obligation to Discharge Liens. Prior to the imposition of
any fine, lien, interest or penalty Tenant shall timely pay and discharge all
amounts and obligations which Tenant assumes or agrees to pay or discharge
pursuant to this Lease, together with every fine, penalty and interest with
respect thereto.

 

22.         Utilities. Tenant agrees to timely pay for all utilities consumed by
it in the Premises, prior to delinquency.

 

23.         Tenant Default.

 

23.1        Any of the following occurrences or acts shall constitute an Event
of Default (herein so called) under this Lease:

 

(a)          Tenant’s failure to make any payment when due of any installment of
Base Rent payable hereunder, and such default shall continue for ten (10) days
after written notice of such default is sent to Tenant by Landlord (or Lender).

 

(b)          Tenant’s failure to make any payment when due of any installment of
Additional Rent payable hereunder and such default shall continue for ten
(10) days after notice of such default is sent to Tenant by Landlord (or
Lender).

 

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(c)          The failure by Tenant to maintain insurance as required under this
Lease, provided that if the insurance required under this Lease lapses for a
period not in excess of thirty (30) days, and Tenant reinstates such lapsed
insurance without a claim having been made, then such Event of Default shall be
deemed cured for purposes of this Lease, provided further that Tenant shall
indemnify Landlord for any claim arising in connection with such lapsed
insurance.

 

(d)          Tenant’s failure to abide by any of the other covenants, agreements
or obligations of this Lease, and such default shall continue for more than
thirty (30) days after written notice thereof from Landlord (or Lender)
specifying such default, provided, that if Tenant has commenced to cure within
said thirty (30) days, and thereafter is in good faith diligently prosecuting
same to completion, said thirty (30) day period shall be extended, for a
reasonable time (not to exceed one hundred eighty (180) days or, with respect to
a breach of Tenant’s obligations under Section 38, such longer period as may
reasonably be necessary to cure such default so long as (i) Tenant delivers to
Landlord a certificate of a qualified environmental remediation specialist that
such default could not be cured within such one hundred eighty (180) days but is
curable, and (ii) Tenant is in good faith diligently prosecuting such cure to
completion) where, due to the nature of a default, it is unable to be completely
cured within thirty (30) days.

 

(e)          Any execution or attachment shall be issued against Tenant or any
of its property whereby the Premises shall be taken or occupied or attempted to
be taken or occupied by someone other than Tenant, and the same shall not be
bonded, dismissed, or discharged as promptly as possible under the circumstances

 

(f)          Tenant (i) shall make any assignment or other act for the benefit
of creditors, (ii) shall file a petition or take any other action seeking relief
under any state or federal insolvency or bankruptcy Laws, or (iii) shall have an
involuntary petition or any other action filed against either of them under any
state or federal insolvency or bankruptcy Laws which petition or other action is
not vacated or dismissed within sixty (60) days after the commencement thereof.

 

(g)          The estate or interest of Tenant in the Premises shall be levied
upon or attached in any proceeding and such estate or interest is about to be
sold or transferred and such process shall not be vacated or discharged within
sixty (60) days after such levy or attachment.

 

(h)          Any material representation or warranty made by Tenant to Landlord
herein or in any document delivered pursuant to this Lease is misleading or
false when made.

 

(i)          The occurrence of an Adverse Healthcare Event at the Facility;
provided if (i) the default described in this Section is curable, (ii) Tenant
diligently commences the cure of such default and uses commercially reasonable
efforts to diligently pursue any appeals or other required actions in accordance
with applicable laws and regulations, and (iii) such default does not affect the
ability of Tenant to comply with its financial obligations under this Lease,
then such Adverse Healthcare Event shall not constitute a default until the
earlier to occur of (A) final, adverse action upholding, in whole or in part,
such termination, suspension, or material adverse action or restriction or (B)
the passage of ninety (90) days from the date such termination, suspension or
material adverse action or restriction was instituted without a final action
having occurred.

 

24

 

 

23.2         If an Event of Default shall have occurred and be continuing,
Landlord shall be entitled to all remedies available at law or in equity. To the
extent permitted by applicable law, Landlord shall not be required to serve
Tenant with any notice or demands as a prerequisite to its exercise of any of
its rights or remedies under this Lease, other than those notices and demands
specifically required under this Lease. Without limiting the foregoing, Landlord
shall have the right to give Tenant notice of Landlord’s termination of the Term
of this Lease. Upon the giving of such notice, the Term of this Lease and the
estate hereby granted shall expire and terminate on such date as fully and
completely and with the same effect as if such date were the date herein fixed
for the expiration of the Term of this Lease, and all rights of Tenant hereunder
shall expire and terminate, but Tenant shall remain liable as hereinafter
provided.

 

23.3         If an Event of Default shall have occurred and be continuing,
Landlord shall have the immediate right, whether or not the Term of this Lease
shall have been terminated pursuant to Section 23.2, to re-enter and repossess
the Premises and change the locks, and the right to remove all persons and
property therefrom by summary proceedings, ejectment, any other legal action or
in any lawful manner Landlord determines to be necessary or desirable. Landlord
shall be under no liability by reason of any such re-entry, repossession or
removal. No such re-entry, repossession or removal shall be construed as an
election by Landlord to terminate this Lease unless a notice of such termination
is given to Tenant pursuant to Section 23.2. In order to regain possession of
the Premises and to deny Tenant access thereto, Landlord or its agent may, at
the expense and liability of the Tenant, alter or change any or all locks or
other security devices controlling access to the Premises without posting or
giving notice of any kind to the Tenant and Landlord shall have no obligation to
provide Tenant a key to new locks installed in the Premises or grant Tenant
access to the Premises. Tenant shall not be entitled to recover possession of
the Premises, terminate this Lease, or recover any actual, incidental,
consequential, punitive, statutory or other damages or award of attorneys’ fees,
by reason of Landlord’s alteration or change of any lock or other security
device and the resulting exclusion from the Premises of the Tenant or Tenant’s
agents, servants, employees, customers, licensees, invitees or any other persons
from the Premises.

 

23.4         At any time or from time to time after a re-entry, repossession or
removal pursuant to Section 23.3, whether or not the Term of this Lease shall
have been terminated pursuant to Section 23.2, Landlord may (but, except to the
extent expressly required by any applicable Law, shall be under no obligation
to) relet the Premises for the account of Tenant, in the name of Tenant or
Landlord or otherwise, without notice to Tenant, for such term or terms and on
such conditions and for such uses as Landlord, in its absolute discretion, may
determine. Landlord may collect any rents payable by reason of such reletting.
Except to the extent required by applicable Law, Landlord shall not be liable
for any failure to relet the Premises or for any failure to collect any rent due
upon any such reletting.

 

23.5         No expiration or termination of the Term of this Lease pursuant to
Section 23.2, by operation of law or otherwise, and no re-entry, repossession or
removal pursuant to Section 23.3 or otherwise, and no reletting of the Premises
pursuant to Section 23.4 or otherwise, shall relieve Tenant of its liabilities
and obligations hereunder, all of which shall survive such expiration,
termination, re-entry, repossession, removal or reletting,

 

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23.6         In the event of any expiration or termination of the Term of this
Lease or re-entry or repossession of the Premises or removal of persons or
property therefrom by reason of the occurrence of an Event of Default, Tenant
shall pay to Landlord all Base Rent, Additional Rent and other sums required to
be paid by Tenant, in each case together with interest thereon at the Lease
Default Rate from the due date thereof to and including the date of such
expiration, termination, re-entry, repossession or removal; and thereafter,
Tenant shall, until the end of what would have been the Term of this Lease in
the absence of such expiration, termination, re-entry, repossession or removal
and whether or not the Premises shall have been relet, be liable to Landlord
for, and shall pay to Landlord, as liquidated and agreed current damages:
(i) all Base Rent, Additional Rent and other sums which would be payable under
this Lease by Tenant in the absence of any such expiration, termination,
re-entry, repossession or removal, less (ii) the net proceeds, if any, of any
reletting effected for the account of Tenant pursuant to Section 23.4, after
deducting from such proceeds all reasonable expenses of Landlord in connection
with such reletting, including, without limitation, all repossession costs,
brokerage commissions, reasonable attorneys’ fees and expenses (including,
without limitation, fees and expenses of appellate proceedings), alteration
costs and expenses of preparation for such reletting. Tenant shall pay such
liquidated and agreed current damages on the dates on which Base Rent would be
payable under this Lease in the absence of such expiration, termination,
re-entry, repossession or removal, and Landlord shall be entitled to recover the
same from Tenant on each such date.

 

23.7         In lieu of the remedy set forth in Section 23.6, at any time after
any such expiration or termination of the Term of this Lease or re-entry or
repossession of the Premises or removal of persons or property thereon by reason
of the occurrence of an Event of Default, Landlord shall be entitled to recover
from Tenant, and Tenant shall pay to Landlord on demand, as and for liquidated
and agreed final damages for Tenant’s default and in lieu of all liquidated and
agreed current damages beyond the date of such demand (it being agreed that it
would be impracticable or extremely difficult to fix the actual damages), an
amount equal to the sum of (i) the excess, if any of (A) the aggregate of all
Base Rent, Additional Rent and other sums which would be payable under this
Lease for what would be the then-unexpired Term of this Lease in the absence of
such expiration, termination, re-entry, repossession or removal, discounted at
the rate equal to the then current rate on U.S. Treasury obligations of
comparable maturity to such Term (the “Treasury Rate”), but in no event greater
than the non-default rate of interest for the Loan (such lower rate being
referred to as the “Discount Rate”) over (B) the amount of such rental loss that
Tenant proves could be reasonably avoided by commercially reasonable mitigation
efforts by Landlord, discounted at the Discount Rate for the same period, plus
(ii) all reasonable legal fees and other costs and expenses incurred by Landlord
and Lender as a result of Tenant’s default under this Lease. If any Law shall
limit the amount of liquidated final damages to less than the amount above
agreed upon, Landlord shall be entitled to the maximum amount allowable under
such Law.

 

Except as specificallyl set forth in this Lease, mention in this Lease of any
particular remedy shall not preclude Landlord from any other remedy at law or in
equity, including the right of injunction. Tenant waives any rights of
redemption granted by any Laws if Tenant is evicted or dispossessed, for any
cause, or if Landlord obtains possession of the Premises by reason of the
violation by Tenant of any of the terms of this Lease.

