EX-10.77.01

MASTER LEASE
 

 
between
 

NATIONAL HEALTH INVESTORS, INC.,
 
a Maryland corporation
 

“Landlord”
 

and
 

EMERITUS CORPORATION,
 
a Washington corporation

 
“Tenant”
 

The Place at Gilbert, Arizona
The Place at Glendale, Arizona
The Place at Tanque Verde, Arizona
The Place at Tucson, Arizona
The Place at Conway, South Carolina
The Place at Gallatin, Tennessee
The Place at Kingsport, Tennessee
The Place at Tullahoma, Tennessee

 

 
 

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MASTER LEASE
 

THIS MASTER LEASE is executed this 13th day of October, 2009 to become effective
with respect to each Facility as of the date described below, by and between
EMERITUS CORPORATION, a Washington corporation, having its principal office at
3131 Elliott Avenue, Suite 500, Seattle, Washington 98121-1031, as Tenant, and
NATIONAL HEALTH INVESTORS, INC., a Maryland corporation, having its principal
office at 222 Robert Rose Drive, Murfreesboro, Tennessee 37129, as Landlord.
 
R E C I T A L S
 
A.           Landlord is the owner of eight licensed senior living facilities
located in the States of Arizona, South Carolina and Tennessee which have
previously been leased to RGL Development, LLC, a Tennessee limited liability
company (herein the “Prior Operator”) and managed for the Prior Operator by
National HealthCare Corporation (“Prior Manager”).
 
B.           Landlord and Tenant have reached agreement upon the terms of a
lease under which Tenant will lease each of the facilities identified herein
from Landlord.
 
NOW, THEREFORE, in consideration of the foregoing Recitals, the mutual covenants
and agreements contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Landlord and
Tenant agree as follows:
 
ARTICLE 1. DEFINITIONS
 
For all purposes of this Lease, unless otherwise expressly provided in this
Lease or unless the context in which such term is used indicates a contrary
intent, (a) the terms defined in this Article shall have the meanings ascribed
to them in this Article, and the terms defined elsewhere in this Lease shall
have the meanings ascribed to them herein, (b) all accounting terms not
otherwise defined in this Article shall have the meanings ascribed to them in
accordance with generally accepted accounting principles at the time applicable
to the accrual method of accounting, applied on a consistent basis, (c) all
references in this Lease to designated “Articles,” “Sections” and other
subdivisions are to the designated Articles, Sections and other subdivisions of
this Lease, and (d) the words “herein,” “hereof” and “hereunder” and other words
of similar import refer to this Lease as a whole and not to any particular
Article, Section or other subdivision:
 
“AAA” shall have the meaning ascribed to such term in Section 25.16(c).
 
“Accounts” means the Tenant’s accounts receivable (including healthcare
insurance receivables and Medicare/Medicaid or other governmental healthcare
payments) and other rights to payment arising from any Facility now existing or
hereafter arising and whether for the sale or provision of goods or services to
residents or patients, including, but not limited to occupancy charges of all
kinds.
 
“Additional Charges” shall have the meaning ascribed to such term in Section
4.3.
 
“Adjustment Date” shall have the meaning ascribed to such term in Section 4.1.
 

 
 

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“Affiliate” shall mean (a) with respect to Tenant, any corporation, business
trust, association, company, partnership, joint venture, or other entity which,
directly or indirectly, controls, or is controlled by, or is under common
control with, Tenant, and (b) with respect to Landlord, any corporation,
business trust, association, company, partnership, joint venture, or other
entity which, directly or indirectly, controls, or is controlled by, or is under
common control with, Landlord. As used in this definition, “control”, (including
the correlative meanings of the terms “controlled by” and “under common control
with”), as used with respect to any entity, shall mean the possession, directly
or indirectly, of the power to direct or cause the direction of the management
or policies of such entity, through the ownership of voting securities,
partnership interests or other equity interests, or through any other means,
including the right to act as managing member. Notwithstanding anything to the
contrary in this definition, with respect to Tenant and Guarantor, the term
“Affiliate” shall exclude any Person that is an affiliate of Daniel R. Baty and
that but for its relationship with Daniel R. Baty would not otherwise be
considered an Affiliate of Lessee or Guarantor.
 
“Appraiser” shall have the meaning ascribed to such term in Section 25.16(b).
 
“Assignment of Contracts and Operating Leases” means for each Facility the
Assignment and Assumption of Contracts and Operating Leases in the form of
Exhibit A attached hereto and incorporated herein by this reference pursuant to
which (and only if Tenant does not close its purchase option under Section 25.16
hereof) Tenant shall assign all of its right, title and interest in the
Contracts and Operating Leases to Landlord (or to Landlord’s successor in title
to the Facility) effective upon the termination of this Lease.
 
“Assignment of Resident Agreements” means for each Facility the Assignment and
Assumption of Resident Agreements in the form of Exhibit B attached hereto and
incorporated herein by this reference pursuant to which (and only if Tenant does
not close its purchase option under Section 25.16 hereof) Tenant shall assign
all of its right, title and interest in the Resident Agreements to Landlord (or
to Landlord’s successor in title to the Facility) effective upon the termination
of this Lease.
 
“Authority” shall mean the United States, the State, the county, the city or any
other political subdivision in which any portion of the Property is located, and
any other political subdivision, agency, instrumentality, department,
commission, board, court, authority, official, officer, accreditation authority
or any other Person, domestic or foreign, exercising jurisdiction or control
over Landlord, Tenant and/or any portion of the Property.
 
“Award” shall have the meaning ascribed to such term in Section 16.1(c).
 
“Base Rent” shall mean the monthly installments of Base Rent payable under this
Lease in the amounts set forth in Section 4.1.
 
“Bill of Sale” means for each Facility the instrument in the form of Exhibit C
attached hereto and incorporated herein by this reference, pursuant to which
(and only if Tenant does not close its purchase option under Section 25.16
hereof) Tenant will convey to Landlord, (or to Landlord’s successor in title to
the Facility), effective upon the termination of this Lease, all of
 

 
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Tenant’s right, title and interest in the Personal Property, Tenant’s Property
Inventory and Records.
 
“Cap Ex Account” shall have the meaning ascribed to such term in Section 7.2.
 
“Capital Additions” shall mean (a) a material expansion of any Facility, (b) the
renovation of any portion of any Facility, or (c) the construction of an
addition to or new wing on, or conversion of, any Facility, in each case, in
order to (i) increase the unit, bed or service capacity, or (ii) improve, add or
change any material services, both medical and non-medical, so as to include
services not previously offered at that Facility, or (iii) subject to the
provisions of Section 8.2(b), change the purpose for which such Facility is
utilized.
 
“Capital Expenditures” shall have the meaning ascribed to such term in Section
7.1.
 
 “Capital Improvement Reserve Agreement” shall mean the agreement between
Landlord and Tenant as to each Facility in the form attached as Exhibit F under
which Tenant shall from time to time deposit funds for future use to pay for
Capital Improvements.
 
“Closing Date” shall have the meaning ascribed to such term in Section 25.16(a).
 
“Commencement Date” shall mean the earlier of (i) the date Tenant receives for
such Facility the Licenses required by the State for Tenant to operate such
Facility for its Permitted Use or (ii) the date on which Tenant is authorized to
operate a Facility under the terms of the Interim Operating Agreements, as
further described in Section 3.1.
 
“Condemnation” shall have the meaning ascribed to such term in Section 16.1(a).
 
“Condemnor” shall have the meaning ascribed to such term in Section 16.1(d).
 
“Contracts” means collectively those agreements (other than the Operating Leases
and Operating Permits) under which Tenant conducts the business of each
Facility.
 
“Date of Taking” shall have the meaning ascribed to such term in Section
16.1(b).
 
“Encumbrance” shall have the meaning ascribed to such term in Article 23.
 
“Event of Default” shall have the meaning ascribed to such term in Section 17.1
and elsewhere throughout this Lease.
 
“Extended Term” shall mean the First Extended Term and the Second Extended Term.
 
“Facilities” shall mean the eight senior living facilities (each a “Facility”)
listed on the attached Schedule I to include all land, improvements (whether now
existing or made during the term of the Lease), FFF&E, other personal property
and intangibles located at and used in the operation of any Facility.
 
“Facility Commencement Date” shall mean as to each Facility the earlier of (i)
the date Tenant receives for such  Facility the Licenses required by the State
for Tenant to operate such Facility
 

 
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for its Permitted Use or (ii) the date on which Tenant is authorized to operate
a Facility under the terms of the Interim Operating Agreements.
 
“Facility Mortgage” shall have the meaning ascribed to such term in Section
14.1.
 
“FFF&E” shall mean all furniture, furnishings, fixtures, vehicles, equipment
(including non-movable medical equipment), machinery and other items of
property, including all components thereof, now and hereafter located in, on or
used or incorporated into any Facility, including, without limitation, any and
all furnaces, boilers, heaters, electrical equipment, heating, plumbing,
lighting, ventilating, refrigerating, incineration, air and water pollution
control, waste disposal, air-cooling and air conditioning systems, equipment and
apparatus, sprinkler systems and fire and theft protection equipment, built-in
oxygen and vacuum systems, wiring, tubing, central clock systems, elevators,
dumb waiters, intercom systems, nurse call systems, affixed cabinetry and
counters, pneumatic tube systems, vacuum cleaning systems, conveyor systems,
paging systems, mill work, x-ray protection, pass-through boxes, exhaust
systems, laboratory plumbing and piping, medical gas systems, nurse station
counters, emergency generators and similar items incorporated into and made a
part of any Facility, together with all replacements, modifications, alterations
and additions thereto. FFF&E shall not be deemed to include Tenant’s Excluded
Property.
 
“Fair Market Value” shall have the meaning ascribed to such term in Section
25.16(b).
 
“First Extended Term” shall mean a period of five (5) years commencing upon the
expiration of the Initial Term.
 
“Fiscal Year” shall mean Tenant’s Fiscal Year, which now ends December 31 in
each calendar year, with the new Fiscal Year beginning on the following January
1. For purposes of this Lease, the partial Fiscal Year between the Commencement
Date and January 1 of the next Fiscal Year shall constitute a separate Fiscal
Year. If Tenant changes its Fiscal Year at any time during the Term, Tenant
shall promptly give Landlord Notice specifying such change. If any such change
is made, all reporting and accounting procedures set forth in this Lease shall
continue to be made in accordance with generally accepted accounting principles,
consistently applied. Any appropriate adjustments to such procedures as a result
of such change shall be made upon the reasonable mutual consent of Landlord and
Tenant. No such change or adjustment shall alter the Term, and Tenant shall bear
any accounting costs reasonably incurred by Landlord as a result of any such
change or adjustment.
 
“Guarantor” shall mean, if applicable, Emeritus Corporation.
 
“Hazardous Substances” shall mean any hazardous or toxic substances, materials
or wastes listed in the United States Department of Transportation Table (49 CFR
172.101) or by the Environmental Protection Agency as hazardous substances (40
CFR Part 302) and amendments thereto, or such substances, materials and wastes
which are or become regulated under any applicable local, state or federal law,
including any materials, wastes or substances which are (a) hydrocarbons,
petroleum and petroleum products, (b) asbestos, (c) polychlorinated biphenyls,
(d) formaldehyde, (e) radioactive substances, (f) flammables and explosives,
(g) described as a “hazardous substance” pursuant to Section 311 of the Clean
Water Act, 33 U.S.C. Section 1251
 

 
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et seq., 33 U.S.C. Section 1321 or listed pursuant to Section 307 of the Clean
Water Act (33 U.S.C. Section 1317), (h) defined as a “hazardous waste” pursuant
to Section 1004 of the Resource Conservation and Recovery Act, 42 U.S.C. Section
6901 et sea. (42 U.S.C. Section 6903), or (i) defined as a “hazardous substance”
pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et sea. (42 U.S.C.
Section 9601), as the same may be amended from time to time or toxic mold,
fungi, bacteria or other microorganism or any related etiologic agents or
materials (living or nonliving).
 