 

26

 

 

23.8         In addition to the foregoing remedies set forth in this Section 23
and all other remedies available at law or in equity, and regardless of whether
or not an Event of Default has occurred under this Lease, if Tenant has failed
to perform any of its duties, obligations, covenants or agreements under this
Lease, Landlord may give notice to Tenant that it has failed to perform any such
duty, obligation, covenant or agreement (herein called a “Notice of Breach”)
and, if Tenant fails to cure such failure within ten (10) days after receipt of
the Notice of Breach, Landlord may thereafter pursue any rights or remedies
available to it at law or in equity including, without limitation, filing a suit
for damages as a result of such breach or a suit for specific performance of any
such duties, obligations, covenants or agreements. Any Notice of Breach
delivered under this Section 23.8 or any such rights or remedies pursued by
Landlord shall not be deemed to be a notice of default under any provision of
this Section 23 and shall not result, with or without the passage of time, in an
Event of Default existing under this Lease; provided that the delivery of any
such Notice of Breach shall not limit Landlord’s right (which right will not be
exercised without the consent of Lender so long as the Premises are subject to a
Mortgage which requires Lender’s consent for the exercise thereof) to
subsequently deliver notice (with respect to the same event or condition which
is the subject of such Notice of Breach or any other event or condition) which
will declare or, with the passage of time, result in an Event of Default
hereunder. Further, after delivery of any such Notice of Breach, but without
notice in the event of an emergency, if Tenant fails to cure such breach during
the time that Tenant has to cure such breach under Section 23.1 above, Landlord
may do whatever is reasonably necessary and permitted hereunder to cure such
breach as may be appropriate under the circumstances for the account of and at
the expense of Tenant. All reasonable sums so paid by Landlord and all
reasonable costs and expenses (including attorneys’ fees and expenses) so
incurred, together with interest thereon at the Lease Default Rate from the date
of payment, shall constitute Additional Rent payable by Tenant under this Lease
and shall be paid by Tenant to Landlord on demand.

 

23.9         Tenant acknowledges that one of the rights and remedies available
to Landlord under applicable law is to apply to a court of competent
jurisdiction for the appointment of a receiver to take possession of part or all
of the Premises, to collect the rents, issues, profits and income of the
Premises and to manage the operation of the Premises. Tenant further
acknowledges that the revocation or suspension of the certification of any
portion of the Premises for provider status under Medicare or Medicaid (or
successor programs) for a period of thirty (30) days or more and/or the
revocation or suspension of a license relating to the operation of any portion
of the Premises for its intended use under the laws of the State for a period of
thirty (30) days or more will materially and irreparably impair the value of
Landlord's investment in the Premises. Therefore, in any of such events, and in
addition to any other right or remedy of Landlord under this Lease, Landlord may
petition any appropriate court for, and Tenant hereby consents to, the
appointment of a receiver to take possession of the Property, to manage its
operation, to collect and disburse all rents, issues, profits and income
generated thereby and to preserve or replace to the extent possible any such
license and provider certification for the Property or to otherwise substitute
the licensee or provider thereof. The receiver shall be entitled to a reasonable
fee for its services as a receiver. All such fees and other expenses of the
receivership estate shall be added to the Minimum Rent due to Landlord under
this Lease. Tenant hereby irrevocably stipulates to the appointment of a
receiver under such circumstances and for such purposes and agrees not to
contest such appointment. Tenant agrees to waive all rights to negotiate terms
of an OTA and further agrees to execute all transfer documentation including an
OTA.

 

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24.         HUD Loan Requirements. If Landlord obtains or seeks to obtain a HUD
Loan on the Facility, then the following sections shall apply:

 

24.1        Cooperation in Obtaining HUD Loan. In connection with Landlord’s
efforts to obtain a HUD Loan, Tenant agrees to provide to HUD and/or Lender the
application documents required by HUD (“Application Documents”) and to execute
and/or certify all Application Documents, as required by HUD or Lender.

 

24.2        Amendment of Lease. This Lease may be modified only by a written
instrument signed by Landlord and Tenant and approved by Landlord's Lender and
by the HUD Lender or HUD, as applicable.

 

24.3        Compliance with HUD Program Requirements and HUD Loan Documents.

 

(a)          Tenant agrees to comply with all applicable HUD Program
Requirements and the HUD Loan Documents. Tenant further agrees that this Lease
will be part of the collateral pledged by Landlord to Lender and HUD. Tenant
agrees that it will not take any action which would violate any applicable HUD
Program Requirements or any of the HUD Loan Documents.

 

(b)          In the event of any conflict between the terms and provisions of
this Lease and any applicable HUD Program Requirements or the HUD Loan
Documents, the HUD Program Requirements and HUD Loan Documents shall control in
all respects. Landlord and Tenant agree that no provision of this Lease shall
modify any obligation of Landlord or Tenant under the HUD Loan Documents.
Landlord and Tenant acknowledge that HUD’s acceptance of this Lease in
connection with the closing of the HUD Loan shall in no way constitute HUD’s
consent to arrangements which are inconsistent with HUD Program Requirements.
This Lease is subject to all HUD Program Requirements.

 

24.4        Subordination.

 

(a)          This Lease is and shall be subject and subordinate to the Mortgage
and other HUD Loan Documents; to all renewals, modifications, consolidations,
replacements and extensions thereof; to all substitutions thereof; and to all
future mortgages upon the Premises and/or other security interests in or to the
Premises and any other items which are herein leased to Tenant or which,
pursuant to the terms hereof, become a part of the Premises or are otherwise
deemed to become the property of Landlord or to remain upon the Premises at the
end of the term; and to each advance made or hereafter to be made under any of
the foregoing. This Section shall be self-operative and no further instrument of
subordination shall be required. Without limiting the foregoing, Tenant agrees
to execute and deliver promptly any and all certificates, agreements and other
instruments that Landlord, Lender or HUD may reasonably request in order to
confirm such subordination. Unless Lender shall have agreed otherwise, if Lender
or another person or entity shall succeed to the interest of Landlord by reason
of foreclosure or other proceedings brought by Lender in lieu of or pursuant to
a foreclosure, or by any other manner (Lender or such other person or entity
being called a “Successor”), then this Lease shall terminate, or, at the option
of the Successor, this Lease shall nevertheless continue in full force and
effect, in which case Tenant shall and does hereby agree to attorn to the
Successor and to recognize the Successor as its landlord under the terms of this
Lease.

 

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(b)          Agreements for provision of services to the Premises or the
granting of easements, rights of way or other allowances of use or placement of
CATV, utilities or other items are, and shall always be, subordinate to (i) the
right of Landlord, and (ii) the Mortgage and other HUD Loan Documents and all
other mortgages and security interests now or hereafter encumbering the Premises
and/or the property of which it forms a part. Tenant must obtain HUD written
approval prior to entering into any telecommunications services agreement and/or
granting of any easements.

 

24.5        Ownership of FF&E. Tenant agrees that (a) except leases of FF&E
entered into in the ordinary course of business with third-party lessees and
property of tenants and residents of the Premises, all FF&E located on the
Premises at the date of the Lease is and shall be the property of Landlord, and
(b) any FF&E acquired by Landlord or Tenant during the term of this Lease
remaining on the Premises at the termination of the Lease shall be and/or become
the property of Landlord. Tenant agrees, during the term of the Lease, not to
remove any FF&E from the Premises, except to replace such FF&E with other
similar items of equal or greater quality and value.

 

24.6        Payments. Landlord and Tenant each acknowledges and agrees that the
rent and other amounts payable by Tenant under this Lease (including rent,
additional rent and all other sums payable under this Lease) are sufficient to
properly maintain the Premises, and to enable Landlord to meet its debt service
obligations and related expenses in connection with the Mortgage Loan and the
Premises. To the extent applicable, unless Lender and Landlord agree otherwise,
and without limiting the generality of the foregoing, Tenant agrees to pay, as
additional rent, when due all premiums for (i) FHA mortgage insurance, (ii)
liability insurance and full coverage property insurance on the Premises, and
(iii) all other insurance coverage required under the HUD Loan Documents and/or
applicable HUD Program Requirements. Unless Lender and Landlord agree otherwise,
Tenant shall be responsible for funding all escrows for taxes, reserves for
replacements, mortgage insurance premiums and/or other insurance premiums as may
be required by Lender and/or HUD.

 

24.7        Regulatory Agreement of Tenant. At the time of the closing of the
HUD Loan, Tenant agrees to execute the Regulatory Agreement of Tenant, and other
applicable documents evidencing Lender’s security interest in the collateral of
Tenant. Tenant agrees to comply with its obligations under the Regulatory
Agreement of Tenant, and agrees that a default by Tenant under the Regulatory
Agreement of Tenant shall be deemed to be a default under this Lease.

 

24.8        Management Agreement Requirements. Tenant agrees not to enter into
any Management Agreement involving the Facility unless such Management Agreement
complies with applicable HUD Program Requirements and contains provisions that,
in the event of default under the Regulatory Agreement of Landlord or the
Regulatory Agreement of Tenant, the Management Agreement shall be subject to
termination upon not more than thirty (30) days notice without penalty upon
written request of HUD. Upon such HUD termination request, Tenant shall
immediately arrange to terminate the contract within a period of not more than
thirty (30) days and shall make arrangements satisfactory to HUD for continuing
proper management of the Premises.

 

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24.9        Licenses; Bed Authority. Tenant shall ensure that the Facility meets
all state licensure requirements and standards at all times. Landlord and Tenant
agree not to undertake or acquiesce to any modification to any license with
respect to the Premises or to any “bed authority” related thereto without the
prior written approval of HUD.

 

24.10      Governmental Receivables. Tenant shall be responsible for obtaining
and maintaining all necessary provider agreements with Medicaid, Medicare and
other governmental third party payors. Tenant agrees to furnish HUD and Lender
with copies of all such provider agreements and any and all amendments thereto
promptly after execution thereof.

 

24.11      Financial Statements and Reporting Requirements. Tenant agrees to
furnish HUD and Lender copies of its annual financial statements with respect to
the Premises, prepared in compliance with the requirements of the Regulatory
Agreement of Tenant, within ninety (90) days after the close of Tenant’s fiscal
year or such longer period as may be permitted by HUD. Tenant agrees to submit
to HUD and Lender copies of all other financial reports as specified in the
Regulatory Agreement of Tenant.