“Impositions” shall mean as to each Facility all taxes (including, without
limitation, (a) all real property taxes imposed upon the Land, the Facility or
any of the FFF&E, (b) all other real property taxes and personal property taxes
imposed upon the Property, and (c) all ad valorem, sales, use, single business,
gross receipts, transaction privilege, rent or similar taxes relating to or
imposed upon Tenant, Tenant’s Property or its business conducted upon any
portion of the Land or the Property or from within the Facility), assessments
(including, without limitation, all supplemental real property tax assessments
or assessments for public improvements or benefit, whether or not commenced or
completed prior to the date hereof and whether or not to be completed within the
Term), any other covenants, conditions or restrictions of record with respect to
the Property, water, sewer or other rents and charges, excises, tax levies, fees
(including, without limitation, license, permit, franchise, inspection,
authorization and similar fees and any and all connection charges, guaranteed
revenues, contributions-in-aid of construction or other charges under any
developer agreement or other agreement of record) and all other governmental
charges, in each case whether general or special, ordinary or extraordinary,
foreseen or unforeseen, of every character or nature whatsoever imposed with
respect to or connected with the Property or the business thereon or therein by
Tenant (including all interest and penalties thereon due to any failure or delay
in payment thereof) which at any time prior to, during or with respect to the
Term hereof may be assessed or imposed on or with respect to, or may be a lien
upon (i) Landlord’s interest in the Property, (ii) the Property or any part
thereof or any Rent therefrom or any estate, right, title or interest therein or
(iii) any occupancy, operation, use or possession of, or sales from, or activity
conducted on or in connection with the Property or the leasing or use of the
Property or any part thereof by Tenant. For the purposes of this definition, the
term “real property tax” shall mean for each Facility all taxes which are
imposed, levied or assessed upon or with respect to the Property, the Facility,
the Land, or any portion thereof (including increases in real property taxes
which are caused by reason of any new construction in or to the Property).
Impositions shall not include (1) any tax based on net income (whether
denominated as a franchise, capital stock or other tax) imposed upon Landlord or
any other person, (2) any transfer or net revenue tax imposed upon Landlord or
any other person (including any tax imposed as a result of a transfer, either
partial or total, of Landlord’s interest in the Property or which are added to a
tax or charge hereinbefore included within the definition of real property tax
by reason of such transfer or which are imposed by reason of this transaction,
any modifications hereto, or any transfers hereof) or (3) any tax imposed with
respect to the sale, exchange, mortgage or other disposition by Landlord of any
property (including the Property) or the proceeds thereof, nor any tax,
assessment, tax levy or charge described in the first sentence of this paragraph
which is in effect at any time during the Term hereof to the extent (and for the
period of time) such tax, assessment, tax levy or charge is totally or partially
repealed, unless a tax, assessment, tax levy or charge set forth in clause (1)
or (2) is levied, assessed or imposed expressly in lieu thereof, in which case
the substitute tax, assessment, tax levy or charge shall be deemed to be an
Imposition.
 

 
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“Initial Term” shall mean the period commencing on each Facility Commencement
Date and, unless terminated earlier or extended in accordance with the
provisions of this Lease, expiring on the fifteenth (15th) anniversary of the
last occurring Facility Commencement Date.
 
“Insurance Requirements” shall mean all terms and conditions of any insurance
policy required by this Lease and all requirements of the issuer of any such
insurance policy.
 
“Interim Operating Documents” shall have the meaning ascribed to it in the OTA.
 
“Inventory” means the operating supply of consumable supplies, including food,
drugs, medicines, materials and other supplies used in connection with the
operation of any Facility.
 
“Land” shall mean several parcels of real property described on the attached
Exhibit D, and any other land acquired or leased and made subject to this Lease
in connection with any Facility, and including all appurtenant rights relating
to any such parcel.
 
“Lease” shall mean this document, as the same may be amended from time to time
in accordance herewith.
 
 “Lease Coverage Ratio” means for the Facilities, taken as a whole, the ratio of
the Net Operating Income of the Facilities, taken as a whole, to the aggregate
Base Rent for the period then ending.
 
“Lease Term” or “Term” shall have the meaning ascribed to such term in Article
3.
 
“Lease Year” shall mean each twelve (12) consecutive month period throughout the
Term beginning on the Commencement Date and on the anniversary thereof.
 
“Legal Requirements” shall mean all federal, state, county, municipal and other
governmental statutes, laws, rules, orders, regulations, ordinances, judgments,
common law, decrees and injunctions affecting the Property or the maintenance,
construction, use, alteration, occupancy or operation thereof (including but not
limited to the Permitted Use), whether now or hereafter enacted and in force
(including any of the foregoing which may require repairs, modifications or
alterations in or to the Property), all Licenses, land use entitlements, zoning
and regulations relating thereto, and all covenants, conditions, agreements,
restrictions, obligations and encumbrances contained in any instruments, either
of record or known to Tenant.
 
 “Licenses” shall mean all licenses and permits for any Facility to operate as
an assisted living facility issued by the state agencies having jurisdiction
over the Facility, as applicable, and all other permits (including building
permits), licenses, franchises, certificates (including certificates of
occupancy), certificates of need, letters of non-reviewability, provider
agreements or other governmental approvals and similar authorizations and
entitlements applicable to such Facility or otherwise required under any and all
Legal Requirements to perform any and all of Tenant’s obligations under this
Lease, and to operate such Facility for the Permitted Use(s).
 
“Net Operating Income” means, for the applicable measuring period, the sum of
the revenues and income of Tenant from the operation of the Facilities, less
Tenant’s annual operating expenses for the Facilities, which shall include,
without limitation, a five percent (5%) assumed

 
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management fee, the Targeted Capital Expenditure Amount, property taxes, and
insurance, but excluding, Tenant’s Base Rent liability to Landlord under this
Lease.

“NHI” means National Health Investors, Inc., a Maryland corporation.
 
“Notice” shall mean any notice required under this Lease, all of which shall be
given pursuant to Section 25.8.
 
“Officer’s Certificate” shall mean a certificate of Tenant or Landlord, as
applicable, signed by the chief executive officer, chief financial officer,
chief accounting officer or other duly authorized officer of Tenant or Landlord,
as applicable.
 
“Operating Leases” means collectively those leases of any Personal Property used
by Tenant in connection with the operation of a Facility.
 
“Option Period” shall have the meaning ascribed to such term in Section
25.16(a).
 
“Overage Amount” shall have the meaning ascribed to such term in Section 7.1.
 
“Overdue Rate” shall mean a rate of interest equal, per annum, to the prime rate
of interest published in the Wall Street Journal plus five percent (5%), but in
no event greater than the maximum rate of interest then permitted under
applicable law.
 
“Permitted Encumbrances” shall mean the matters, if any, for each respective
parcel of Land set forth in Exhibit E, attached hereto and incorporated herein
by this reference.
 
“Permitted Use” shall mean the use and operation of any Facility and all parts
thereof as an assisted living facility providing health care oriented
residential accommodations (specifically excluding any use as a condominium,
cooperative or similar arrangement or regime), and, in connection therewith, the
provision of food services, recreational services, rehabilitative and/or health
care and other ancillary services, all in full compliance with all applicable
Legal Requirements.
 
“Personal Property” means all linens, parts, Inventory and other items of
tangible personal property that are owned by Landlord and used for the operation
and/or maintenance of any Facility. Tenant’s Excluded Property shall be excluded
from the definition of “Personal Property.”
 
“Property” shall have the meaning ascribed to such term in Section 2.1.
 
“Purchase Option” shall have the meaning ascribed to such term in Section
25.16(a).
 
“Purchaser” shall have the meaning ascribed to such term in Section 25.16(a).
 
“Quarterly Compliance Certificate” shall have the meaning ascribed to such term
in Section 22.2(b).
 

 
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“Records” means files and records, including correspondence with Residents and
suppliers, books of account, employment records, resident files, records
pertaining to supplies, advertising records, files and literature and other
written materials of Tenant relating to any Facility but specifically excluding
any written materials included in the Tenant’s Excluded Property.
 
“Rent” shall mean the Base Rent and Additional Charges.
 
“Resident Agreements” means collectively all written and oral leases, occupancy
agreements and other agreements granting any resident of any Facility the right
to occupy certain portions of such Facility.
 
“Restoration Costs” shall mean any amount equal to the actual costs which Tenant
is required to incur in connection with: (a) the provisions of Section 10.1
(which relate to obligations of Tenant to make repairs and modifications
necessary to comply with all licensing, safety and other requirements as more
specifically set forth therein); and (b) the provisions of Sections 15.2 and
15.3 (which relate to obligations to make repairs and modifications in the event
of damage or destruction of the Property).
 
“Second Extended Term” shall mean a period of five (5) years commencing upon the
expiration of the First Extended Term.
 
“State” shall mean the respective state in which a specific Facility is located.
 
“Taking” shall mean for any Facility a taking or voluntary conveyance during the
Term hereof of all or any part of the Property, or any interest therein, right
with respect thereto or use thereof, as a result of, incidental to, or in
settlement of any Condemnation or other eminent domain proceedings affecting
such Property, regardless of whether such proceedings shall have actually been
commenced.
 
“Targeted Expenditure Amount” shall have the meaning ascribed to such term in
Section 7.1.
 
“Tenant’s Excluded Property” shall mean (i) the Tenant’s Personal Property, (ii)
Tenant’s proprietary property, including, but not limited to, printed materials
(such as operating manuals, policies, procedures and training manuals), computer
software developed by or for the use of Tenant and/or its Affiliates, and trade
names, logos, trademarks and service marks of Tenant and/or its Affiliates
including, but not limited to, to the name “Emeritus” and any related
trademarks, logos and service marks and (iii) Tenant’s Accounts.
 
“Tenant’s Personal Property” shall mean any items of tangible personal property
(including motor vehicles, if any) which are owned or leased by Tenant and used
in connection with the operation of the Facilities and which were not acquired
to replace the FFF& E or the Personal Property.
 
“Term” shall mean the Initial Term and the Extended Term.
 
“Transfer Date” means with respect to any Facility the date this Lease expires
or is terminated and Landlord (or Landlord’s successors or assigns) becomes
licensed to operate such Facility.
 

 
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“Transferred Tenant’s Personal Property” shall have the meaning set forth in
Section 8.1(b).
 
“Unavoidable Delays” shall mean delays due to strikes, lockouts, inability to
procure materials, power failures, acts of God, governmental restrictions, enemy
action, civil commotion, unavoidable casualty and other causes beyond the
control of the party responsible for performing an obligation hereunder,
provided that lack of funds shall not be deemed a cause beyond the control of
either party hereto.
 
ARTICLE 2. LEASE OF LAND AND FACILITY
 
2.1           Letting. Landlord hereby leases to Tenant, and Tenant hereby
leases from Landlord, subject to the terms, covenants, conditions and provisions
hereinafter set forth, all of Landlord’s right, title and interest in and to all
the Land, the Facilities, the FFF&E, all other Personal Property owned by
Landlord and located at any of the Facilities (collectively, the “Property”)..
 
In addition to leasing the Property to Tenant (subject to and in accordance with
the terms, covenants, conditions and provisions set forth in this Lease),
Landlord hereby also grants Tenant a license to use, and an interest in, any and
all state issued Certificates of Need (a “CON”) with respect to each Facility
for the purpose of causing to be issued in the name of Tenant a license under
the laws of the State to operate each Facility as a licensed senior living
facility.
 
2.2           Warranty by Landlord. Landlord warrants that except for the
Permitted Encumbrances, the Property is free and unencumbered by any lien or
encumbrance arising by, through or under Landlord which lien or encumbrance
would have priority over the leasehold estate granted to Tenant by this Lease.
Tenant accepts the leasehold estate granted by this Lease and agrees to respect
the rights of persons occupying rooms in each Facility under the Resident
Agreements.
 
2.3           AS IS/WHERE IS. Tenant is familiar with each and every aspect of
each Facility, including the condition of the Land and all improvements thereon,
and hereby accepts same on an AS IS/WHERE IS BASIS WITH ALL FAULTS and without
reliance upon any representations or warranties of Landlord of any kind or
nature whatsoever except as set out in Section 2.2 above, whether express or
implied, and subject to all matters of every kind and description including,
without limitation, (a) the existing state of title, including all covenants,
conditions, restrictions, ground leases, easements, Legal Requirements,
mortgages, fixture filings, security agreements, financing statements and other
financing instruments and any and all other matters, including matters known to
Tenant, all matters of record and other matters, and (b) matters which would be
disclosed by an inspection of the Property or by an accurate survey of each
parcel of the Land and (c) all other matters which should reasonably have been
known to Tenant (but excluding any matters created or caused by any acts of
Landlord). Except for matters arising by, through or under Landlord, Tenant
waives any and all claims, demands and cause or causes of action heretofore or
hereafter arising against Landlord with respect to the condition of the Property
or the ability of Tenant to conduct any business from any Facility. WITHOUT
LIMITING THE GENERALITY OF THE FOREGOING,

 
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LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, WITH RESPECT
TO THE PROPERTY AT ANY FACILITY OR ANY PART THEREOF, EITHER AS TO ITS DESIGN,
CONDITION, HABITABILITY, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE OR
PURPOSE (INCLUDING, WITHOUT LIMITATION, THE PERMITTED USES) OR AS TO THE QUALITY
THEREOF OR THE PRESENCE OR ABSENCE OF DEFECTS IN THE MATERIAL OR WORKMANSHIP
THEREIN, LATENT OR PATENT. TENANT ACKNOWLEDGES AND AGREES THAT, AS OF THE
COMMENCEMENT DATE FOR EACH FACILITY, THE PROPERTY AT SUCH FACILITY SHALL BE
CONCLUSIVELY DEEMED TO HAVE BEEN INSPECTED BY TENANT AND SHALL BE CONCLUSIVELY
DEEMED TO BE SATISFACTORY TO IT IN ALL RESPECTS.
 