 

24.12      Inspections. Tenant agrees that upon reasonable request, Lender, HUD
and their respective designees and representatives may at all reasonable times,
upon reasonable notice, subject to the rights of patients, residents and
tenants, examine and inspect the Premises. Tenant shall, on the request of
Lender and/or HUD, promptly make available for inspection by Lender and/or HUD,
and their designees and representatives, copies of all of Tenant’s
correspondence, books, records and other documentation relating to the Premises,
excepting communications between Tenant and its attorneys. Tenant agrees to
maintain accounting records for the Facility in accordance with its customary
practice and the Regulatory Agreement of Tenant, separate from any general
accounting records which Tenant may maintain in connection with the Tenant’s
other activities. Tenant agrees that Lender and/or HUD, and their designees and
representatives, shall at any reasonable time, have access to and the right to
examine all accounting records of Tenant which relate directly or indirectly to
the Premises. The obligations of Tenant under this Section shall be limited to
the extent necessary in order for Tenant to comply with applicable laws
regarding the confidentiality of resident/patient medical records and
information.

 

24.13      Insurance; Casualty; Condemnation. Tenant agrees to procure and
maintain, or cause to be procured and maintained, the insurance coverage
required pursuant to the HUD Loan Documents and/or applicable HUD Requirements,
including HUD Notices H 04-01 and H 04-15. Insurance proceeds and the proceeds
of any condemnation award or other compensation paid by reason of a conveyance
in lieu of the exercise of such power, with respect to the Premises, or any
portion thereof, shall be applied in accordance with the terms of the HUD Loan
Documents and applicable HUD Program Requirements. The decision to repair,
reconstruct, restore or replace the Premises following a casualty or
condemnation shall be subject to the terms of the HUD Loan Documents and
applicable HUD Requirements. Notwithstanding the foregoing, under no
circumstances shall Tenant be required to repair, reconstruct, restore or
replace the Premises if the insurance proceeds and/or the proceeds of any
condemnation award are not fully made available to Tenant.

 

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24.14      Assignment of Operating Lease and Subletting of the Premises. This
Lease shall not be assigned or subleased by Tenant, in whole or in part
(including any transfer of title or right to possession and control of the
Premises, or of any right to collect fees or rents), without the prior written
approval of HUD. The prior written approval of HUD shall be required for (a) any
change in or transfer of the management, operation, or control of the project or
(b) any change in the ownership of Tenant that requires HUD approval under HUD’s
previous participation approval requirements. Landlord and Tenant acknowledge
that any proposed assignee shall be required to execute a Tenant Regulatory
Agreement, each in form and substance satisfactory to HUD, as a prerequisite to
any such approval. Any assignment or subletting of the Premises made without
such prior approval shall be null and void. This restriction on subletting does
not apply to Tenant’s leasing of individual units or beds to patient /
residents.

 

24.15      Accounts Receivable (AR) Financing. Tenant shall not pledge its
accounts receivable or receipts to an accounts receivable lender for any loan
without the prior written approval of Lender and HUD. In the event that Lender
and HUD grant such approval; (i) the holder(s) of such lien shall enter into an
Intercreditor and a Rider to Intercreditor Agreement with the AR Lender and
Lender on such terms and conditions as may be required by HUD; and (ii) Tenant
shall agree to comply with the requirements imposed by Lender and HUD in
connection therewith. Until such approved loan is paid in full, the written
approval of HUD is required for any proposed modifications, extensions, renewals
or amendments to a material term of the AR Loan or the security agreement, prior
to the effective date of such amendments.

 

24.16      Termination of Lease. The Lease shall not be terminated prior to its
expiration date without the prior written approval of HUD. If HUD becomes
Mortgagee, Mortgagee in Possession, or Successor, HUD can terminate the Lease
(a) for any violation of the Lease that is not cured within any applicable
notice and cure period given in the Lease, (b) for any violation of the
Regulatory Agreement of Tenant or other HUD Program Requirements or Health Care
Requirements that is not cured within thirty (30) days after receipt by Tenant
of written notice of such violation or (c) if HUD, as a result of the occurrence
of either of the events described in the foregoing items (a) or (b), is required
to advance funds for the operation of the Facility located on the Premises.

 

24.17      Master Lease. Projects proposed for FHA financing under the Section
232 program that are affiliated by common ownership among Mortgagors and/or
Tenant/Operator entities must receive written approval from HUD, and may be
required to use a Master Lease between the Mortgagor/Landlord and the Master
Tenant/Subtenant/Operator. The Master Lease and the HUD Master Lease
Subordination Agreement or Master Lease Subordination Non Disturbance Agreement
shall be approved by HUD and the Mortgagee. The Master Lease shall only contain
Mortgagors and Operators of FHA-insured projects.

 

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24.18      Miscellaneous. Notwithstanding any other terms contained in the
Lease, in the event of an assignment of the Lease to HUD or FHA, neither HUD nor
FHA shall have any indemnification obligations under the Lease. In addition, any
payment obligations of HUD or FHA pursuant to the Lease shall be limited to
actual amounts received by HUD or FHA, and otherwise not prohibited by
applicable law or regulation, including without limitation, the Anti Deficiency
Act, 31 U.S.C. § 1341 et seq.

 

25.         Rent Payments. If Landlord’s interest in this Lease shall pass to
another, or if the Base Rent or Additional Rent hereunder shall be assigned, or
if a party other than Landlord shall become entitled to collect the Base Rent or
Additional Rent due hereunder, then notice thereof shall be given to Tenant by
Landlord in writing, or, if Landlord is an individual and shall have died or
become incapacitated, by Landlord’s legal representative, accompanied by due
proof of the appointment of such legal representative; provided, that if Base
Rent is then being paid to Lender, then notwithstanding such notice from
Landlord, Tenant shall continue to pay Base Rent to Lender until it receives
contrary notice from Lender. Until such notice and proof shall be received by
Tenant, Tenant may continue to pay the rent due hereunder, and Landlord shall
indemnify and hold Tenant harmless from any challenges to such payments, to the
one to whom, and in the manner in which, the last preceding installment of rent
hereunder was paid, and each such payment shall fully discharge Tenant with
respect to such payment.

 

Tenant shall not be obligated to recognize any agent for the collection of rent
or otherwise authorized to act with respect to the Premises until written notice
of the appointment and the extent of the authority of such agent shall be given
to Tenant by the one appointing such agent.

 

26.         Holdover. If Tenant shall hold over after the expiration date of the
Term, or if Tenant shall hold over after the date specified in the Tenant’s
Termination Notice given by Tenant under Section 15.2, then, in either such
event, Tenant shall be a month-to-month Tenant on the same terms as herein
provided, except that the monthly Base Rent will be 1.5 times the monthly Base
Rent payable by Tenant during the final full calendar month of the Term or, if
applicable, during any extension of the Term, immediately preceding such
holdover period.

 

27.         Notices. Whenever, pursuant to this Lease, notice or demand shall or
may be given to either of the parties (including Lender) by the other, and
whenever either of the parties shall desire to give to the other any notice or
demand with respect to this Lease or the Premises, each such notice or demand
shall be in writing, and any Laws to the contrary notwithstanding, shall not be
effective for any purpose unless the same shall be given or served as follows:
by mailing the same to the other party by registered or certified mail, return
receipt requested, or by delivery by nationally recognized overnight courier
service provided a receipt is required, at its Notice Address set forth in Part
I hereof, or at such other address as either party (including, without
limitation, Lender) may from time to time designate by notice given to the
other. The date of receipt of the notice or demand shall be deemed the date of
the service thereof (unless delivery of the notice or demand is refused or
rejected, in which case the date of such refusal or rejection shall be deemed
the date of service thereof).

 

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28.         Indemnity. TENANT SHALL DEFEND LANDLORD AND ANY OF LANDLORD’S
OWNERS, PARTNERS, TRUSTEES, BENEFICIAL OWNERS, MEMBERS, MANAGERS, EMPLOYEES,
AGENTS, OFFICERS, DIRECTORS OR SHAREHOLDERS, TOGETHER WITH THE LENDER, AND ANY
OWNER, PARTNER, MEMBER, MANAGER, TRUSTEE, BENEFICIAL OWNER, OFFICER, DIRECTOR,
SHAREHOLDER, EMPLOYEE OR AGENT OF THE LENDER OR ANY HOLDER OF A PASS-THROUGH OR
SIMILAR CERTIFICATE ISSUED BY THE LENDER (HEREIN, COLLECTIVELY, “INDEMNIFIED
PARTIES”) WITH RESPECT TO, AND SHALL PAY, PROTECT, INDEMNIFY AND HOLD HARMLESS
THE INDEMNIFIED PARTIES FROM AND AGAINST, ANY AND ALL LIABILITIES, LOSSES,
DAMAGES, PENALTIES, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, REASONABLE
ATTORNEYS’ FEES AND EXPENSES), CAUSES OF ACTION, SUITS, CLAIMS, DEMANDS OR
JUDGMENTS OF ANY NATURE WHATSOEVER, HOWEVER CAUSED, (A) TO WHICH ANY INDEMNIFIED
PARTY IS SUBJECT BECAUSE OF LANDLORD’S OR LENDER’S ESTATE IN THE PREMISES OR
(B) ARISING FROM (I) INJURY TO OR DEATH OF ANY PERSON OR PERSONS OR DAMAGE TO OR
LOSS OF PROPERTY, REAL OR PERSONAL, IN ANY MANNER ARISING THEREFROM, OCCURRING
ON THE PREMISES OR CONNECTED WITH THE USE, NON-USE, CONDITION, OCCUPANCY,
MAINTENANCE, REPAIR OR REBUILDING OF ANY THEREOF, WHETHER OR NOT SUCH
INDEMNIFIED PARTY HAS OR SHOULD HAVE KNOWLEDGE OR NOTICE OF THE DEFECT OR
CONDITIONS, IF ANY, CAUSING OR CONTRIBUTING TO SAID INJURY, DEATH, LOSS, DAMAGE
OR OTHER CLAIM, (II) TENANT’S VIOLATION OF THIS LEASE, (III) ANY ACT OR OMISSION
OF TENANT OR ITS AGENTS, CONTRACTORS, LICENSEES, SUBTENANTS OR INVITEES, AND
(IV) ANY CONTEST REFERRED TO IN SECTION 30.2; PROVIDED, THAT TENANT SHALL NOT BE
REQUIRED TO INDEMNIFY, DEFEND OR HOLD HARMLESS ANY INDEMNIFIED PARTY FOR ANY
SUCH MATTERS ARISING DUE TO THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF SUCH
INDEMNIFIED PARTY. TENANT COVENANTS UPON NOTICE FROM SUCH INDEMNIFIED PARTY TO
DEFEND SUCH INDEMNIFIED PARTY IN SUCH ACTION, WITH THE EXPENSES OF SUCH DEFENSE
PAID BY TENANT; PROVIDED, THAT IN CONNECTION WITH TENANT’S OBLIGATIONS TO
PROVIDE A DEFENSE OF THE INDEMNIFIED PARTIES HEREUNDER, TENANT SHALL BE ENTITLED
TO SELECT COUNSEL REASONABLY SATISFACTORY TO LANDLORD TO DEFEND SUCH INDEMNIFIED
PARTIES SO LONG AS DEFENSE OF MULTIPLE PARTIES IS REASONABLE UNDER THE
CIRCUMSTANCES AND SO LONG AS SUCH COMMON DEFENSE DOES NOT LIMIT ANY REASONABLE
CLAIMS OR DEFENSES WHICH COULD BE RAISED BY ANY SUCH INDEMNIFIED PARTIES. THE
OBLIGATIONS OF TENANT UNDER THIS SECTION 28 SHALL SURVIVE ANY TERMINATION OF
THIS LEASE. ANY AMOUNTS PAYABLE TO ANY INDEMNIFIED PARTY HEREUNDER BY REASON OF
THE APPLICATION OF THIS SECTION 28 SHALL BECOME IMMEDIATELY DUE AND PAYABLE; AND
SUCH AMOUNTS SHALL BEAR INTEREST AT THE LEASE DEFAULT RATE FROM THE DATE LOSS OR
DAMAGE IS PAID BY SUCH INDEMNIFIED PARTY UNTIL PAID BY TENANT.

 

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LANDLORD AND TENANT INTEND THAT, UNLESS OTHERWISE EXPRESSLY PROVIDED IN THIS
LEASE, THE INDEMNITIES AND RELEASES PROVIDED IN THIS LEASE BY TENANT FOR THE
BENEFIT OF LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES (INCLUDING WITHOUT
LIMITATION, THE INDEMNITIES SET FORTH IN THIS SECTION 28 AND IN SECTION 38.5 OF
THIS LEASE), SHALL APPLY EVEN IF AND WHEN THE SUBJECT MATTER OF THE INDEMNITIES
AND RELEASES ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF LANDLORD, LENDER OR
ANY OTHER INDEMNIFIED PARTIES, OR ARISE AS A RESULT OF STRICT LIABILITY OF
LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES, BUT IN NO EVENT SHALL TENANT
BE OBLIGATED TO INDEMNIFY LANDLORD, LENDER OR ANY OTHER INDEMNIFIED PARTIES WITH
RESPECT TO MATTERS ARISING FROM THEIR GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.

 

29.         Tenant to Comply with Matters of Record. Tenant agrees to perform
all obligations of Landlord and pay all costs, expenses and other amounts
(including, without limitation, any liquidated damages) which Landlord or Tenant
may be required to pay in accordance with, and to comply and cause the Premises
to comply in all respects with all of the terms and conditions o£ any reciprocal
easement agreement or any other agreement or document of record now affecting
the Premises (including, without limitation, the Permitted Encumbrances) or
hereafter executed or filed with Tenant’s written consent (each, herein referred
to as a “Matter of Record”, and collectively as the “Matters of Record”) during
the Term. TENANT SHALL INDEMNIFY, DEFEND AND HOLD HARMLESS LANDLORD AND LENDER
AND ALL OTHER INDEMNIFIED PARTIES FROM ANY CLAIM, LOSS OR DAMAGE SUFFERED BY
LANDLORD OR LENDER OR SUCH INDEMNIFIED PARTIES BY REASON OF TENANT’S FAILURE TO
PERFORM ANY OBLIGATIONS OR PAY ANY COSTS, EXPENSES OR OTHER AMOUNTS (INCLUDING
WITHOUT LIMITATION, LIQUIDATED DAMAGES) AS REQUIRED UNDER ANY MATTERS OF RECORD
OR COMPLY AND CAUSE THE PREMISES TO COMPLY WITH THE TERMS AND CONDITIONS OF ANY
MATTERS OF RECORD DURING THE TERM.

 

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30.         Taxes.

 

30.1        Subject to the provisions hereof relating to contests and mortgage
reserves, Tenant shall pay and discharge, before any interest or penalties are
due thereon, all of the following taxes, charges, assessments, ground rents,
levies and other items (collectively, “tax” or “taxes”), even if unforeseen or
extraordinary, which are imposed or assessed on or subsequent to the Date of
Rent Commencement during the Term, regardless of whether payment thereof is due
prior to, during or after the Term: all taxes of every kind and nature
(including, without limitation, real, ad valorem, personal property, and sales
and use tax), on or with respect to the Premises (including, without limitation,
any taxes assessed against Landlord’s reversionary estate in the Premises or
against any real property other than the Premises which is included within the
tax parcel which includes the Premises), the Base Rent and Additional Rent
(including, without limitation, ad valorem taxes) payable hereunder, this Lease
or the leasehold estate created hereby; all charges and/or assessments for any
easement or agreement maintained for the benefit of the Premises; and all
general and special assessments, levies, water and sewer assessments and other
utility charges, use charges, impact fees and rents and all other public charges
and/or taxes whether of a like or different nature. Landlord shall promptly
deliver to Tenant any bill or invoice Landlord receives with respect to any tax;
provided, that the Landlord’s failure to deliver any such bill or invoice shall
not limit Tenant’s obligation to pay such tax. Landlord agrees to cooperate with
Tenant to enable Tenant to receive tax bills directly from the respective taxing
authorities. Nothing herein shall obligate Tenant to pay, and the term “taxes”
shall exclude (unless the taxes referred to in clauses (i) and (ii) below are in
lieu of or a substitute for any other tax or assessment upon or with respect to
any of the Premises which, if such other tax or assessment were in effect on the
Date of Rent Commencement, would be payable by Tenant hereunder or by Law),
federal, state or local (i) franchise, capital stock or similar taxes, if any,
of Landlord, (ii) income, excess profits or other taxes, if any, of Landlord,
determined on the basis of or measured by Landlord’s net income, (iii) any
estate, inheritance, succession, gift, capital levy or similar taxes of
Landlord, (iv) taxes imposed upon Landlord under Section 59A of the Internal
Revenue Code of 1986, as amended, or any similar state, local, foreign or
successor provision, (v) any amounts paid by Landlord pursuant to the Federal
Insurance Contribution Act (commonly referred to as FICA), the Federal
Unemployment Tax Act (commonly referred to as FUTA), or any analogous state
unemployment tax act, or any other payroll related taxes, including, but not
limited to, any required withholdings relating to wages, (vi) except as
otherwise provided in Section 15, any taxes in connection with the transfer or
other disposition of any interest, other than Tenant’s (or any person claiming
under Tenant), in the Premises or this Lease, to any person or entity, including
but not limited to, any transfer, capital gains, sales, gross receipts, value
added, income, stamp, real property gains or withholding tax, and (vii) any
interest, penalties, professional fees or other charges relating to any item
listed in clauses (i) through (vi) above; provided, further, that Tenant is not
responsible for making any additional payments in excess of amounts which would
have otherwise been due, as tax or otherwise, but for a withholding requirement
which relates to the particular payment and such withholding is in respect to or
in lieu of a tax which Tenant is not obligated to pay; and provided, further,
that if at any time during the Term of this Lease, the method of taxation shall
be such that there shall be assessed, levied, charged or imposed on Landlord a
tax upon the value of the Premises or any present or future improvement or
improvements on the Premises, including without limitation, any tax which uses
rents received from Tenant as a means to derive value of the property subject to
such tax, then all such levies and taxes or the part thereof so measured or
based shall be payable by Tenant, but only to the extent that such levies or
taxes would be payable if the Premises were the only property of Landlord, and
Tenant shall pay and discharge the same as herein provided. In the event that
any assessment against the Premises is payable in installments, Tenant may pay
such assessment in installments; and in such event, Tenant shall be liable only
for those installments which become due and payable prior to or during the Term,
or which are appropriately allocated to the Term even if due and payable after
the Term. Tenant shall deliver, or cause to be delivered, to Landlord and
Lender, promptly upon Landlord’s or Lender’s written request, evidence
satisfactory to Landlord and Lender that the taxes required to be paid pursuant
to this Section 30 have been so paid and are not then delinquent.

 

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30.2        After prior written notice to Landlord and Lender, at Tenant’s sole
cost, Tenant may contest (including seeking an abatement or reduction of) in
good faith any taxes agreed to be paid hereunder; provided, that (i) Tenant
first shall satisfy any Legal Requirements, including, if required, that the
taxes be paid in full before being contested or, if not required to be paid in
full, such contest shall suspend the collection of such taxes, (ii) no Event of
Default has occurred and is continuing and no Event of Default under this Lease
shall occur as a result of such contest, and (iii) failing to pay such taxes
will not subject Landlord or Lender to criminal or civil penalties or fines or
to prosecution for a crime, or result in the sale, forfeiture, termination,
cancellation or loss of any portion of the Premises or any interest therein, any
Base Rent or any Additional Rent Tenant agrees that each such contest shall be
promptly and diligently prosecuted to a final conclusion, except that Tenant
shall have the right to attempt to settle or compromise such contest through
negotiations. Tenant shall pay and shall indemnify, defend and hold Landlord and
Lender and all other indemnified Parties harmless against any and all losses,
judgments, decrees and costs (including, without limitation, all reasonable
attorneys’ fees and expenses) in connection with any such contest and shall
promptly, after the final determination of such contest, fully pay and discharge
the amounts which shall be levied, assessed, charged or imposed or be determined
to be payable therein or in connection therewith, together with all penalties,
fines, interest, costs and expenses thereof or in connection therewith, and
perform all acts the performance of which shall be ordered or decreed as a
result thereof. At Tenant’s sole cost, Landlord shall assist Tenant as
reasonably necessary with respect to any such contest, including joining in and
signing applications or pleadings. Any rebate applicable to any portion of the
Term shall belong to Tenant If at the time of any such contest an Event of
Default has occurred and is continuing under this Lease, then Tenant shall post
a bond or other security with and acceptable to Landlord and Lender in their
discretion in an amount equal to one hundred twenty-five percent (125%) of the
amount being contested.