2.4           Transfer of Business Operations of the Facility.  Landlord makes
no warranty or representation to Tenant, express or implied, and shall be
subject to no liability with respect to the past operation or management of any
Facility, or any part thereof, including, but not limited to, any matter
relating to any of the following:
 
(i)           the availability to Tenant of any licenses or permits needed to
operate such Facility or any part thereof;
 
(ii)           the enforceability of any Resident Agreement with any resident of
such Facility;
 
(iii)           the status of any account of any resident of such Facility
including, but not limited to, the status of any security deposits, trust
accounts, or prepayments for services;
 
(iv)           the availability of service from or the status of any existing
account with other persons, including utility providers, which provide services
necessary or useful to the operation of such Facility as an assisted living
facility;
 
(v)           the status of any health care regulatory issues relating to such
Facility;
 
(vi)           the status of any reports, cost reports or reimbursement issues
relating to such Facility;
 
(vii)           the status of any deficiency reports or certifications relating
to the operation of such Facility; or
 
(viii)           any matter relating to any past or present employee or
independent contractor who worked at such Facility including but not limited to
issues concerning wages, employer contributions and withholdings, employment
benefits, accrued benefits, workmen’s compensation claims or unemployment
insurance contributions or premiums.
 
The validity of this Lease shall not be affected by any claim, demand or cause
of action regarding the past or future operation of any Facility as an assisted
living facility.

 
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Prior to the Commencement Date, Tenant shall have entered into an Operations
Transfer Agreement (the “OTA”) by and among Tenant, Landlord, Prior Operator and
Prior Manager with respect to the transfer of the Facilities to Tenant and with
respect to liabilities arising with respect to the operations of any Facility
prior to the Commencement Date. Tenant agrees that its sole remedies with
respect to matters governed by provisions of the OTA shall be as provided in the
OTA and shall not entitle the Tenant to terminate this Lease, or to offset any
Rent or portion thereof which shall become due under this Lease.
 
ARTICLE 3. TERM OF LEASE
 
3.1           Initial Term of Lease.  The Facilities shall be leased by Landlord
to Tenant for the Initial Term.
 
3.2           Option to Renew Term.  So long as Tenant is not in default under
the terms of this Lease, both at the time of the exercise of this option to
renew and at the expiration of the Initial Term of Lease, Tenant shall have an
option to extend the Term of this Lease for the First Extended Term.  So long as
Tenant is not in default under the terms of this Lease, both at the time of the
exercise of this option to renew and at the expiration of the First Extended
Term of this Lease, Tenant shall have an option to extend the Term of this Lease
for the Second Extended Term. The Extended Term shall be on and subject to the
same terms, covenants and conditions as herein contained.  The option for the
First Extended Term shall be exercised only by written notice from Tenant to
Landlord and given no less than nine (9) months prior to the expiration of the
Initial Term.  The option for the Second Extended Term shall be exercised only
by written notice from Tenant to Landlord and given no less than nine (9) months
prior to the expiration of the First Extended Term.
 
ARTICLE 4. RENT
 
During the Term, Tenant shall pay the Rent, including the Base Rent and all
Additional Charges due hereunder, together with any applicable State sales tax
thereon, to NHI on behalf of Landlord, in lawful money of the United States of
America, in immediately available funds, without right of offset, by wire
transfer in accordance with the following instructions:
 
 
Pinnacle National Bank

 
Nashville, Tennessee

 
ABA #064008637

 
to credit National Heath Investors, Inc.

 
Account #5003254

or to such other account, address, place, or person or entity, or by such other
method of payment, as Landlord may designate from time to time in a Notice. The
Base Rent and Additional Charges shall be paid in accordance with this Article.

4.1           Base Rent. The amounts shown on Schedule II are referred to for
each respective Facility as that Facility’s “Initial Facility Base Rent.”
Commencing on the Commencement Date for a given Facility, Tenant shall pay the
Initial Facility Base Rent for that Facility to Landlord in twelve equal monthly
installments on the 1st day of each

 
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month. Base Rent for each Facility shall increase on each anniversary of such
Facility’s Commencement Date to an amount equal to one hundred three percent
(103%) of the Base Rent for that Facility for the prior year. Base Rent shall be
prorated for any period shorter than the number of days in a whole month.
 
4.2           Base Rent for Extended Term. Base Rent for the Extended Term shall
continue to increase by three percent (3%) per year on the commencement of the
Extended Term and each year thereafter during the Extended Term. Base Rent as so
increased shall be paid in twelve equal monthly installments to Landlord.
 
4.3           Additional Charges/Late Payments. Except for property taxes for
which funds may be escrowed and paid out as described in Section 5.4 hereof,
Tenant shall pay and discharge prior to delinquency all Impositions directly to
the persons to whom such Impositions are owed. Except as otherwise provided in
Section 5.2, if Tenant fails or refuses to pay any Impositions, Tenant shall
promptly pay and discharge every fine, penalty, interest and cost which may
arise or accrue for the non-payment or late payment of such items. The
aforementioned amounts, liabilities, obligations, Impositions, fines, penalties,
interest and costs and any and all other amounts which Tenant may owe to
Landlord or any other party pursuant to the terms of this Lease are referred to
herein as “Additional Charges.” The Additional Charges shall constitute rent
hereunder. Tenant hereby acknowledges that late payment by Tenant to Landlord of
any Rent due under this Lease will cause Landlord to incur costs not
contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Landlord by the
terms of any Encumbrance covering the Property. Accordingly, if any Rent (but as
to Additional Charges, only those which are payable directly to Landlord) shall
not be paid on or before its due date, Tenant shall pay Landlord on demand, as
an Additional Charge, a late charge (to the extent permitted by law) equal to
five percent (5%) of the amount of such Overdue Rent and, in such event, the
parties hereby agree that such late charge will represent a fair and reasonable
estimate of the costs Landlord will incur by reason of the late payment by
Tenant. Tenant acknowledges and agrees that there is a five (5) calendar day
grace period for payment of Base Rent and that if payments are not made on or
before the fifth (5th) day of the month, then the late charge shall be
imposed.  Acceptance of such late charge by Landlord shall in no event
constitute a waiver of Tenant’s default with respect to such overdue amount, nor
prevent Landlord from exercising any other rights and remedies to which it may
be entitled hereunder. If Tenant fails to pay any Rent by the date or within any
applicable grace period, the same shall become due, such Rent shall thereafter
bear interest at the Overdue Rate until paid. Any payment by Tenant of
Additional Charges to Landlord pursuant to any requirement of this Lease shall
relieve Tenant of its obligation to pay such Additional Charges to the entity to
which such payment would otherwise be paid.
 
4.4           Triple Net Lease; No Set-off; Bankruptcy. It is the purpose and
intent of Landlord and Tenant that the Rent shall be absolutely net to Landlord
so that Tenant shall pay or discharge, as additional charges hereunder, any and
all Impositions, charges, costs, interest, reimbursements, liabilities, expenses
and obligations of any nature whatsoever in connection with the ownership,
operation and maintenance of the Property, excepting

 
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only (a) any payments for principal, interest, and premiums under any mortgage,
security agreement, deed of trust or other Encumbrance Landlord may place upon
all or any portion of the Property, and (b) any costs actually incurred by
Landlord for its own benefit with respect to the Property, such as costs for
consultants or advisers retained by Landlord, provided that such costs (i) are
not otherwise payable by Tenant hereunder, and (ii) do not, directly or
indirectly, arise or grow out of or in connection with Tenant’s non-performance
and/or non-compliance with any obligation, covenant, term or provision of this
Lease and (c) those items specifically excluded from the Impositions for which
Tenant is responsible.
 
(a)           No set-off of Rent. Landlord shall receive all Rent (but as to
Additional Charges, only those which are payable directly to Landlord) due
hereunder and Rent shall be due and payable by Tenant in all events, without
notice or demand and without any set-off (except as otherwise specifically
provided in this Lease), counterclaim, abatement, suspension, deduction or
defense whatsoever. In addition to the Rent reserved by this Article, Tenant
shall pay to the parties respectively entitled thereto all Impositions,
insurance premiums (as provided in Article 14), operating charges, maintenance
charges, construction costs and any other charges, costs, interest (except as
set forth in the foregoing paragraph), reimbursements, liabilities (except as
set forth in the foregoing paragraph), expenses and obligations which arise with
respect to the Property or which otherwise may be contemplated under any
provisions of this Lease during the Term hereof. All of such charges, costs,
interest, reimbursements, liabilities, expenses and obligations shall constitute
Additional Charges, and upon the failure of Tenant to pay any such costs,
charges, interest, reimbursements, liabilities, expenses or obligations and if
such failure is not cured within the applicable cure period described in
Section 17.1 hereof, Landlord shall have the rights and remedies provided in
this Lease for the failure of Tenant to pay Rent. It is the intention of the
parties hereto that, except as herein expressly provided, this Lease shall not
be terminable for any reason by Tenant. Any present or future law to the
contrary shall not alter this agreement of the parties.
 
(b)           Bankruptcy. Except for exercising Tenant’s rights and prerogatives
under Section 365(h) of the Bankruptcy Code (as defined below) or other
applicable law, Tenant covenants and agrees that it will remain obligated under
this Lease in accordance with its terms, and that Tenant will not take any
action to terminate, rescind, or avoid this Lease, notwithstanding the
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding-up or other proceeding affecting Landlord or any assignee
of Landlord in any such proceeding and notwithstanding any action with respect
to this Lease which may be taken by any trustee or receiver of Landlord or any
such assignee in any such proceeding or by any court in any such proceeding.
 
(1)      In the event that Tenant shall file a petition, or an order for relief
is entered against the Tenant, under Chapter 7, 9, 11 or 13 of the Bankruptcy
Code 11 U.S.C. § 101 et seq. (the “Bankruptcy Code”), and Tenant or the  trustee
of Tenant shall elect to assume this Lease whether or not for the

 
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purpose of assigning the same, and subject to the applicable provisions of
Section 365 of the Bankruptcy Code such assumption and assignment may only be
made if all of the terms and conditions of subsections (2) and (3) hereof are
satisfied.
 
(2)      No election to assume this Lease shall be effective unless in writing
and addressed to Landlord and unless all of the following conditions have been
satisfied.
 
(A)           The trustee or the debtor-in-possession has cured or has provided
Landlord “adequate assurance” (as defined hereunder) that:
 
(i)           within ten (10) days from the date of such assumption, the trustee
(or debtor-in-possession) will cure all monetary defaults under this Lease; and
 
(ii)           within thirty (30) days from the date of such assumption, the
trustee (or debtor-in possession) will cure all non-monetary defaults under this
Lease (to the extent curable within said thirty (30) day period).
 
(B)           The trustee or the debtor-in-possession has compensated, or has
provided to Landlord adequate assurance that within ten (10) days from the date
of assumption Landlord will be compensated, for any actual pecuniary loss
incurred by Landlord arising from the default of the Tenant, the trustee, or the
debtor-in possession, as recited in Landlord’s written statement of pecuniary
loss sent to the trustee or debtor-in-possession.
 
(C)           The trustee or the debtor-in-possession has provided Landlord with
“adequate assurance” of the future performance of each of Tenant’s obligations
under the Lease with respect to each Facility; provided, however, that:
 
(i)           the trustee or debtor-in-­possession shall also deposit with
Landlord, as security for the timely payment of Rent, an amount equal to three
(3) months of the then current Base Rent; and
 
(ii)           the obligations imposed upon the trustee or debtor-in-possession
shall continue with respect to Tenant after the completion of bankruptcy
Proceedings.
 
(D)           Landlord has determined that the assumption of the Lease will not:
 
(i)           breach any provision in any agreement by which Landlord is bound
relating to the Property or Landlord has

 
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obtained any consents or waivers required to ensure that no such breach occurs;
or
 
(ii)           disrupt, in Landlord’s reasonable judgment, the reputation and
profitability of the Property.
 
(3)      For purposes of this subsection 4.4(b)(2), “adequate assurance” shall
mean:
 
(i)           Landlord shall determine that the trustee or the
debtor-in-possession has and will continue to have sufficient unencumbered
assets (other than by liens in favor of Landlord) after the payment of all
secured obligations and administrative expenses to assure Landlord that the
trustee or debtor-in possession will have sufficient funds to fulfill the
obligations of Tenant under this Lease; and
 
(ii)           an order shall have been entered segregating sufficient cash
payable to Landlord and/or there shall have been granted a valid and perfected
first lien and security interest in property of the Tenant, trustee or
debtor-in-possession, acceptable as to value and kind to Landlord, to secure to
Landlord the obligation of the Trustee or debtor-in-possession to cure the
monetary and/or non-monetary defaults under this Lease within the time periods
set forth above.
 