 

31.         Insurance.

 

31.1         Tenant shall maintain All-Risk insurance for the Facility for one
hundred percent (100%) of its replacement value. Said All-Risk policy shall
include flood coverage if the Premises is located in a Flood Zone A, and shall
not exclude earthquake coverage, if applicable.

 

31.2         Tenant also shall maintain General Liability coverage, including
Broad Form Endorsement, on an occurrence basis; in combined policy limits of not
less than Ten Million and No/100 Dollars ($10,000,000.00) per occurrence for
bodily injury and for property damage with respect to the Premises.

 

31.3         Professional Liability insurance of not less than One Million
/Three Million and No/100 Dollars ($1,000,000/$3,000,000).

 

31.4         If, during the Term, Tenant is covered by general liability,
professional liability, residential healthcare malpractice or other liability
insurance on a "claims made" basis, ninety (90) days before the termination of
this Lease, Tenant shall procure and maintain, at Tenant's sole cost and
expense, an extended reporting endorsement or "tail" insurance coverage, with
such coverage limits and such deductible amounts as shall be reasonably
acceptable to Landlord for general liability, professional liability,
residential healthcare professional malpractice or other liability claims
reported after the termination of this Lease or expiration of the claims made
policy, but concerning services provided during the Term or the claims made
policy. Tenant shall provide Landlord with a certificate evidencing such
coverage no later than ninety (90) days before the termination of this Lease
and, if Tenant fails to procure and maintain tail insurance on termination of
this Lease, Landlord shall have the right to apply any portion of the Lease
Deposit to procure and maintain the insurance required under this Section to the
extent such coverage is available at commercially reasonable rates.

 

31.5         At all times when any construction is in progress, Tenant shall
maintain or cause to be maintained by its contractors and subcontractors with
such companies reasonably approved by Landlord, builder’s risk insurance,
completed value form, covering all physical loss, in an amount reasonably
satisfactory to Landlord

 

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31.6         Any insurance maintained by Tenant pursuant to this Section 31
shall name Landlord and Lender as additional insured parties and/or as loss
payees, as appropriate, as their respective interests may appear.

 

31.7         All proceeds received from such All-Risk and/or builder’s risk
insurance shall be used in the first instance in accordance with Tenant’s
obligations under Section 14 hereof and any surplus shall be retained by Tenant.

 

31.8         Tenant may carry such All-Risk and/or General Liability insurance
through blanket insurance covering the Premises and other locations of Tenant
and/or of Tenant’s affiliates, provided that such blanket insurance policy
specifically designates the Premises and shall not be reduced by claims as to
other property covered by such blanket policy; and Tenant may maintain the
required limits in the form of excess and/or umbrella policies, provided that
the other requirements set forth herein have been satisfied.

 

31.9         All insurance coverage required to be carried hereunder shall be
carried with insurance companies licensed to do business in the State and which
have a claims paying ability rating of “A” or better by S&P and a rating of “A2”
or better by Moody’s, and shall require the insured’s insurance carrier to
notify the Landlord and Lender at least thirty (30) days prior to any
cancellation or material modification of such insurance. Notwithstanding the
foregoing, Tenant may carry insurance with companies which are affiliated with
Tenant (and do not meet the requirements herein) provided such insurance
provided by such companies shall not exceed the deductible or self-insurance
limitations herein. The insurance policies shall be in amounts sufficient at all
times to satisfy any coinsurance requirements thereof. If said insurance or part
thereof shall expire, be withdrawn, become void by breach of any condition
thereof by Tenant or become void or unsafe by reason of the failure or
impairment of the capital of any insurer, Tenant shall immediately obtain new or
additional insurance reasonably satisfactory to Landlord and Lender.

 

31.10       Each insurance policy referred to above shall, to the extent
applicable, contain standard non-contributory mortgagee clauses in favor of
Lender and shall provide that it may not be canceled except after thirty
(30) days prior notice to Landlord and Lender and that any loss otherwise
payable thereunder shall be payable notwithstanding (i) any act or omission of
Landlord or Tenant which might, absent such provision, result in a forfeiture of
all or a part of such insurance payment, (ii) the occupation or use of any of
the Premises for purposes more hazardous than permitted by the provisions of
such policy, (iii) any foreclosure or other action or proceeding taken by any
Lender pursuant to any provision of the Mortgage upon the happening of an event
of default therein, or (iv) any change in title or ownership of any of the
Premises. Any insurance policy may be written with a deductible of not more than
Twenty Five Thousand and No/100 Dollars ($25,000.00), provided that Tenant
indemnifies, defends and holds Landlord harmless for any Restoration and
Restoration Cost to the extent that the net proceeds of insurance are
insufficient to pay and perform the Restoration and the Restoration Costs.

 

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31.11       Tenant shall pay all premiums for the insurance required by this
Section 31 as they become due, and shall renew or replace each policy, and shall
deliver to Landlord and Lender a certificate or other evidence of the
then-existing policy and each renewal or replacement policy, not less than
fifteen (15) days prior to the expiration of such policy (together with a
certificate of a responsible officer of Tenant that the insurance maintained by
Tenant with respect to the Premises is in compliance with the requirements of
this Section 31 of this Lease). In the event of Tenant’s failure to comply with
any of the foregoing requirements, Landlord shall be entitled to procure such
insurance. Any sums so expended by Landlord, together with interest thereon from
the date paid at the Lease Default Rate, shall be Additional Rent and shall be
repaid by Tenant to Landlord, if accompanied by an invoice or other supporting
documentation, immediately upon delivery of written demand therefor by Landlord.

 

32.         Landlord Exculpation. Anything contained herein to the contrary
notwithstanding, any claim based upon liability of Landlord under this Lease
shall be enforced only against the Landlord’s interest in the Premises and shall
not be enforced against the Landlord individually or personally other than with
respect to fraud or the misappropriation of insurance or Condemnation proceeds.
In no event shall any partner, shareholder, trustee, manager, member, beneficial
owner, officer, director or other owner or agent of Landlord have any liability
under this Lease.

 

33.         Landlord’s Title. The Premises are demised and let subject to the
Permitted Encumbrances without representation or warranty by Landlord. The
recital of the Permitted Encumbrances herein shall not be construed as a revival
of any Permitted Encumbrance which has expired.

 

34.         Quiet Enjoyment. So long as the Lease is in full force and effect,
Landlord warrants and agrees that Tenant, on paying the Base Rent, Additional
Rent and other charges due hereunder and performing all of Tenant’s other
obligations pursuant to this Lease, shall and may peaceably and quietly have,
hold, and enjoy the Premises for the full Term, free from molestation, eviction,
or disturbance by Landlord or by any other person(s) lawfully claiming by,
through or under Landlord, subject, however, to the Permitted Encumbrances.

 

35.         Broker. Landlord and Tenant each represent and warrant that it has
had no dealings or conversations with any real estate broker in connection with
the negotiation and execution of this Lease. LANDLORD AND TENANT EACH AGREE TO
DEFEND, INDEMNIFY AND HOLD HARMLESS THE OTHER AGAINST ALL LIABILITIES ARISING
FROM ANY CLAIM OF ANY REAL ESTATE BROKERS, INCLUDING COST OF COUNSEL FEES,
RESULTING FROM THEIR RESPECTIVE ACTS. IN THE EVENT OF ANY BREACH OF LANDLORD’S
REPRESENTATIONS UNDER THIS SECTION 35 OR ANY CLAIM BY TENANT AGAINST LANDLORD
FOR ANY INDEMNITY UNDER THIS SECTION 35, TENANT SHALL HAVE NO RIGHT TO ABATE OR
DEFER ANY PAYMENT OF ANY BASE RENT, ADDITIONAL RENT AND/OR OTHER AMOUNTS DUE
UNDER THIS LEASE, OR TO EXERCISE ANY RIGHTS OF OFFSET WITH RESPECT THERETO, AND
TENANT HEREBY EXPRESSLY WAIVES ANY SUCH RIGHTS THAT MAY EXIST AT LAW, IN EQUITY
OR OTHERWISE.

 

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36.         Transfer of Title. In the event of any transfer(s) of the title to
the Premises, Landlord (and in the case of any subsequent transfer, the
then-grantor) automatically shall be relieved from and after the date of such
transfer, of all liability with respect to the performance of any obligations on
the part of said Landlord contained in this Lease thereafter to be performed,
including, without limitation, the release of Landlord’s outstanding
obligations, if any, owed in connection with the Loan (provided that there is an
assumption of Landlord’s obligations under this Lease and the Loan and subject
to any conditions for such transfer as are contained in the Loan documents);
provided that any amount then due and payable to Tenant by Landlord (or the
then-grantor), and any other obligation then to be performed by Landlord (or the
then-grantor) under this Lease, either shall be paid or performed by Landlord
(or the then-grantor) or such payment or performance assumed by the transferee;
it being intended hereby that the covenants, conditions and agreements contained
in this Lease on the part of Landlord shall, subject to the foregoing, be
binding on Landlord, its successors and assigns, only during and with respect to
their respective successive period of ownership. Landlord may freely transfer
the Premises and this Lease without the consent of Tenant. Until Landlord gives
Tenant notice in accordance with the terms of this Lease, or Tenant receives
notice, of a transfer of the Premises by Landlord, Tenant may deal with Landlord
as if it continued to be the owner of the Premises. If a controlling ownership
interest in Landlord is transferred and, in connection therewith, the address
for notices to Landlord is changed, until Landlord gives, or Tenant receives,
notice of such transfer and new address Tenant may correspond with the current
owner of a controlling interest in Landlord at the prior address for notices to
Landlord.

 

37.         Management Agreements. Tenant shall not terminate the Approved
Management Agreement or enter into any Management Agreement without the prior
written reasonable approval of Landlord or Landlord's Lender. Any Manager shall
be required to enter into an assignment and subordination of management fees or
operating agreement in form and substance reasonably satisfactory to Landlord's
Lender. Such restrictions and approval rights are solely for the purposes of
assuring that the Healthcare Business is managed and operated in a first class
manner consistent with applicable healthcare laws and the preservation and
protection of the Premises as security for the Loan and shall not place
responsibility for the control, care, management or repair of the Premises
and/or the Healthcare Business upon Landlord's Lender, or make Landlord's Lender
responsible or liable for negligence in the management, operation, upkeep,
repair or control of the Premises and/or the Healthcare Business.
Notwithstanding the foregoing, as of the Effective Date, Landlord's Lender has
approved the Manager pursuant to the terms of the Approved Management Agreement
attached hereto as Exhibit C.

 

38.         Hazardous Materials.

 

38.1         For the purposes hereof, the term “Hazardous Materials” shall
include, without limitation, any material, waste or substance which is
(i) included within the definitions of “hazardous substances,” “hazardous
materials,” “toxic substances,” or “hazardous wastes” in or pursuant to any
Laws, or subject to regulation under any Law; (ii) listed in the United States
Department of Transportation Optional Hazardous Materials Table, 49 C.F.R.
Section 172.101, as enacted as of the date hereof or as hereafter amended, or in
the United States Environmental Protection Agency List of Hazardous Substances
and Reportable Quantities, 40 C.F.R. Part 302, as enacted as of the date hereof
or as hereafter amended; or (iii) explosive, radioactive, asbestos, a
polychlorinated biphenyl, petroleum or a petroleum product or waste oil. The
term “Environmental Laws” shall include all Laws pertaining to health,
industrial hygiene, Hazardous Materials or the environment, including, but not
limited to each of the following, as enacted as of the date hereof or as
hereafter amended: the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. §9601 et seq.; the Resource Conservation and
Recovery Act of 1976,42 U.S.C. §6901 et seq.; the Toxic Substance Control Act,
15 U.S.C. §2601 et seq.; the Water Pollution Control Act (also known as the
Clean Water Act), 33 U.S.C. §1251 et seq.; the Clean Air Act, 42 U.S.C. §7401 et
seq.; and the Hazardous Materials Transportation Act, 49 U.S.C. §5101 et seq.

 

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38.2         Tenant represents and warrants to Landlord that neither the
Premises, nor any portion thereof, has been used by Tenant for the generation,
manufacture, storage, handling, transfer, treatment, recycling, transportation,
processing, production, refinement or disposal (each, a “Regulated Activity”) of
any Hazardous Materials. As of the Date of Rent Commencement, Tenant covenants
it (i) will comply, and will cause the Premises to comply, with all
Environmental Laws applicable to the Premises, (ii) will not use, and shall
prohibit the use of the Premises for Regulated Activities or for the storage,
handling or disposal of Hazardous Materials (other than in connection with the
operation and maintenance of the Premises and in commercially reasonable
quantities as a consumer thereof, subject to compliance with applicable Laws),
(iii) (A) will not install or permit the installation on the Premises of any
asbestos or asbestos-containing materials (except in compliance with all
applicable Environmental Laws), underground storage tanks or surface
impoundments and shall not permit there to exist any petroleum contamination in
violation of applicable Environmental Laws originating on the Premises, and
(B) with respect to any petroleum contamination on the Premises which originates
from a source off the Premises, Tenant shall notify all responsible third
parties and appropriate government agencies (collectively, ‘‘Third Parties”) and
shall prosecute the cleanup of the Premises by such Third Parties, including,
without limitation, undertaking legal action, if necessary, to enforce the
cleanup obligations of such Third Parties and, to the extent not done so by such
Third Parties and to the extent technically feasible and commercially
practicable, Tenant shall remediate such petroleum contamination, and (iv) shall
cause any alterations of the Premises to be done in a way which complies with
applicable Laws relating to exposure of persons working on or visiting the
Premises to Hazardous Materials and, in connection with any such alterations,
shall remove any Hazardous Materials present upon the Premises which are not in
compliance with applicable Environmental Laws or which present a danger to
persons working on or visiting the Premises.

 

Landlord agrees that Tenant may use household and commercial cleaners and
chemicals to maintain the Premises, provided that such use is in compliance with
all Environmental Laws. Landlord and Tenant acknowledge that any or all of the
cleaners and chemicals described in this paragraph may constitute Hazardous
Materials. However, Tenant may use, store and dispose of same as herein set
forth, provided, that in doing so Tenant complies with all Laws. For the
purposes of Sections 38.3 and 38.4, the term “Hazardous Materials” shall exclude
the Hazardous Materials used as permitted in this paragraph.

 

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38.3        If, at any time during the Term, Hazardous Materials shall be found
in, on or under the Premises, unless such Hazardous Materials have been
introduced by Landlord or Landlord’s agents or employees or were introduced to
the Premises prior to the Substantial Completion Date, then Tenant shall (at
Tenant’s sole expense), or shall cause such responsible Third Parties to,
promptly commence and diligently prosecute to completion all investigation, site
monitoring, containment, cleanup, removal, restoration or other remedial work of
any kind or nature (collectively, “Remedial Work”) to the extent required by
Environmental Laws, and in compliance with Environmental Laws, and at Tenant’s
sole cost; provided, that except as otherwise expressly provided in this
subparagraph (c), Landlord shall not be required to accept any institutional
control (such as a deed restriction) that restricts the permitted use of the
Premises or any real property as a condition to any remedial plan approved by
any governmental agency in connection with such Remedial Work. The Remedial Work
required of Tenant under this Lease shall be limited to achieving clean-up
standards applicable to residential use of the Premises as provided herein
(“Commercial Closure”), if allowed under applicable Environmental Laws and if
approved by the applicable governmental authority with jurisdiction over the
Premises, Hazardous Materials and Remedial Work; provided, that the Hazardous
Materials left in place would not reasonably be expected to cause or threaten to
cause current or future migration of such Hazardous Materials from the
environmental media in which such Hazardous Materials are present to other
environmental media or to other properties in excess of applicable regulatory
standards permitted under applicable Legal Requirements; and provided, further,
that nothing contained in this Section 38.3 shall be deemed to limit the
obligations of the Tenant under any other provision of this Section 38
including, without limitation, the indemnification obligations of the Tenant
under Section 38.5. In the event an institutional control (such as a deed
restriction, environmental land use restriction, or activity and use limitation)
that restricts the permitted use of or activities on the Premises (hereinafter a
“Restriction”) is required in order to achieve Commercial Closure, prior to
submitting any proposed plan for Remedial Work to a governmental authority which
proposes such a Restriction or performing or implementing such Remedial Work or
actually recording any Restriction in the relevant real property records, Tenant
shall submit such Restriction to Landlord for review and approval. Landlord
shall not unreasonably withhold or delay its approval of any such Restrictions
(i) so long as the condition set forth in subpart (iii) of this sentence is
satisfied, which require that the Premises not be used for a day care facility
or for agricultural purposes, (ii) so long as the condition set forth in subpart
(iii) of this sentence is satisfied and the Premises are adequately served by a
municipal water supply, which prohibit the use of the ground water underlying
the Premises, or (iii) so long as such Restrictions would not reasonably be
likely to result in a material decrease in the fair market value of the Premises
based upon the use of the Premises for the Healthcare Business, would not
reasonably be likely to materially affect the marketability of the Premises or
the ability to obtain financing secured by the Premises based upon the use of
the Premises for the Healthcare Business, and would not reasonably be likely to
create ongoing monitoring or reporting obligations with respect to the Premises.

 

38.4        To the extent that Tenant has knowledge thereof Tenant shall
promptly provide notice to Landlord and Lender of any of the following matters:

 

(a)          any proceeding or investigation commenced or threatened by any
governmental authority with respect to the presence of any Hazardous Material
affecting the Premises;

 

(b)          any proceeding or investigation commenced or threatened by any
governmental authority, against Tenant or Landlord, with respect to the
presence, suspected presence, release or threatened release of Hazardous
Materials from any property owned by Landlord;

 

(c)          all written notices of any pending or threatened investigation or
claims made or any lawsuit or other legal action or proceeding brought by any
person against (A) Tenant or Landlord or the Premises, or (B) any other party
occupying the Premises or any portion thereof in any such case relating to any
loss or injury allegedly resulting from any Hazardous Material or relating to
any violation or alleged violation of Environmental Laws;

 

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(d)          the discovery of any occurrence or condition on the Premises, of
which Tenant becomes aware and which is not corrected within ten (10) days, or
written notice received by Tenant of an occurrence or condition on any real
property adjoining or in the vicinity of the Premises, which reasonably could be
expected to lead to the Premises or any portion thereof being in violation of
any Environmental Laws or subject to any restriction on ownership, occupancy,
transferability or use under any Environmental Laws or which might subject
Landlord or Lender to any Environmental Claim. “Environmental Claim” means any
claim, action, investigation or written notice by any person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resource damages,
property damages, personal injuries or penalties) arising out o£ based on or
resulting from (A) the presence, or release into the environment, of any
Hazardous Materials at or from the Premises, or (B) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law; and

 

(e)          the commencement and completion of any Remedial Work.

 

38.5        TENANT SHALL BE SOLELY RESPONSIBLE FOR AND SHALL DEFEND, REIMBURSE,
INDEMNIFY AND HOLD EACH INDEMNIFIED PARTY HARMLESS FROM AND AGAINST ALL DEMANDS,
CLAIMS, ACTIONS, CAUSES OF ACTION, ASSESSMENTS, LOSSES, DAMAGES, LIABILITIES
(INCLUDING WITHOUT LIMITATION, STRICT LIABILITIES), INVESTIGATIONS, WRITTEN
NOTICES, COSTS AND EXPENSES OF ANY KIND (INCLUDING, WITHOUT LIMITATION,
DIMINUTION IN PROPERTY VALUE AND REASONABLE EXPENSES OF INVESTIGATION BY
ENGINEERS, ENVIRONMENTAL CONSULTANTS AND SIMILAR TECHNICAL PERSONNEL AND
REASONABLE FEES AND DISBURSEMENTS OF COUNSEL), ARISING OUT OF, IN RESPECT OF OR
IN CONNECTION WITH (I) TENANT’S BREACH OF ITS REPRESENTATIONS, WARRANTIES,
COVENANTS OR OBLIGATIONS IN THIS LEASE, (II) THE OCCURRENCE OF ANY REGULATED
ACTIVITY AT, ON OR UNDER THE PREMISES AT ANY TIME PRIOR TO THE EXPIRATION OF THE
TERM, (III) ANY ENVIRONMENTAL CLAIM WITH RESPECT TO THE PREMISES AGAINST ANY
INDEMNIFIED PARTY OR ANY PERSON WHOSE LIABILITY FOR SUCH ENVIRONMENTAL CLAIM
LANDLORD OR TENANT HAS OR MAY HAVE ASSUMED OR RETAINED EITHER CONTRACTUALLY OR
BY OPERATION OF LAW, (IV) THE RELEASE, THREATENED RELEASE OR PRESENCE OF ANY
HAZARDOUS MATERIALS AT, ON, UNDER OR FROM THE PREMISES, REGARDLESS OF HOW
DISCOVERED BY TENANT, LANDLORD OR ANY THIRD-PARTY, (V) ANY REMEDIAL WORK
REQUIRED TO BE PERFORMED PURSUANT TO ANY ENVIRONMENTAL LAW OR THE TERMS HEREOF
WITH RESPECT TO MATTERS ARISING OR OCCURRING PRIOR TO THE EXPIRATION OF THE TERM
OR SURRENDER OF THE PREMISES TO LANDLORD, WHICHEVER IS LAST TO OCCUR, OR
(VI) ANY MATTERS ARISING UNDER OR RELATING TO ANY ENVIRONMENTAL LAW AND RELATING
TO THE TENANT OR THE PREMISES.