(3)      If the trustee or debtor-in-possession has assumed the Lease pursuant
to the terms and provisions of subsections (1) and (2) herein, for the purpose
of assigning (or election to assign) the Tenant’s interest under this Lease or
the estate created thereby, to any other person, such interest or estate may be
so assigned only if Landlord shall acknowledge in writing that the intended
assignee has provided “adequate assurance” (which for purposes of this Section
4.4(b)(3) shall have the meaning set forth in this Section 4.4(b)(3)) of future
performance of all of the terms, covenants and conditions of this Lease to be
performed by Tenant. For purposes of this subsection 4.4(b)(3), adequate
assurance of future performance shall mean that Landlord shall have ascertained
that each of the following conditions has been satisfied:
 
(A)           The assignee has submitted a current financial statement audited
by independent certified public accountants of recognized standing in the state
of Washington or any State selected by Tenant and reasonably acceptable to
Landlord which shows a net worth and working capital in amounts determined to be
sufficient by Landlord to assure the future performance by such assignee of the
Tenant’s obligations under this Lease;
 

 
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(B)           Landlord has obtained all consents or waivers from any third
parties required under any lease, mortgage, financing arrangement or other
agreement by which Landlord is bound to enable Landlord to permit such
assignment;
 
(C)           The assignee has deposited six months of Base Rent as an adequate
security deposit with Landlord; and
 
(D)           The assignee has demonstrated to the reasonable satisfaction of
Landlord that its intended use of the Property is consistent with the terms of
this Lease and will not diminish the reputation of the Facility.
 
(4)      When, pursuant to the Bankruptcy Code, the trustee or
debtor-in-possession shall be obligated to pay reasonable use and occupancy
charges for the use of the Property or any portion thereof, such charges shall
not be less than the then current Base Rent and any Additional Charges which may
become due and other monetary obligations of Tenant.
 
(5)      Neither Tenant’s interest in the Lease, nor any lesser interest of
Tenant herein, nor any estate of Tenant hereby created, shall pass to any
trustee, receiver, assignee for the benefit of creditors, or any other person or
entity, or otherwise by operation of law under the laws of any state having
jurisdiction of the person or property of the Tenant (“state law”) unless
Landlord shall consent to such transfer in writing. No acceptance by Landlord of
Rent or any other payments from any such trustee, receiver, assignee, person or
other entity shall be deemed to have waived, nor shall it waive the need to
obtain Landlord’s consent or Landlord’s right to terminate this Lease for any
transfer of Tenant’s interest under this Lease without such consent.
 
(6)      Any person or entity to which this Lease is assigned pursuant to the
provisions of the Bankruptcy Code shall be deemed without further act or deed to
have assumed all of the obligations arising under this Lease relating to the
Facility on or after the date of such assignment. Any such assignee shall, upon
demand, execute and deliver to Landlord an instrument confirming such
assumption.
 
ARTICLE 5 – IMPOSITIONS
 
5.1           Payment of Impositions. Subject to Tenant’s rights of contest
pursuant to the provisions of Article 13, Tenant shall pay, or cause to be paid,
all Impositions due or becoming due from and after the Commencement Date as and
when such Impositions become due and payable and directly to the parties to whom
such Impositions are payable prior to the date on which any fine, penalty,
interest or cost may be added for non-payment; provided, however, Tenant shall
not be in breach of its obligations under this Section 5.1 in the event of a
breach by Landlord of its obligations under Section 5.2. Upon request by
Landlord, Tenant shall furnish to Landlord prior to the date on which
 

 
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any such fine, penalty, interest or cost may be added for non-payment, copies of
receipts or other reasonably satisfactory evidence of such payments. Such
payments shall be made directly to the authorities levying or to the other
persons entitled to such Impositions, if possible. Tenant’s obligation to pay
Impositions shall be deemed absolutely fixed upon the date such Impositions
become due to the authority or person entitled thereto. If any such Imposition
may, at the option of the payor, lawfully be paid in installments (whether or
not interest shall accrue on the unpaid balance of such Imposition), Tenant may
pay the same (and shall pay any accrued interest on the unpaid balance of such
Imposition) in installments, and in such event shall pay such installments
(subject to Tenant’s right of contest pursuant to the provisions of Article 13)
as the same become due and before any fine, penalty, premium, further interest
or cost is added thereto. Impositions for which escrowed funds are held by
Landlord or its lender under Section 5.4 hereof shall be paid as provided in
Section 5.4 and the timely payment by Tenant of any amount to be paid to
Landlord under Section 5.4 shall be deemed to satisfy the Tenant’s obligation to
pay the Imposition for which funds are escrowed.  Landlord shall, at its expense
and to the extent required or permitted by applicable laws and regulations,
prepare and file all returns with respect to Landlord’s net income, gross
receipts, sales, use, single business, transaction privilege, rent, ad valorem
and franchise taxes, and with respect to taxes on Landlord’s capital stock.
Tenant shall, at its expense, and to the extent required or permitted by
applicable laws and regulations, prepare and file all other tax returns and
reports with respect to any Imposition as may be required by governmental
agencies, authorities or other persons entitled to the receipt of the
Impositions. If any refund shall be due from any taxing authority or other
persons entitled to the receipt of the Impositions with respect to any
Imposition paid by Tenant, the same shall be paid over to and retained by Tenant
unless an Event of Default shall have occurred hereunder and be continuing, in
which case such refund shall be paid over to and retained by Landlord. Any such
funds retained by Landlord due to an Event of Default shall be applied as
provided in Article 17. Landlord and Tenant shall, each upon a request by the
other, provide such information as is maintained by the party to whom the
request is made with respect to the Property as may be reasonably necessary to
prepare any required returns or reports. If any governmental agency or authority
classifies any property covered by this Lease as personal property, Tenant shall
file all personal property tax returns in such jurisdictions where it may
legally so file. Landlord, to the extent it possesses the same, and Tenant, to
the extent it possesses the same, will provide to the other party, promptly upon
request, cost and depreciation records reasonably necessary for filing returns
for any property so classified as personal property. If Landlord is legally
required to file any personal property tax returns, Landlord shall provide
Tenant with copies of any assessment notices with respect thereto in sufficient
time for Tenant to file a protest with respect thereto if it so elects pursuant
to Article 13.
 
5.2           Notice of Impositions. Landlord shall give prompt Notice to Tenant
of all Impositions payable by Tenant hereunder of which Landlord at any time has
knowledge. Notwithstanding the foregoing, however, Landlord’s failure to give
any such Notice shall in no way diminish Tenant’s obligations hereunder to pay
such Impositions, but Landlord shall be responsible for any fine, penalty or
interest resulting from its failure to give such Notice and any default by
Tenant hereunder shall be obviated for a reasonable time after Tenant receives
Notice of any Imposition which it is obligated to pay.

 
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5.3           Adjustment of Impositions. Impositions imposed with respect to the
tax period during which the Term commences or expires or terminates shall be
adjusted and prorated between Landlord and Tenant, whether or not such
Imposition is imposed before or after such commencement date or expiration or
termination, so that Tenant is only obligated to pay that portion of such
Imposition(s) pertaining to the tax period within the Term. The obligation of
Tenant to pay its prorated share of Impositions shall survive expiration or
earlier termination of this Lease. Likewise any refund of any Imposition paid
with respect to any tax period within the Term which refund is received by
Landlord during or after the expiration or termination of this Lease shall be
prorated and shared with Tenant.
 
5.4           Escrow for Property Taxes. Upon the written demand of Landlord
with respect to all or any of the Facilities if required by a lender holding a
first mortgage lien on any Facility or from and after a breach by Tenant of its
obligations with respect to the payment of property taxes, which breach is not
cured within ten (10) days after receipt of written notice from Landlord, Tenant
shall make monthly payments to Landlord or Landlord’s lender, if so directed by
Landlord, in escrow on the same day Base Rent is due in the amount of one
twelfth of the annual ad valorem tax.  The monthly tax escrow payment shall be
adjusted from time to time to reflect changes in the Property, changes in the
tax rate or changes in the assessed value of the Land and Facility.  Landlord or
Landlord’s lender, as applicable, shall hold the escrowed tax payments in a
separate account with interest.  Interest earned on the tax escrow shall be
reported as income to Tenant and shall be paid to Tenant annually upon request,
provided that there is no monetary Event of Default then outstanding hereunder.
To the extent that sufficient funds exists in the tax escrow account, Landlord
shall release funds from the tax escrow account to pay to the tax authorities
the installments of tax due on the Property or any part thereof.  If there are
not sufficient funds in the tax escrow account to meet an installment when due,
upon receipt of a written request from Landlord setting forth in reasonable
detail the shortfall amount, the Tenant shall pay to Landlord the shortfall in
order for the full payment then due to be paid.  In the event that Tenant pays
any tax payment to the taxing authority for which funds are held in the tax
escrow account, Landlord shall reimburse Tenant for such payment upon Landlord’s
receipt of proof of full payment to the tax authority.
 
5.5           Utility Charges. Tenant shall pay or cause to be paid all charges
(including any connection charges and deposits) for all utilities, including,
but not limited to, electricity, power, gas, oil and water, used at or for the
Property during the Term.
 
5.6           Insurance Premiums. Upon the written demand of Landlord with
respect to all or any of the Facilities from and after a breach by Tenant of its
obligations with respect to the maintenance of the insurance required by the
terms of this Lease, which breach is not cured within ten (10) days after
receipt of written notice from Landlord, Tenant shall pay or cause to be paid
all premiums for insurance coverage required to be maintained pursuant to
Article 14. Upon the written request of Landlord, if required by a lender
holding a first mortgage on any Facility, Tenant shall make monthly payments in
escrow to Landlord or, if directed by Landlord, to Landlord’s lender, on the
same day Base Rent is due in an amount equal to 1/12 of the annual premiums as
to all or any of the Facilities.

 
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ARTICLE 6 – TERMINATION OR ABATEMENT OF LEASE

 
6.1           No Termination or Abatement.  Tenant, to the fullest extent
permitted by law and unless specifically provided herein, shall remain bound by
this Lease in accordance with its terms in all events. Tenant shall not take any
action without the prior written consent of Landlord to modify, surrender or
terminate this Lease. The obligations of Landlord and Tenant hereunder shall be
separate and independent covenants and agreements, and Rent and all other sums
shall continue to be payable by Tenant hereunder in any event unless (i) the
obligation of Tenant to pay the same abates or terminates pursuant to the
express provisions of this Lease (other than by reason of an Event of Default by
Tenant) or (ii) Rent and such other sums abate as provided in Section 6.2.
Without limiting the generality of the immediately preceding sentence Tenant
shall not seek or be entitled to any abatement (other than as provided in
Section 6.2 or as otherwise specifically provided by this Lease), deduction,
deferment or reduction of Rent, or set-off against Rent, nor shall the
respective obligations of Landlord and Tenant be otherwise affected by reason of
(a) any damage to, or destruction of, all or any portion of the Property from
whatever cause or any Taking of all or any portion of the Property; (b) the
lawful or unlawful prohibition of, or restriction upon, Tenant’s use of all or
any portion of the Property or the interference with such use or with Tenant’s
quiet enjoyment of the Property by any person or entity; (c) the eviction of
Tenant from the Property or any portion thereof by any person whose rights or
interest arise other than by, through or under Landlord, whether by paramount
title or otherwise; (d) any claim which Tenant has or may have against Landlord
by reason of any default or breach of any warranty by Landlord under this Lease
or any other agreement between Landlord and Tenant or to which Landlord and
Tenant are parties; (e) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceeding affecting
Landlord or any assignee or transferee of Landlord; or (f) any other cause,
whether similar or dissimilar to any of the foregoing. Tenant hereby
specifically waives all rights, arising from any occurrence whatsoever, which
(i) may now or hereafter be conferred upon it by law or otherwise to modify,
surrender or terminate this Lease or quit or surrender all or any portion of the
Property or (ii) entitle Tenant to any abatement, reduction, suspension or
deferment of Rent or other sums payable by Tenant hereunder except to the extent
expressly provided in Section 6.2 or as otherwise specifically provided by this
Lease.
 
6.2           Limited Abatement. In the event of any damage or destruction or
Condemnation of any Facility as contemplated in Article 15 and Article 16,
respectively, the Base Rent for that Facility shall be abated solely to the
extent that Landlord actually receives proceeds of insurance under the insurance
policy described in Section 14.1(d) or an Award and the amount so abated shall
be lesser of the amount of such proceeds or Award and the Base Rent for that
Facility otherwise due under this Lease. In no other event shall the Rent
hereunder abate in any manner whatsoever prior to the termination of this Lease
in accordance with its terms, except as otherwise specifically provided by this
Lease.
 
ARTICLE 7 – FFF&E AND OTHER CAPITAL IMPROVEMENTS
 
7.1           Minimum Capital Expenditures.

 
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(a)           Tenant agrees that during each calendar year commencing as of
January 1, 2010 and continuing throughout the remainder of the Term, it will
incur expenditures at the Facilities, taken as a whole, which are accounted for
as capitalized expenditures under generally accepted accounting principles
(“Capital Expenditures”) in an amount equal to the sum of (i) the amount shown
below (the “Targeted Expenditure Amount”) less (ii) the Aggregate Overage Amount
(as hereinafter defined):
 
First five years of Initial
Term:                                                                $350.00/unit/year
 
Second five years of Initial
Term:                                                                           $450.00/unit/year
 
Last five years of Initial Term and
  Each year of each Extended
Term:                                                                           $550.00/unit/year

For purposes hereof, the “Aggregate Overage Amount” means any amounts expended
by Tenant on the Capital Expenditures at the Facilities in the two (2)
immediately preceding Lease Years in excess of the Targeted Expenditure Amount
for the corresponding Lease Years. With respect to the final Lease Year or the
Lease Year during which this Lease expires or is terminated (other than as a
result of the purchase of the Facilities by Tenant pursuant to the Purchase
Option in Section 15.16 hereof), Tenant shall pay to Landlord any shortage in
required Capital Expenditures (taking into account any then unapplied Overage
Amount).
 