 

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38.6         Upon Landlord’s request, at any time that Landlord has reasonable
grounds to believe that Hazardous Materials (except to the extent those
substances are permitted to be used by Tenant under Section 38.2 in the ordinary
course of its business and in compliance with all Environmental Laws) are or
have been released, stored or disposed of on or around the Premises during the
Term or that the Premises may be in violation of the Environmental Laws during
the Term, Tenant shall provide, at Tenant’s sole cost and expense, except as
otherwise expressly set forth herein, an inspection or audit of the Premises
prepared by a hydrogeologist or environmental engineer or other appropriate
consultant approved by Landlord and Lender indicating the presence or absence of
the reasonably suspected Hazardous Materials on the Premises or an inspection or
audit of the Premises prepared by an engineering or consulting firm approved by
Landlord and Lender indicating the presence or absence of friable asbestos or
substances containing asbestos on the Premises. In the event that such
inspection or audit determines that no such Hazardous Materials are or have been
released, stored or disposed of on or around the Premises during the Term and
that the Premises is not in violation of the Environmental Laws, the cost and
expense of Tenant’s inspection or audit will be borne solely by Landlord. If
Tenant fails to provide such inspection or audit within thirty (30) days after
such request, Landlord may order the same, and Tenant hereby grants to Landlord
and Lender and their respective employees, contractors and agents access to the
Premises upon reasonable notice and a license to undertake such inspection or
audit. The cost of such inspection or audit, together with interest thereon at
the Lease Default Rate from the date Tenant is provided with written
confirmation of costs incurred by Landlord until actually paid by Tenant, shall
be immediately paid by Tenant on demand.

 

38.7         Without limiting the foregoing, where recommended by any “Phase I”
or “Phase II” assessment of the Premises and where the particular conditions on
the Premises which formed the basis for such recommendation were introduced to
the Premises during the Term and still exist, Tenant shall establish and comply
with an operations and maintenance program relative to the Premises, in form and
substance acceptable to Landlord and Lender, prepared by an environmental
consultant reasonably acceptable to Landlord and Lender, which program shall
address any Hazardous Materials (including, without limitation,
asbestos-containing material or lead based paint) that may now or in the future
be detected on the Premises. Without limiting the generality of the preceding
sentence, Landlord may require (i) periodic notices or reports to Landlord and
Lender in form, substance and at such intervals as Landlord may specify to
address matters raised in a “Phase I” or “Phase II’ assessment, (ii) an
amendment to such operations and maintenance program to address changing
circumstances, laws or other matters, (iii) at Tenant’s sole cost and expense,
supplemental examination of the Premises by consultants reasonably acceptable to
Landlord and Lender to address matters raised in a “Phase I” or “Phase II”
assessment, (iv) access to the Premises upon reasonable notice, by Landlord or
Lender, and their respective agents or servicer, to review and assess the
environmental condition of the Premises and Tenant’s compliance with any
operations and maintenance program, and (v) variation of the operation and
maintenance program in response to the reports provided by any such consultants.

 

38.8         The indemnity obligations of the Tenant and the rights and remedies
of the Landlord under this Section 38 shall survive the expiration or
termination of this Lease for a period of twenty-four (24) months.

 

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39.         Estoppel Certificate. Landlord and Tenant agree to deliver to each
other, from time to time as reasonably requested in writing, and within a
reasonable period of time after receipt of such request, an estoppel
certificate, addressed to such persons as the requesting party may reasonably
request, 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), the dates to which any Base
Rent due hereunder has been paid in advance, if any, and that to the knowledge
of the signer of such certificate, no default hereunder by either Landlord or
Tenant exists hereunder (or specifying each such default to which this signer
may have knowledge), together with such other information as Landlord or Tenant
may reasonably require with respect to the status of this Lease and Tenant’s use
and occupancy of the Premises.

 

40.         Notice of Lease. Upon the request of either party hereto, Landlord
and Tenant agree to execute a short form Notice of Lease or Memorandum of Lease
in recordable form, setting forth information regarding this Lease, including,
without limitation, if available, the dates of commencement and expiration of
the Term, the Renewal Options, Tenant’s Purchase Option and the Right of First
Refusal. All taxes, fees, costs and expenses of recording such Notice of Lease
or Memorandum of Lease shall be paid by Tenant unless otherwise agreed in
writing by Landlord.

 

41.         Miscellaneous.

 

41.1         This Lease shall be governed and construed in accordance with the
Laws of the State.

 

41.2         The headings of the Sections are for convenient reference only, and
are not to be construed as part of this Lease.

 

41.3         The language of this Lease shall be construed according to its
plain meaning, and not strictly for or against Landlord or Tenant; and the
construction of this Lease and of any of its provisions shall be unaffected by
any argument or claim that this Lease has been prepared, wholly or in
substantial part, by or on behalf of Tenant or Landlord.

 

41.4         Landlord and Tenant each warrant and represent to the other, that
each has full right to enter into this Lease and that there are no impediments,
contractual or otherwise, to full performance hereunder.

 

41.5         This Lease shall be binding upon the parties hereto and shall inure
to the benefit of and be binding upon the heirs, executors, administrators,
successors and assigns of Landlord and the successors and assigns of Tenant.

 

41.6         In the event of any suit, action, or other proceeding at law or in
equity, by either party hereto against the other, by reason of any matter
arising out of this Lease, the prevailing party shall recover, not only its
legal costs, but also reasonable attorneys’ fees (to be fixed by the Court) for
the maintenance or defense of said suit, action or other proceeding, as the case
may be.

 

41.7         A waiver by either party of any breach(es) by the other of any one
or more of the covenants, agreements, or conditions of this Lease, shall not bar
the enforcement of any rights or remedies for any subsequent breach of any of
the same or other covenants, agreements, or conditions.

 

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41.8         This Lease and the referenced schedules and exhibits set forth the
entire agreement between the parties hereto and may not be amended, changed or
terminated orally or by any agreement unless such agreement shall be in writing
and signed by Tenant and Landlord and approved in writing by the Lender.
Landlord and Tenant further agree that this Lease shall not be amended and no
amendment shall be effective unless (i) all guarantors of the Tenant’s
obligations under this Lease, remain liable for all of the Tenant’s obligations
under this Lease notwithstanding such amendment, and (ii) Landlord and Tenant
receive written notification from each nationally recognized statistical rating
organization (including, without limitation, S&P and Moody’s, if applicable)
which has issued a rating of any securities issued by the Lender or the Landlord
which is secured by the Premises that such amendment will not result in a
downgrade, withdrawal or qualification of the rating then assigned to such
securities.

 

41.9         If any provision of this Lease or the application thereof to any
persons or circumstances shall to any extent be invalid or unenforceable, the
remainder of this Lease or the application of such provision to persons or
circumstances other than those to which it is held invalid or unenforceable
shall not be affected thereby, and each provision of this Lease shall be valid
and enforceable to the fullest extent permitted by Law.

 

41.10       The submission of this Lease for examination does not constitute a
reservation of or agreement to lease the Premises; and this Lease shall become
effective and binding only upon proper execution and unconditional delivery
thereof by Landlord and Tenant.

 

41.11       When the context in which words are used in this Lease indicates
that such is the intent, words in the singular number shall include the plural
and vice versa, and words in the masculine gender shall include the feminine and
neuter genders and vice versa. Further, references to “person” or “persons” in
this Lease shall mean and include any natural person and any corporation,
partnership, joint venture, limited liability company, trust or other entity
whatsoever.

 

41.12       All references to “business days” contained herein are references to
normal working business days, i.e., Monday through Friday of each calendar week,
exclusive of federal and national bank holidays.

 

41.13       Time is of the essence in the payment and performance of the
obligations of Tenant under this Lease.

 

41.14       In the event that the Landlord hereunder consists of more than one
(1) person, then all obligations of the Landlord hereunder shall be joint and
several obligations of all persons named as Landlord herein. If any such person
directly or indirectly transfers its interest in the Premises, whether by
conveyance of its interest in the Premises, merger or consolidation or by the
transfer of the ownership interest in such Person, such transferee and its
successors and assigns shall be bound by this subparagraph 41.14. All persons
named as Landlord herein shall collectively designate a single person (the
“Designated Person”) to be the person entitled to give notices, waivers and
consents hereunder. If Landlord consists of only one person, such person shall
be the Designated Person. Landlord agrees that Tenant may rely on a waiver,
consent or notice given by such Designated Person as binding on all other
persons named as Landlord herein; provided, that any amendment, change or
termination of this Lease which is permitted under Section 41.8 must be signed
by all persons named as Landlord. The Designated Person shall be the only person
entitled to give notices hereunder by the Landlord, and Tenant may disregard all
communications from any other person named as Landlord herein, except as
provided in the immediately following sentence. The identity of the Designated
Person may be changed from time to time by ten (10) business days’ advance
written notice to the Tenant signed by either the Designated Person or by all
persons named as Landlord herein.

 

45

 

 

41.15       If Landlord shall be in default under any of the provisions of this
Lease, Tenant may, after thirty (30) days written notice to Landlord and failure
of Landlord to cure during said period (or such longer period of time as may
reasonably be necessary, but under no circumstances longer than a total of
ninety (90) days, if the default may not be cured within thirty (30) days but
Landlord has commenced and is diligently pursuing a cure of such default), but
without notice in the event of an emergency, do whatever is necessary to cure
such default as may be appropriate under the circumstances for the account of
and at the expense of Landlord. If an emergency exists, Tenant shall use
reasonable efforts to notify Landlord of the situation by phone or other
available communication before taking any such action to cure such default.