(b)           Tenant also agrees that during each rolling twenty four (24) month
period commencing as of January 1, 2010 and continuing throughout the remainder
of the Term, it will incur at each Facility expenditures which are accounted for
as capitalized expenditures under generally accepted accounting principles
(“Capital Expenditures”) in an amount equal to (i) the Targeted Expenditure
Amount less (ii) the Facility Overage Amount, if any (as defined below).
 
For purposes of this Section 7.1(b), the “Facility Overage Amount” means any
amounts expended by Tenant on Capital Expenditures at the Facility in question
in the two (2) immediately preceding Lease Years in excess of the Targeted
Expenditure Amount for that Facility for the corresponding Lease Years.
 
This Article 7 shall survive the termination of this Lease.
 
7.2           Capital Improvement Reserve. If the report furnished to Landlord
under Section 22.2(d) shows that Tenant failed during the applicable period to
make the required Capital Expenditures with respect to the Facilities taken as a
whole (after taking into account any Aggregate Overage Amount) or any one or
more Facilities (after taking into account any Facility Overage Amount with
respect to the (those) same Facility(ies,), Tenant shall at such time fund an
account therefor with Landlord under the control of Landlord (the “Cap Ex
Account”) in the amount of such shortfall. Provided that no uncured monetary
Event of Default exists, Tenant shall have the right during the Term to request
withdrawals from the Cap Ex Account from time to time solely for the purpose of
 

 
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seeking reimbursement for the cost of Tenant’s replacing, restoring and
repairing the Property at that Facility or, if the cost of such item exceeds
$25,000, making payment directly to the contractor or material supplier. The
mere use of the funds in the Cap Ex Account shall not be evidence of Tenant’s
compliance with its obligations under Section 7.1.  To the extent not otherwise
specifically provided for in this Section 7.2, the Cap Ex Account shall be
governed by the Capital Improvement Reserve Agreement.
 
7.3           FFF&E Withdrawals. Upon expiration or termination of the Lease or
termination of Tenant’s right to possession of the Facilities (unless Tenant
closes its purchase of the Facilities pursuant to the Purchase Option in Section
25.16 hereof), the funds in the Cap Ex Account shall automatically and
immediately become the property of Landlord, and Tenant shall not thereafter be
permitted to make any further withdrawals from the Cap Ex Account.
 
7.4           Alterations.  Tenant may not make any material structural
alteration to any of the Facilities, including any Capital Additions, without
the prior written consent of Landlord, which consent shall not be unreasonably
withheld if the cost thereof is intended to be included in the Capital
Expenditures required under Section 7.1. For the avoidance of doubt, routine
landscaping, painting, floor and wallcovering replacements shall not be deemed
to be alterations within the meaning of this.
 
ARTICLE 8 – OWNERSHIP AND USE OF PROPERTY
 
8.1           Ownership of the Property. The Property is, and throughout the
Term shall continue to be, the property of Landlord. Tenant has only the right
to the exclusive possession and use of the Property, upon the terms and subject
to the conditions set forth in this Lease. Unless Tenant purchases the Land and
each Facility pursuant to the Purchase Option set forth in Section 25.16 of this
Lease, at the expiration or termination of this Lease, the following provisions
shall apply:
 
(a)           Tenant shall, for no additional consideration, sell, transfer and
convey to Landlord or Landlord’s designee, the Inventory owned by Tenant as of
the termination date and located at each respective Facility.
 
(b)           Tenant shall, for no additional consideration, sell, transfer and
convey to Landlord or Landlord’s designee, any Tenant’s Personal Property
located on or about each respective Facility. Notwithstanding the foregoing, in
the event that any items of Tenant’s Personal Property have a net book value on
Tenant’s records in excess of Five Thousand Dollars ($5,000.00), individually,
or Fifteen Thousand Dollars ($15,000.00) in the aggregate with respect to the
Tenant’s Personal Property at any Facility, regardless of the net book value of
each individual item of such Tenant’s Personal Property, Landlord shall be
required to compensate Tenant for  any of such Tenant’s Personal Property which
Landlord elects to acquire at the then net book value thereof. Any of the
Tenant’s Personal Property conveyed to Landlord or Landlord’s designee pursuant
to this Section 8.1(b) shall be referred to as the “Transferred Tenant’s
Personal Property.”
 

 
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(c)           Tenant shall transfer and convey the Records to Landlord or
Landlord’s designee.
 
(d)           Tenant shall execute a Bill of Sale in favor of Landlord in the
form of Exhibit C with respect to the assets being conveyed to Landlord or
Landlord’s designee pursuant to this Section 8.1.
 
(e)           Except as otherwise specifically set forth in this Section 8.1,
Landlord shall not succeed to the ownership of Tenant’s Excluded Property at the
end of the term of the Lease.
 
8.2           Use of the Facilities and Land.
 
(a)           Tenant will be responsible for acquiring at Tenant’s cost and
expense any and all Licenses necessary for its use and operation of the Property
in full force and effect during the Term, and will keep and maintain such
Licenses as are, from time to time, required for the uses conducted by Tenant on
the Property, in accordance with all Legal Requirements.
 
(b)           Throughout the entire Term and subject to Tenant’s due contest
right as set forth in Article 13, Tenant shall use each Facility solely in
accordance with its Permitted Use(s) in full compliance with all applicable
Legal Requirements and all other terms, covenants, provisions and conditions of
this Lease. Tenant shall not permit or consent to the cancellation, lapse or
amendment of any license or permit required to operate any Facility for its
Permitted Use other than amendments arising from changes in applicable law
affecting all similarly situated facilities or amendments arising from new or
additional uses of the Property as long as such uses are consistent with the
Permitted Use and, if required by the terms of this Lease, have otherwise been
approved by Landlord.  Tenant may not use any Facility to provide services
beyond the Permitted Use without the prior written consent of Landlord.
 
(c)           Tenant shall not commit or suffer to be committed any waste nor
shall Tenant cause or permit any nuisance on the Property.
 
(d)           Tenant shall neither suffer nor permit all or any portion of the
Property, including any Capital Addition, whether or not financed or paid for by
Landlord, to be used in such a manner as (i) may impair the Landlord’s title to
the Property or to any portion thereof or (ii) may make possible a claim or
claims of adverse use, adverse possession or implied dedication of all or any
portion of the Property to the public.
 
8.3           Continuous Operations.  Tenant shall maintain continuous
operations at each Facility in accordance with the provisions of this Lease and
shall not cease such operations other than a temporary cessation during any
period of repair or reconstruction required as a result of damage to or
destruction or Condemnation of any of the Property.  Tenant shall not
voluntarily reduce the number of units, beds or residents for which any Facility
has licenses to operate and, Tenant shall not close any units or beds in any

 
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Facility, without the prior written consent of Landlord.  Notwithstanding the
foregoing, Tenant shall have the right, without the consent of Landlord, to
combine units at any of the Facilities at the request of a resident or to
provide for their use by multiple residents as long as doing so does not reduce
the licensed capacity of the affected Facility.
 
8.4           Hazardous Substances.
 
(a)           Tenant will keep all Facilities free and clear of all Hazardous
Substances other than those Hazardous Substances which are required for the
operation of any Facility (which Hazardous Substances shall be handled, used and
disposed of in strict compliance with the Legal Requirements and Insurance
Requirements) and Tenant shall pay all costs required to properly use, handle
and dispose of all Hazardous Substances introduced by Tenant or its Agents (as
defined below) or otherwise first arising on the Property after the Commencement
Date as and when due and Tenant will keep the Property free and clear of any
lien relating to Hazardous Substances first arising on the Property after the
Commencement Date which may be imposed pursuant to the Legal Requirements and
imposed as a result of the presence of such Hazardous Substance at any Facility.
For the purposes of this Article, the term “Property” shall also include, in
addition to the items specified in Section 2.1, all air, soil, groundwater,
surface water or soils vapor at, on, about, under or within any portion of the
Land. All operations or activities upon, or any use or occupancy of the
Property, or any portion thereof, by Tenant, or any agent, contractor or
employee, or subtenant of Tenant (any of the foregoing being defined herein as
Tenant’s “Agent”) shall at all times during the Term be in all respects in
strict compliance with any and all Legal Requirements relating to Hazardous
Substances, including, but not limited to, the discharge and removal of
Hazardous Substances. Tenant will not, nor will Tenant permit, any agent,
contractor or employee of subtenant of Tenant, to allow the manufacture,
storage, voluntary transmission or presence of any Hazardous Substances over or
upon the Property or any portion thereof (except in strict compliance with the
Legal Requirements). Landlord shall have the right at any time to conduct, at
its cost, an environmental audit of the Property or any portion thereof and
Tenant shall cooperate in the conduct of such environmental audit. Furthermore,
neither Tenant will, nor will Tenant permit any Agent to, install or permit to
be installed (except in strict compliance with applicable Legal Requirements),
in or on the Property or any portion thereof friable asbestos or any substance
containing asbestos or similarly deemed hazardous by governmental authorities or
the Legal Requirements respecting such materials. Tenant shall promptly notify
Landlord in writing of any order, receipt of any notice of violation or
noncompliance with any applicable law, rule, regulation, standard or order, any
threatened or pending action by any regulatory agency or other governmental
authority, or any claims made by any third party, in each case  relating to
Hazardous Substances on, emanations of Hazardous Substances on or from, releases
of Hazardous Substances on or from, or threats of releases on or from any of the
Property; and shall promptly furnish the Landlord with copies of any
correspondence, notices, or legal pleadings in connection therewith. Landlord
shall have the right, but shall not be obligated, to notify any governmental

 
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authority of any state of facts which may come to its attention with respect to
Hazardous Substances on, released from or emanating from any part of the
Property which Landlord reasonably believes may cause harm to any persons or
property.
 
(b)           Without limiting Section 20.1, Tenant agrees to indemnify,
protect, defend (with counsel reasonably approved by Landlord) and hold
Landlord, and the directors, officers, shareholders, employees and agents of
Landlord, harmless from any claims (including, without limitation, third party
claims for personal injury or real or personal property damage, or natural
resources damage), actions, administrative proceedings (including informal
proceedings), judgments, damages, punitive damages, penalties, fines, costs,
liabilities (including sums paid in settlements of claims), interest or losses,
including reasonable attorneys’ and paralegals, fees and expenses (including any
such fees and expenses incurred in enforcing the covenants and obligations of
Tenant under this Lease or collecting any sums due hereunder), consultant fees,
and expert fees, together with all other costs and expenses of any kind or
nature that arise directly or indirectly from or in connection with the
presence, suspected presence, release or threatened release of any Hazardous
Substance in or into or at, on, about, under or within the Property, or any
portion thereof, as a result of the acts or omissions of Tenant or its Agents
during the Term of this Lease (collectively, the “Costs”). The indemnification
provided in this subsection (b) shall specifically apply to and include claims
or actions brought by or on behalf of employees of Tenant, or contractors, or
employees of contractors of Tenant and Tenant hereby expressly waives any
immunity to which Tenant may otherwise be entitled under any industrial or
worker’s compensation laws. In the event Landlord shall suffer or incur any such
Costs, Tenant shall pay to Landlord the total of all such Costs suffered or
incurred by Landlord upon demand therefor by Landlord. Without limiting the
generality of the foregoing, the indemnification provided by this subsection (b)
shall specifically cover Costs, including capital, operating and maintenance
costs, incurred in connection with any investigation or monitoring of site
conditions, any clean-up, containment, remedial, removal or restoration work
required or performed by any Federal, state or local governmental agency or
political subdivision or performed by any non-governmental entity or person
because of the presence, suspected presence, release or suspected release of any
Hazardous Substance in or into the air, soil, groundwater, surface water or soil
vapor at, on, about, under or within the Property (or any portion thereof), and
any claims of third parties for loss or damage due to such Hazardous Substance.
In addition, the indemnification provided by this subsection (b) shall include,
without limitation, all loss or damage sustained by Landlord or any third party
due to any Hazardous Substance that migrates, flows, percolates, diffuses or in
any way moves onto, into or under the air, soil, groundwater, surface water or
soil vapor at, on, about, under or within the Property (or any portion thereof);
provided, however, that the indemnification obligation above shall apply solely
to the extent that such loss or damage is attributable to the acts or omissions
of Tenant or its Agents during the Term of this Lease and shall not apply to the
extent such loss or damage is attributable to the gross negligence or willful
misconduct of Landlord.