 

41.16       In addition to any statutory lien for rent in Landlord’s favor,
Landlord (the secured party for purposes hereof) shall have and Tenant (the
debtor for purposes hereof) hereby grants to Landlord, a continuing security
interest for all Base Rent, Additional Rent and other sums of money becoming due
hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture,
inventory, accounts, contract rights, chattel paper and other personal property
of Tenant situated on the Premises subject to this Lease and such property shall
not be removed therefrom without the consent of Landlord until all arrearages in
Rent as well as any and all sums of money then due to Landlord hereunder shall
first have been paid and discharged. In the event of a default under this Lease,
Landlord shall have, in addition to any other remedies provided herein or by
law, all rights and remedies under the Uniform Commercial Code, including
without limitation the right to sell the property described in this Section at
public or private sale upon ten (10) days notice to Tenant which notice Tenant
hereby agrees is adequate and reasonable. Tenant hereby agrees to execute such
other instruments necessary or desirable in Landlord's discretion to perfect the
security interest hereby created. Any statutory lien for Rent in not hereby
waived, the express contractual lien herein being granted in addition and
supplementary thereto. Tenant warrants and represents that the collateral
subject to the security interest granted herein is not purchased or used by
Tenant for personal, family or household purposes. Tenant further warrants and
represents that the lien granted herein constitutes a first and superior lien
and the Tenant will not allow the placing of any other lien upon the property
described in this Section without the prior written consent of Landlord.
Notwithstanding anything to the contrary contained herein, Landlord acknowledges
and agrees that Tenant may pledge or encumber its accounts receivable for any
purpose, including but not limited to a pledge or encumbrance to secure a
working capital line of credit from one or more lenders and Lender shall execute
any intercreditor agreement reasonably required by such accounts receivable
lender..

 

46

 

 

41.17       TENANT HEREBY WAIVES ALL ITS RIGHTS UNDER THE TEXAS DECEPTIVE TRADE
PRACTICES-CONSUMER PROTECTION ACT, SECTION 17.41 ET. SEQ. OF THE TEXAS BUSINESS
AND COMMERCE CODE, A LAW THAT GIVES CONSUMERS SPECIAL RIGHTS AND PROTECTIONS.
AFTER CONSULTATION WITH AN ATTORNEY OF TENANT’S OWN SELECTION, TENANT
VOLUNTARILY CONSENTS TO THIS WAIVER.

 

42.         Guaranty of Lease. This Lease and the obligations of Tenant
hereunder shall be guaranteed by M. Craig Kelly (“Guarantor”). Upon the
execution of the Lease, Guarantor shall execute that certain Guaranty of Lease
in the form attached hereto as Exhibit D.

 

47

 

 

IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of the
Date of Lease above written.

 

  LANDLORD:       CHP FRIENDSWOOD SNF, LLC, a
Delaware limited liability company         By: Cornerstone Core Properties REIT,
Inc., a     Maryland corporation   Its: Manager         By: /s/ Kent Eikanas    
Kent Eikanas     President and Chief Operating Officer

 

  TENANT:       MASON FRIENDSWOOD OP, LLC   a Texas limited liability company  
      By: /s/ M. Craig Keely   Name: CEO   Its:  

 

48

 

 

SCHEDULE 1

 

BASE RENT SCHEDULE

 

[tex10-6pg53.jpg]

 

S-1

 

 

EXHIBIT A

 

LEGAL DESCRIPTION OF THE PREMISES

 

[tex10-6pg54.jpg]

 

 

 

 

[tex10-6pg55.jpg]

 

3

 

 

EXHIBIT B

 

PERMITTED ENCUMBRANCES

 

[tex10-6pg56.jpg]

 

 

 

 

[tex10-6pg57.jpg]

 

5

 

 

EXHIBIT C

 

APPROVED MANAGEMENT AGREEMENT

 

[ATTACHED HERETO]

 

 

 

 

EXHIBIT D

 

GUARANTY OF LEASE

 

The following provisions form a part of and constitute the basis for this
Guaranty of Lease (herein referred to as the “Guaranty”):

 

WHEREAS, a certain Lease Agreement dated September ___, 2012 (herein referred to
as the “Lease”) has been executed by and between CHP Friendswood SNF, LLC, as
Landlord (herein referred to as “Landlord”, and Mason Friendswood OP, LLC,
herein referred to as “Tenant”), covering certain Premises located in
Friendswood, County of Galveston, State of Texas, as more particularly described
in the Lease;

 

WHEREAS, as a condition to Landlord's entering into the Lease, Landlord requires
the undersigned to guarantee the full performance of all of the obligations of
Tenant accruing under the Lease;

 

WHEREAS, the undersigned desires to induce Landlord to enter into the Lease with
Tenant;

 

NOW, THEREFORE, in consideration of the execution of the Lease by Landlord, and
other good and valuable consideration, the receipt of which is hereby
acknowledged, the undersigned hereby agrees that:

 

1.          The undersigned unconditionally, absolutely and to the same extent
as if the undersigned had signed the Lease as Tenant, assumes all liabilities,
obligations and duties of Tenant accruing under the Lease, and guarantees to
Landlord and Landlord's successors and assigns the full, prompt and complete
performance of each and all of the terms, covenants, conditions and provisions
of the Lease to be kept and performed by Tenant or Tenant's successors or
assigns, including the payment of all rental and other charges to accrue
thereunder and all damages that may arise as a consequence of the nonperformance
thereof.

 

2.          The liability of the undersigned under this Guaranty shall be
unconditional and primary, and in relation to any right of action which shall
accrue to Landlord under the Lease, Landlord may, at its option, proceed from
time-to-time solely against the undersigned or jointly against the undersigned
and any other person or entity without regard to Tenant's ability to perform and
without first commencing any action, exhausting any remedy, obtaining any
judgment or proceeding in any way against Tenant or any other person or entity;
and suit may be brought and maintained against the undersigned by Landlord to
enforce any liability, duty or obligation guaranteed hereby without joinder of
Tenant or any other person or entity.

 

3.          This Guaranty shall continue during the entire term of the Lease and
any renewals or extensions thereof and thereafter until Tenant and Tenant's
successors or assigns have fully discharged all of their obligations under the
Lease.

 

 

 

 

4.          Until all the covenants and conditions in the Lease to be performed
and observed by Tenant or Tenant's successors or assigns are fully performed and
observed, the undersigned: (a) shall have no right of subrogation or any other
right to enforce any remedy against Tenant or Tenant's successors or assigns by
reason of any payment or performance thereunder by the undersigned, and (b)
subordinates any liability or indebtedness of Tenant or Tenant's successors or
assigns now or hereafter held by the undersigned to all obligations of Tenant or
Tenant's successors or assigns to Landlord under the Lease.

 

5.          The undersigned agrees that, to the extent allowed by law, the
undersigned's obligations under the terms of this Guaranty shall not be
released, diminished, impaired, reduced or affected by any limitation of
liability or recourse under the Lease or by the occurrence of any one or more of
the following events: (a) the taking or accepting of any other security or
guaranty in connection with the Lease; (b) any release, surrender, exchange,
subordination, or loss of any security at any time existing or purported or
believed to exist in connection with the Lease; (c) the death, insolvency,
bankruptcy, disability, dissolution, termination, receivership, reorganization
or lack of corporate, partnership or other power of Tenant, the undersigned, or
any party at any time liable for payment or performance pursuant to the Lease,
whether now existing or hereafter occurring; (d) any assignment or subletting by
Tenant or Tenant's successors or assigns whether or not permitted pursuant to
the terms of the Lease or otherwise approved by Landlord; (e) amendment of the
Lease or any renewal, extension, modification or rearrangement of the terms of
payment or performance pursuant to the Lease either with or without notice to or
consent of the undersigned, or any adjustment, indulgence, forbearance, or
compromise that may be granted or given by Landlord to Tenant, the undersigned
or any other party at any time liable for payment or performance pursuant to the
Lease; (f) any neglect, delay, omission, failure, or refusal of Landlord to take
or prosecute any action for the collection or enforcement of the Lease or to
foreclose or take or prosecute any action in connection with the Lease; (g) any
failure of Landlord to notify the undersigned of any renewal, extension,
rearrangement, modification, assignment of the Lease or subletting of the
Premises or any part thereof, or of the release of or change in any security or
of any other action taken or refrained from being taken by Landlord against
Tenant or of any new agreement between Landlord and Tenant, it being understood
that Landlord shall not be required to give the undersigned any notice of any
kind under any circumstances with respect to or in connection with the Lease;
(h) the unenforceability of all or any part of the Lease against Tenant, it
being agreed that the undersigned shall remain liable hereon regardless of
whether Tenant or any other person be found not liable on the Lease, or any part
thereof, for any reason; or (i) any payment by Tenant to Landlord being held to
constitute a preference under the bankruptcy laws or for any other reason
Landlord being required to refund such payment or pay the amount thereof to
someone else.

 

Anything herein or in the Lease to the contrary notwithstanding, Guarantor
hereby acknowledges and agrees that any security deposit or other credit in
favor of the Tenant may be applied to cure any Tenant default or offset any
damages incurred by Landlord under the Lease, as Landlord determines in its sole
and absolute discretion, and Landlord shall not be obligated to apply any such
deposit or credit to any such default or damages before bringing any action or
pursuing any remedy available to Landlord against Guarantor. Guarantor further
acknowledges that its liability under this Guaranty shall not be affected in any
manner by such deposit or credit, or Landlord’s application thereof.

 

 

 

 

6.          In the event suit or action is brought upon or in connection with
the enforcement of this Guaranty, the undersigned shall pay reasonable
attorneys' fees and all other expenses and court costs incurred by Landlord in
connection therewith.

 

7.          This Guaranty shall be binding upon the heirs, legal
representatives, successors and assigns of the undersigned and shall inure to
the benefit of the heirs, legal representatives, successors and assigns of
Landlord.

 

8.          The undersigned represents that [the undersigned is the owner of a
direct or indirect interest in Tenant and that] the undersigned will receive a
direct or indirect benefit from the Lease.

 

IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the
_________________ day of ______________________________, 2012.

 

  GUARANTOR:       /s/ M. Craig Kelly   M. Craig Kelly