 
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(c)           In the event any investigation or monitoring of site conditions or
any clean-up, containment, restoration, removal or other remedial work is
required under any applicable Legal Requirement, any judicial order, or any
order of any governmental entity, or in order to comply with any agreements
affecting all or any portion of the Property because of, or in connection with,
any occurrence or event described in subsection (b) above (collectively, the
“Remedial Work”), Tenant shall perform or cause to be performed the Remedial
Work in compliance with such law, regulation, order or agreement and subject to
the final review and approval of Landlord for compliance with Legal
Requirements; provided, that Tenant may withhold such compliance pursuant to a
good faith dispute regarding the application, interpretation or validity of the
law, regulation, order, or agreement, subject to the requirements of subsection
(d) below; provided, however, that Landlord shall reasonably cooperate with
Tenant to the extent necessary to deliver such authorization as may be required
in order for Tenant to perform its obligations under this subsection (c). All
Remedial Work shall be performed by one or more contractors, selected by Tenant
and approved in advance in writing by Landlord in its reasonable discretion, and
under the supervision of a consulting engineer, selected by Tenant and approved
in advance in writing by Landlord in its reasonable discretion. All reasonable
costs and expenses of such Remedial Work shall be paid by Tenant, including,
without limitation, the reasonable charges of such contractor(s) and/or the
consulting engineer and reasonable costs incurred by Landlord “in house”, (such
as photocopying charges and travel costs for Landlord’s employees) in connection
with monitoring or review of such Remedial Work. In the event Tenant shall fail
timely to commence, or cause to be commenced, or fail diligently to prosecute,
or cause to be prosecuted, to completion, or fail to complete, or cause to be
completed, to Landlord’s reasonable satisfaction, such Remedial Work in
compliance with Legal Requirements, Landlord may, but shall not be required, to
cause such Remedial Work to be performed, and all costs and expenses thereof, or
incurred in connection therewith, shall be Costs within the meaning of
subsection (b) above. All such Costs shall be due and payable upon demand
therefor by Landlord. If Tenant fails to perform its obligations hereunder,
Landlord shall be subrogated to any rights Tenant may have under any
indemnifications from any present, future or former owners, tenants or other
occupants or users of the Property (or any portion thereof), relating to the
matters covered by this Section 8.4.
 
(d)           Notwithstanding any provision of this Section 8.4 to the contrary,
but without limiting the provisions of Article 13 or Tenant’s obligations of
protection, defense and indemnification under Section 8.4(b), Tenant will be
permitted to contest or cause to be contested, subject to compliance with the
requirements of this subsection (d) and Article 13, by appropriate action any
Remedial Work requirement, and Landlord shall not perform such requirement on
its behalf, so long as Tenant has given Landlord Notice that Tenant is
contesting or shall contest or cause to be contested the same, and Tenant
actually contests or causes to be contested the application, interpretation or
validity of the governmental law, regulation, order or agreement pertaining to
the Remedial Work by appropriate

 
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proceedings conducted in good faith with due diligence; provided, such contest
shall not subject Landlord to civil liability and does not jeopardize Landlord’s
interest in the Property or affect in any way the payment of any sums to be paid
under this Lease. Tenant shall give such security or assurances as may be
reasonably required by Landlord to insure compliance with the legal requirements
pertaining to the Remedial Work (and payment of all costs, expenses, interest
and penalties in connection therewith) and to prevent any sale, forfeiture or
loss by reason of such nonpayment or noncompliance.
 
(e)           The obligations of Tenant under this Section 8.4 shall survive
expiration or earlier termination of this Lease. Any costs and other payments
required to be paid by Tenant to Landlord under this Section 8.4 which are not
paid within ten (10) days after a written demand therefor, shall thereupon be
considered delinquent. Tenant shall pay to Landlord immediately upon demand
therefor interest on such overdue amounts, from the date when due until paid, at
the Overdue Rate.
 
ARTICLE 9 – LEGAL REQUIREMENTS AND INSURANCE REQUIREMENTS
 
9.1           Compliance with Legal Requirements, Insurance Requirements and
Instruments. Subject to the rights of Tenant as provided in Article 13 relating
to permitted contests, Tenant, at its sole cost and expense, shall promptly (a)
comply with all applicable Legal Requirements and Insurance Requirements with
respect to the use, operation, maintenance, repair and restoration of each
Facility, whether or not compliance therewith shall require the construction of
any additional parking spaces or the structural change in such Facility or
interfere with the use and enjoyment of such Facility, and (b) procure, maintain
and comply with all appropriate Licenses necessary for any use of each Facility
for the Permitted Use(s), and any other use conducted on such Facility by Tenant
and permitted by Landlord hereunder, and for the proper erection, installation,
operation and maintenance of such Facility or any part thereof, including,
without limitation, any Capital Additions. Tenant shall notify Landlord
immediately upon obtaining knowledge of facts which are reasonably likely to
result in an action by any federal, state or local agency (or the staff thereof)
to revoke, withdraw or suspend any License, or an action of any other type,
which would have a materially adverse effect on Tenant’s operations at any
Facility.
 
9.2           Covenants Regarding Legal Requirements. The parties understand and
agree that certain deficiencies or situations of non-compliance with various
Legal Requirements are likely to occur from time to time in the normal course of
business. Such occurrences will not constitute a breach or default by Tenant
under this Lease, provided that (a) they are not materially beyond the general
experience of comparable assisted living operations in the State in terms of
scope, seriousness or frequency, (b) no material, sustained (i.e., more than
three months) decrease in Gross Revenues from any Facility results from any such
occurrence(s), and (c) Tenant diligently takes all reasonable actions in a
timely manner to cure such deficiencies or situations of non-compliance and
effectuates such cure to the extent same can be practicably accomplished.
 

 
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9.3           Landlord’s Cooperation. Landlord shall cooperate, as reasonably
necessary or required, with Tenant in applying for and maintaining all
appropriate Licenses necessary to operate each Facility for the Permitted Use(s)
in accordance with the provisions of this Lease and to otherwise comply with
applicable Legal Requirements, provided that such cooperation is in conformance
with all Legal Requirements. Tenant shall promptly advance to Landlord such
amounts as are reasonably necessary to pay for all costs and expenses incident
to such cooperation. Tenant agrees to indemnify, defend, protect, save and hold
Landlord harmless from and against any and all costs, expenses, losses, demands,
claims, obligations and liabilities against or incurred by Landlord in
connection with such cooperation, except in any cases of fraud,
misrepresentation or intentional non-compliance with Legal Requirements on the
part of Landlord. Such indemnity shall survive the expiration or termination of
this Lease.
 
ARTICLE 10 – CONDITION OF THE PROPERTY
 
10.1           Maintenance and Repair.
 
(a)           Tenant, at its sole cost and expense, shall keep all portions of
the Property and the FFF&E and all private roadways, parking surfaces, sidewalks
and curbs appurtenant thereto in good order, condition and repair.  Except as
may otherwise be expressly provided to the contrary in Article 14, 15, or 16,
Tenant shall with reasonable promptness, at Tenant’s sole cost and expense, make
all necessary and appropriate repairs and replacements thereto of every kind and
nature, whether interior or exterior, structural or nonstructural, ordinary or
extraordinary, patent or latent, foreseen or unforeseen, and regardless of the
cause necessitating repair. Tenant’s duty to maintain the Property and the FFF&E
shall include such actions as are needed in the reasonable judgment of Tenant to
be consistent with standards and practices in the industry to prevent the
deterioration of the Property. Tenant shall also be obligated at its expense to
make all repairs, modifications and renovations necessary to comply with all
licensing, safety and health and building codes and regulations applicable to
any Facility so that such Facility can be legally operated for its Permitted
Use(s). Tenant shall be obligated to repair at Tenant’s sole cost and expense
any damage to any portion of the Land, the improvements thereon and any Facility
caused by cave ins, collapse of sub surface support, subsidence of the surface
of the land, the extraction of minerals from the Land (whether through the
surface of the Land or by mining).  All repairs by Tenant shall be made in a
good and workmanlike manner using materials of good quality. Tenant shall not
take or omit to take any action, the taking or omission of which would
materially impair the value or the usefulness of all or any portion of the
Property and the FFF&E for the Permitted Use(s).
 
(b)           Landlord shall not under any circumstances be required to build or
rebuild any Facility, or to make any repairs, replacements, alterations,
restorations or renewals of any nature or description to the Property, whether
interior or exterior, structural or nonstructural, ordinary or extraordinary,
patent or latent, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto, in connection with this Lease, nor shall Landlord under
any circumstances be

 
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required to maintain the Property or any portion thereof in any way or manner
whatsoever. Tenant hereby waives, to the fullest extent permitted by law, the
right to make repairs at the expense of Landlord pursuant to any law or
equitable principle in effect at the time of the execution of this Lease or
hereafter enacted. Landlord shall have the right to give, record and post, at
any Facility and otherwise, as appropriate, notices of non-responsibility under
any construction or mechanic’s lien laws now or hereafter existing, and any
other notices of a similar nature that Landlord may reasonably elect to give,
record or post from time to time during the Term.  Use of casualty insurance
proceeds held by Landlord shall be handled as provided in Article 15.
 
(c)           Nothing contained in this Lease, and no action or inaction by
Landlord, shall be deemed or construed in any manner as (i) constituting the
consent or request of Landlord, expressed or implied, to any contractor,
subcontractor, laborer, materialman or vendor to or for the performance of any
labor or services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to all or any
portion of the Property or the FFF&E or (ii) giving Tenant any right, power or
permission to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such a manner as would
permit the making of any claim against Landlord or Landlord’s interest in any
portion of the Property or the FFF&E with respect thereto, or to make any
agreement that may create, or in any way may be the basis for the assertion of
any right, title, interest, lien, claim or other encumbrance upon the estate of
Landlord in all or any portion of the Property or the FFF&E.
 
(d)           Upon Landlord’s written request at the expiration of the Term or
earlier termination of this Lease Tenant shall provide to Landlord a list or
schedule by Facility listing the FFF&E which exist at each Facility.
 
(e)           Unless Tenant shall have closed its purchase of the Land and
Facility pursuant to the Purchase Option in Section 25.16 of this Lease, Tenant
shall, upon the expiration or earlier termination of this Lease, vacate and
surrender each Facility and all FFF&E to Landlord in the condition in which such
Facility was originally received from Landlord, except as repaired, rebuilt,
restored, altered or added to as permitted or required by the provisions of this
Lease, and except for casualty, condemnation or ordinary wear and tear (but
subject to the obligation of Tenant under this Section to maintain the Property
in good order, condition and repair during the entire Term of this Lease) and
subject to the provisions of this Lease with respect to casualties, insurance
proceeds and condemnation and containing such Inventory to operate the Facility
in the ordinary course of business for a period of no less than seven (7) days
after the expiration or earlier termination of this Lease.
 
(f)           The maintenance and repair obligations of Tenant under this
Section 10.1 shall survive the expiration or earlier termination of this Lease
as regards any condition requiring repair which existed as of the date of such
expiration or

 
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termination notwithstanding that such condition is not discovered by Landlord
until after the date of such expiration or termination.
 
10.2           Encroachments. If any portion of any Facility at any time during
the Term shall impair the rights of others under any easement or right-of-way
burdening the Land, provided that such restriction or easement does not exist
prior to the Commencement Date and has been created by Tenant without the
consent of Landlord, then promptly upon the request of Landlord, or at the
behest of any person affected by violation or impairment and in such case, in
the event of an adverse final determination, Tenant shall, at Tenant’s sole cost
and expense, but in conjunction with Landlord, obtain valid and effective
waivers or settlements of all claims, liabilities and damages resulting from
each such encroachment, violation or impairment, whether the same shall affect
Landlord or Tenant, subject to Landlord’s consent to all such settlements or
waivers. In any event Tenant shall, subject to Landlord’s consent, take all such
actions as may be necessary in order to be able to continue the operation of
such Facility for the then existing use substantially in the manner and to the
extent the Facility was operated prior to the assertion of such violation or
impairment. Notwithstanding the provisions of this Section 10.2 to the contrary,
Tenant shall not be responsible for any claims to the extent such claims are
covered by Landlord’s or Tenant’s title insurance policy, if any, and Landlord
agrees that any proceeds recovered under any such title insurance policy, if
any, shall be made available to remedy the claimed violation or restriction.
 
ARTICLE 11 – SECURITY FOR PERFORMANCE OF OBLIGATIONS
 
11.1           Security Agreement. Tenant shall execute in favor of Landlord a
security agreement in the form attached as Exhibit G hereto, granting to
Landlord a first priority security interest in all Tenant’s Personal Property,
Accounts, general intangibles, contract rights and healthcare insurance
receivables arising from the operations of each Facility and other interests of
Tenant which security interest shall secure the payment of all Rent and the
performance of all other obligations of the Tenant under this Lease. Tenant
shall cooperate in filing all financing statements needed to perfect such
security interest.
 
11.2           Compliance with Lease Coverage Ratio.  The Tenant will operate
the Facilities and its business during the term of this Lease in order to meet
the following minimum financial standards.  From and after the quarter ending
March 31, 2010, the Facilities, taken as a whole, shall have a Lease Coverage
Ratio of not less than the ratio shown below:
 
Period
 
Minimum Required Ratio
 
1/1/2010 thru 12/31/2010
 
1.0:1.0
1/1/2011 thru 12/31/2014
 
1.15:1.0
1/1/2015 and thereafter
 
1.25:1.0

Compliance with the Lease Coverage Ratio shall be measured quarterly based upon
the trailing twelve (12) month period of operation then ending (or, in the

 
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event the Lease has not been in effect for a twelve (12) month period, then the
numbers available for such shorter period shall be used and shall be
annualized). Notwithstanding the foregoing, Tenant shall not be deemed in
violation of the terms of this Section 11.2 if the Lease Coverage Ratio as at
the end of any quarter on a trailing twelve month basis is less than the amounts
set forth above and Tenant provides to Landlord, within thirty (30) days after
the end of such quarter, additional cash collateral in an amount equal to the
Shortfall Amount for such period.  Thereafter, Tenant and Landlord shall adjust
the amount of such cash collateral so that it equals the Shortfall Amount as at
the end of the then most recently ended fiscal quarter. Landlord shall promptly
release such Shortfall Amount back to Tenant upon receipt of an Officer’s
Certificate which reflects compliance with the covenant set forth above. The
Shortfall Amount is the amount of cash required to cause Tenant to be in
compliance with the Lease Coverage Ratio set forth above. Tenant shall provide
Landlord evidence of compliance with this Section 11.2 and such backup
documentation as required by Landlord within forty-five (45) days of the end of
each calendar quarter of each Fiscal Year of Tenant.
 
11.3           Lease Guaranty. If Emeritus Corporation should assign this Lease
to any Affiliate, the performance of Tenant’s obligations under this Lease shall
be guaranteed by the Guarantor pursuant to a Lease Guaranty in form and
substance acceptable to Landlord.
 
ARTICLE 12 – LIENS
 
12.1           No Liens on Property. Subject to the provisions of Article 13
relating to permitted contests, Tenant shall not directly or indirectly create
or allow to remain and shall promptly discharge at its expense any lien,
encumbrance, attachment, title retention agreement or claim upon any portion of
the Property caused by Tenant or its Agents or on Tenant’s Accounts or any
attachment, levy, claim or encumbrance in respect of Rent, not including,
however, (a) this Lease, (b) Permitted Encumbrances, if any, (c) liens for those
taxes of Landlord which Tenant is not then currently required to pay hereunder,
(d) subleases, if any, permitted by Article 21, (e) liens for Impositions or for
sums resulting from noncompliance with Legal Requirements so long as the same
are not yet payable or are payable without the addition of any fine or penalty
or are in the process of being contested as permitted by Article 13, (f) liens
in favor of Landlord, (g) liens of mechanics, laborers, materialmen, suppliers
or vendors for sums either disputed or not yet due, provided that,
notwithstanding the provisions of Article 13, at Landlord’s request, Tenant
shall remove any such lien from record title to any interest in the Property
(including, without limitation, Tenant’s interest under this Lease), at Tenant’s
sole cost and expense, by depositing with the appropriate public authority a sum
of money, or filing in such forum a bond executed as surety by a surety insurer
licensed to do business in the State, in the amount and in the manner required
by applicable law of the State and otherwise in a manner sufficient to
effectively remove such lien from record title to the Property; provided,
further (i) the payment of such sums shall not be postponed for more than seven
days after the completion of the action giving rise to such lien (but in no
event in excess of any period of redemption) and such reserve or other
appropriate provisions

 
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as shall be required by law or generally accepted accounting principles shall
have been made therefor and/or (ii) any such liens are in the process of being
contested as permitted by Article 13, and (h) any Encumbrances which are the
responsibility of Landlord pursuant to the provisions of Article 23 or which
arise from the acts or omissions of Landlord and/or its officers, agents or
employees.
 
12.2           No Liens on Landlord’s Interest. In no event shall the interest
of Landlord be subject to liens for improvements made by Tenant, whether under
Article 10 or this Article 12.  Tenant shall notify any and all contractors
making any improvements, repairs or additions to any portion of the Property
that any lien to which such contractor may be entitled pursuant to the laws of
the State shall not extend to the interest of Landlord in the Property.
 
ARTICLE 13 – CONTESTS
 
Tenant, on its own or on Landlord’s behalf (or in Landlord’s name), but at
Tenant’s sole cost and expense, may contest, by appropriate legal proceedings
conducted in good faith and with due diligence, the amount, validity or
application, in whole or in part, of any Imposition, Legal Requirement,
Insurance Requirement, lien, attachment, levy, encumbrance, charge or claim not
otherwise permitted by Article 12, provided that (a) in the case of an unpaid
Imposition, lien, attachment, levy, encumbrance, charge or claim, the
commencement and continuation of such proceedings shall suspend the collection
thereof from Landlord or Tenant and from the portion of the Property subject to
such contest, (b) neither such Property nor any Rent therefrom nor any part
thereof nor interest therein would be subject to any risk of being sold,
forfeited, attached, foreclosed, or lost as a result of such non-payment or
non-compliance, (c) in the case of a Legal Requirement, Landlord would not be in
any danger of civil or criminal liability for failure to comply therewith
pending the outcome of such proceedings, (d) in the event that any such contest
shall involve a sum of money or potential loss in excess of $100,000 then, in
any such event, Tenant shall deliver to Landlord an Officer’s Certificate and
opinion of counsel to the effect set forth in clauses (a), (b) and (c), to the
extent applicable, (e) in the case of a Legal Requirement or an Imposition,
lien, encumbrance or charge, Tenant shall give such reasonable security as may
be demanded by Landlord to insure ultimate payment of the same and to prevent
any sale or forfeiture of the affected portion of the Property or the Rent by
reason of such non-payment or non­compliance, including, without limitation, a
guaranty in form and substance acceptable to Landlord and executed by a
guarantor acceptable to Landlord, (f) in the case of an Insurance Requirement,
the coverage required by Article 14 shall be maintained, and (g) if such contest
be finally resolved against Landlord or Tenant, Tenant shall, as Additional
Charges due hereunder, promptly pay the amount required to be paid, together
with all interest and penalties accrued thereon, or comply with the applicable
Legal Requirement or Insurance Requirement. Notwithstanding any express or
implied provision of this Article to the contrary, the provisions of this
Article shall not be construed to permit Tenant to contest the payment of Rent
(except as to contests concerning the method of computation or the basis of levy
of an Imposition) or any other sums payable by Tenant to Landlord hereunder.
Landlord, at Tenant’s expense, shall execute and deliver to Tenant such
authorizations and other documents as may reasonably be required in any such
contest and, if reasonably requested by Tenant or if Landlord so desires,
Landlord shall join as a party therein. Tenant shall indemnify, defend and save
Landlord

 
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harmless against any liability, cost or expense of any kind that may be imposed
upon Landlord in connection with any such contest and any loss resulting
therefrom.
 
ARTICLE 14 – INSURANCE
 
14.1           General Insurance Requirements. During the Term, Tenant shall at
all times keep the Facility, and all property located in or on any Facility,
including all Capital Additions, the FFF&E and the Personal Property, insured
with the kinds and amounts of insurance described below. Each element of the
insurance described in this Article shall be maintained with respect to each
Facility and the Personal Property and operations thereon. This insurance shall
be written by companies authorized to do insurance business in the State in
which each such Facility is located. All liability type policies (except
professional liability and workers compensation) must name Landlord as an
“additional insured.” All property, loss of rental and business interruption
type policies shall name Landlord as “loss payee.” Losses shall be payable to
Landlord and/or Tenant as provided in Article 15. In addition, the policies, as
appropriate, shall name as an “additional insured” or “loss payee” the holder of
any mortgage, deed of trust or other security agreement (“Facility Mortgagee”)
securing any indebtedness or any other Encumbrance placed on any Facility in
accordance with the provisions of Article 23 (“Facility Mortgage”) by way of a
standard form of mortgagee’s loss payable endorsement; provided that Landlord
delivers the name and address and insurance requirements of any such Facility
Mortgagee to Tenant. Any loss adjustment in excess of One Hundred Fifty Thousand
Dollars ($150,000.00) shall require the written consent of Landlord, Tenant and,
if required by the terms of the applicable Facility Mortgage, each Facility
Mortgagee. Evidence of insurance shall be deposited with Landlord and, if
requested, with any Facility Mortgagee(s). The policies shall insure against the
following risks with respect to each Facility:
 
14.1.1           Loss or damage by fire, vandalism and malicious mischief,
extended coverage and other perils commonly known as “all risk or special
perils”, earthquake (including earth movement), sinkhole and windstorm in an
amount not less than the insurable value on a replacement cost basis (as defined
below in Section l4.2) and including a building ordinance or law coverage
endorsement;
 
14.1.2           Loss or damage by mechanical breakdown, electrical injury and
explosion of steam boilers, pressure vessels or similar apparatus, now or
hereafter installed in each Facility, in such limits with respect to any one
accident as may be reasonably requested by Landlord from time to time;
 
14.1.3           Flood (when the improvements comprising a Facility are located
in whole or in part within a designated 100-year flood plain area) and such
other hazards and in such amounts as may be customary for comparable properties
in the area;
 
14.1.4           Loss of rental value in an amount not less than twelve (12)
months’ Rent payable hereunder or business interruption in an amount not less
than twelve (12) months of income and normal operating expenses including
payroll and Rent payable hereunder with an endorsement extending the period of
indemnity by at

 
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least ninety (90) days.  The Increased Period of Restoration shall include any
increase due to the operation of building ordinances or laws to the extent
arising from a covered loss; and
 
14.1.5           Bodily injury or property damage under a policy of commercial
general liability insurance (including broad form property damage and broad form
contractual liability) and (b) medical professional liability, with amounts not
less than Five Million and No/100 Dollars ($5,000,000) per occurrence and Five
Million and No/100 Dollars ($5,000,000) in the annual aggregate (or such lesser
amounts as Landlord may from time to time approve in writing, such approval not
to be unreasonably withheld, delayed or conditioned).  Any combination of
primary or umbrella/excess insurance may be utilized to provide the total
required general liability insurance limits.
 
14.2           Replacement Cost. The term “replacement cost” shall mean the
actual replacement cost of the insured property from time to time with new
materials and workmanship of like kind and quality. If Tenant has made
improvements to the Facility, Landlord may at Tenant’s expense have the
replacement cost redetermined at any time after such improvements are made,
regardless of when the replacement cost was last determined.
 
14.3           Additional Insurance.  In addition to the insurance described
above, Tenant shall maintain the statutory workers’ compensation coverage as
required by the Legal Requirements for all Persons employed by Tenant or any
sublessee in the Facility, or, in the alternative, to the extent permitted by
Legal Requirements.
 
14.4           Waiver of Subrogation. All insurance policies carried by either
party covering the Facility and Tenant’s Personal Property including contents,
fire and casualty insurance, and including all third party liability and workers
compensation insurance to the extent not prohibited by law shall expressly
permit waiver of rights of subrogation against the other party, its officers,
directors, members, agents and employees. Each party hereby waives any claims it
has against the other party, its officers, directors, members, agents and
employees, to the extent such claim is covered or should be covered by the
required insurance, including amounts under deductibles or self-insured
retentions, even if the loss is caused by the sole negligence of such other
party, its officers, directors, and members, agents or employees.
 
14.5           Policy Requirements. All of the policies of insurance referred to
in this Article shall be written in form satisfactory to Landlord and by
insurance companies with a policyholder rating of “A” and a financial rating of
“X” in the most recent version of Best’s Key Rating Guide. Additionally, except
as otherwise provided in this Lease, all of the insurance referred to in this
Article shall be on an occurrence (rather than a claims-made) basis. If Tenant
obtains and maintains the medical professional liability insurance described in
Section 14.1.5 above on a “claims-made” basis, Tenant shall provide continuous
liability coverage for claims arising during the Term either by obtaining an
endorsement providing for an extended reporting period reasonably acceptable to
Landlord in the event such policy is canceled or not renewed for any reason
whatsoever,

 
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or by obtaining either (a) “tail” insurance coverage converting the policies to
“occurrence” basis policies providing coverage for a period of at least two (2)
years beyond the expiration of the Term, or (b) retroactive coverage back to the
commencement date (which date shall be at least three (3) years prior to the
expiration of the Term) for the policy in effect prior to the expiration of the
Term and maintaining such coverage for a period of at least three (3) years
beyond the expiration of the Term. All policies of insurance required herein
shall be endorsed to be primary to all insurance available to Landlord, with
Landlord’s insurance (if any) being excess, secondary and non-contributing.
Tenant shall pay all of the premiums therefor, and deliver certificates thereof
to Landlord prior to their effective date (and with respect to any renewal
policy, shall deliver to Landlord’s reasonable satisfaction, evidence of renewal
at least five (5) days prior to the expiration of the existing policy), and in
the event of the failure of Tenant either to effect such insurance in the names
herein called for or to pay the premiums therefor, or to deliver certificates
thereof to Landlord, at the times required and if Tenant fails to cure such
default within ten (10) days after receipt of written notice from Landlord,
Landlord shall be entitled, but shall have no obligation, to effect such
insurance and pay the premiums therefor, in which event the cost thereof,
together with interest thereon at the Overdue Rate, shall be repayable to
Landlord upon demand therefor. Each insurer shall agree, by endorsement on the
policy or policies issued by it, or by independent instrument furnished to
Landlord, that it will give to Landlord thirty (30) days’ written notice before
the policy or policies in question shall be materially altered, allowed to
expire or canceled or non-renewed. Each policy shall have a deductible or
deductibles, if any, which are no greater than those normally maintained for
similar facilities in the State of similar size, financial condition, resident
mix and number. Each party shall be responsible for funding deductibles or
retentions under its own insurance policies.  Tenant shall be responsible for
funding all claims within self-inured retention, including claims applying to
Landlord as an additional insured
 
14.6.           Blanket Policy.  Notwithstanding anything to the contrary
contained in this Article 14, Tenant’s obligations to carry the insurance
provided for herein may be brought within the coverage of a so-called blanket
policy or policies of insurance carried and maintained by Tenant; provided,
however, that the coverage afforded Landlord will not be reduced or diminished
or otherwise be materially different from that which would exist under a
separate policy meeting all other requirements hereof by reason of the use of
the blanket policy, and provided further that the requirements of this Article
14 (including satisfaction of the Facility Mortgagee’s requirements and the
approval of the Facility Mortgagee, if applicable) are otherwise satisfied, and
provided further that Tenant maintains specific allocations acceptable to
Landlord
 
14.7.           Self Insurance.  Landlord agrees that Tenant shall have the
right to provide any or all of the insurance contemplated by this Article 14
through a captive insurance program maintained by Tenant.  Tenant shall provide
to Landlord when available from time to time and not less frequently than
annually  a copy of the annual financial report of the Tenant’s captive
insurer.  Landlord agrees that all such financial information is confidential
and agrees not to disclose any such information to any third parties without
first obtaining Tenant’s written approval.
 

 
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ARTICLE 15 – INSURANCE PROCEEDS
 
15.1           Handling of Insurance Proceeds. Except as otherwise provided
herein, all proceeds from any policy of property damage insurance required by
Article 14 of this Lease shall be paid to and held in trust by Landlord;
provided, however, that if the originally named Landlord is not then the
Landlord hereunder, such payments shall be paid to and held by a reputable
insurance trustee having substantial experience operating in such capacity,
which trustee shall be mutually acceptable to Landlord and Tenant and shall hold
and disburse such funds in accordance with written instructions mutually
acceptable to Landlord and Tenant; and provided, further, that in the event the
amount of such proceeds is less than One Hundred Fifty Thousand and no/100
Dollars ($150,000) and there is no monetary Event of Default then outstanding
under this Lease, such proceeds shall be released by Landlord to Tenant to be
applied in the manner set forth in this Article 15. Provided that no Event of
Default then exists, any such payments received by Landlord shall be made
available by Landlord, or the trustee for reconstruction or repair, as the case
may be, of any damage to or destruction of all or any portion of the Property to
which such proceeds relate, and shall be paid out by Landlord, (or such
insurance trustee) from time to time in accordance with and subject to the
provisions hereof for the cost of such reconstruction or repair, subject to
reasonable and customary controls to ensure funds disbursed by Landlord (or such
insurance trustee) are in fact used for such purpose. Tenant acknowledges that
such insurance proceeds may not be used towards satisfaction of the minimum
Capital Expenditures required pursuant to Section 7.2 of this Lease. Any unused
portion shall be retained by Landlord upon completion of such repair and
restoration to be held in reserve by Landlord and disbursed by Landlord to
Tenant for further maintenance or repair of the Property as requested by Tenant
and reasonably approved by Landlord. Provided, however, any such unused
insurance proceeds which remain at the time this Lease expires or is terminated
(including in the event of the purchase of the Facilities by Tenant pursuant to
the Purchase Option provided for in Section 25.16) shall be refunded to Tenant
upon Tenant’s concurrent payment to Landlord of all amounts, if any, then due to
Landlord from Tenant under other provisions of this Lease. All salvage resulting
from any risk covered by insurance shall belong to Landlord.
 
15.2           Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
 
(a)           Subject to subsection (c) below, if during the Term any Facility
is totally or substantially destroyed by a risk covered by the insurance
described in Article 14 so that such Facility thereby is rendered unsuitable for
its Permitted Use(s) (taking into account all relevant factors, including, but
not limited to, the number of useable units and beds and the amount of square
footage reasonably available for use by Tenant and the type and amount of
revenue lost), Tenant shall use insurance proceeds hereunder to restore the
Facility to substantially the same condition as existed immediately before the
damage or destruction, and this Lease shall continue in full force and effect.
The insurance proceeds shall be paid to Tenant or its designee in accordance
with Section 15.1 from time to time as necessary to pay for the costs of such
restoration.

 
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(b)           If the cost of any such repair or restoration exceeds the amount
of proceeds received by Landlord (or the insurance trustee described in Section
15.1) and paid over to Tenant from the insurance required under Article 14,
Tenant shall contribute any and all excess amounts necessary to repair or
restore the Facility.
 
(c)           Notwithstanding the foregoing, in the event that either (i) more
than seventy five percent (75%) of any Facility (by area or value) is
substantially destroyed during the final twelve (12) months of the then current
Initial Term or Extended Term of this Lease as a result of a fully insured
(subject to the deductible provision of the insurance coverage) casualty
(including but not limited to, the business interruption coverage described in
Section 14.1.4 or (ii) regardless of the extent of such damage or destruction,
the repair or reconstruction of the affected Facility is prohibited under
applicable law, including, but not limited to, licensure law, zoning law and/or
building code law, Tenant may elect, by giving written notice to Landlord within
thirty (30) days of the date of such casualty, to terminate this Lease as to
that Facility effective as of the date such notice of termination is given.  If
the Lease is so terminated, all insurance proceeds including the business
interruption coverage required in Section 14.1.4 above, shall be paid to
Landlord.  In addition, Tenant shall pay to Landlord an amount equal to any
deductible feature of the casualty insurance coverage.  In such event, Base Rent
shall be equitably adjusted and this Lease shall remain in effect as to the
undamaged Facilities.
 
15.3           Reconstruction in the Event of Damage or Destruction Not Covered
by Insurance. If during the Term any Facility is totally destroyed or materially
damaged (i) from a risk not covered by insurance described in Article 14 or
(ii) from a risk for which insurance coverage is voided due to any act or
omission by Tenant, whether or not the Facility is thereby rendered unsuitable
for its Permitted Use(s), Tenant shall restore the Facility to substantially the
same condition as existed immediately prior to such damage or destruction, this
Lease shall continue in full force and effect, and Tenant shall continue to pay
Rent, in the manner and at the times herein specified, including the full
amounts of Base Rent and Additional Charges. Notwithstanding the foregoing, in
the event that either (i) more than seventy five percent (75%) of any Facility
(by area or value) is substantially destroyed during the final twelve (12)
months of the then current Initial Term or Extended Term of this Lease as a
result of a fully insured (subject to the deductible provision of the insurance
coverage) casualty (including but not limited to, the business interruption
coverage described in Section 14.1.4 or (ii) regardless of the extent of such
damage or destruction, the repair or reconstruction of the affected Facility is
prohibited under applicable law, including, but not limited to, licensure law,
zoning law and/or building code law, Tenant may elect, by giving written notice
to Landlord within thirty (30) days of the date of such casualty, to terminate
this Lease as to that Facility effective as of the date such notice of
termination is given and payment is made by Tenant to Landlord in an amount
equal to the Fair Market Value of the affected Facility.
 
15.4           Restoration of Capital Additions Paid by Tenant. All insurance
proceeds payable solely by reason of any loss of or damage to any Capital
Additions fully paid for

 
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by Tenant in their entirety shall be paid to Tenant and Tenant shall hold such
insurance in trust to pay the cost of repairing or replacing damaged Capital
Additions fully paid for by Tenant in their entirety; provided, however, that if
the damaged Capital Additions fully paid for by Tenant in their entirety are
deemed by Tenant to no longer be useful to Tenant’s operations, Tenant shall not
be obligated to repair or replace them.
 
15.5           No Abatement of Rent. Except as expressly otherwise provided in
Section 6.2 and Section 15.2 and Section 15.3, in the event of any damage or
destruction of the Property, this Lease shall remain in full force and effect
and Tenant’s obligation to make rental payments and to pay all other charges
required by this Lease shall not be abated by reason of any damage or
destruction to the Property or the subsequent loss of Landlord’s entitlement to
the Property.
 
15.6           Waiver. Tenant hereby waives any rights at law or in equity and
any statutory rights of termination which may arise by reason of any damage or
destruction of the Property which Landlord is obligated to restore or may
restore under any of the provisions of this Lease.
 
ARTICLE 16 – CONDEMNATION
 
16.1           Definitions.
 
(a)           “Condemnation” means (a) the exercise of any governmental power,
whether by legal proceedings or otherwise, by a Condemnor, the purpose and
intent of which is to effect a Taking, or (b) a voluntary sale or transfer by
Landlord with Tenant’s consent (provided that such consent shall be required
only if no Event of Default has occurred and is continuing at such time) to any
Condemnor, either under threat of condemnation or while legal proceedings for
condemnation are pending.
 
(b)           “Date of Taking” means the first date the Condemnor has the right
to immediate possession of the property being condemned.
 
(c)           “Award” means all compensation, sums and any other value awarded,
paid or received on a total or partial condemnation of any portion of the
Property and shall specifically exclude any separate award made to Tenant as
allowed in Section 16.4 below.
 
(d)           “Condemnor” means any public or quasi-public authority, or private
corporation or individual, having the power of condemnation.
 
16.2           Parties’ Rights and Obligations. If during the Term there is any
Taking of all or any part of the Property or of any interest in this Lease by
Condemnation, the rights and obligations of the parties shall be determined by
this Article.
 
16.3           Total Taking. If title to the fee of the whole of any Facility
shall be the subject of any Condemnation by any Condemnor, this Lease shall
cease and terminate as of the Date of Taking. If title to the fee of less than
the whole of the Facility shall be so taken or

 
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condemned, which nevertheless renders the Facility unsuitable for its Permitted
Use(s) (taking into account all relevant factors, including, but not limited to,
the number of useable units and beds, the amount of square footage reasonably
available for use by Tenant, and the type and amount of revenue lost), Tenant
and Landlord each shall have the option by Notice to the other, to terminate
this Lease with respect to such Facility as of the Date of Taking. In either of
such events, all Rent paid or payable by Tenant hereunder shall be apportioned
as of the date the Lease shall have been so terminated with respect to such
Facility.
 
16.4           Allocation of Award. In the event of a Taking as described in
Section 16.3, Landlord and Tenant shall cooperate with each other in order to
maximize the amount of the Award. Tenant shall have the right to seek damages or
a separate condemnation award for Tenant’s loss of any Capital Additions paid
for by Tenant, loss of business and relocation expenses and any such award that
be the sole property of Tenant. Subject to the rights of any Facility Mortgagee,
the Award shall be allocated entirely to Landlord.
 
16.5           Partial Taking. If title to the fee of less than the whole of any
Facility shall be the subject of a Taking or Condemnation, and the Facility is
still suitable for its then existing use, or if Tenant or Landlord shall be
entitled, but shall not elect, to terminate this Lease with respect to that
Facility as provided in Section 16.3 hereof, Tenant at its own cost and expense
shall with all reasonable diligence restore the untaken portion of the Facility
so that such Facility shall constitute a complete architectural unit of the same
general character and condition (as nearly as may be possible under the
circumstances) as existing immediately prior to such Condemnation or Taking.
Landlord and Tenant shall cooperate with each other to maximize the amount of
any Award. Landlord shall  contribute the entire amount of the Award to the cost
of restoration. The proceeds of any Award shall be held and distributed in the
same manner as provided by Section 15.1 for insurance proceeds. Any remaining
balance of such proceeds after such restoration is completed shall be retained
by or paid to Landlord.
 
16.6           Temporary Taking. If the whole or any part of any portion of the
Property or of Tenant’s interest under this Lease shall be the subject of a
Taking or Condemnation by any Condemnor for its temporary use or occupancy, this
Lease shall not terminate, and Tenant shall continue to pay, in the manner and
at the times herein specified, the full amounts of Rent. Except to the extent
Tenant may be prevented from so doing pursuant to the terms of any order for the
benefit of the Condemnor, Tenant shall continue to perform and observe all of
the other terms, covenants, conditions and obligations hereof on the part of the
Tenant to be performed and observed as though such Taking or Condemnation had
not occurred. Upon any such Taking or Condemnation described in this Section,
the entire amount of any such Award made for such Taking or Condemnation
allocable to the Term of this Lease, whether paid by way of damages, Rent or
otherwise, shall be paid to Tenant.  If any part of such Award is allocable for
a period beyond the term of this Lease, that part shall be paid to
Landlord.  Tenant covenants that upon the termination of any such period of
temporary use or occupancy as set forth in this Section, Tenant will, at its
sole cost and expense (subject to any contribution by Landlord as set forth in
Section 16.5), restore the Property as nearly as may be reasonably possible to
the condition in which the same was immediately prior to

 
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such Taking or Condemnation, unless such period of temporary use or occupancy
shall extend beyond the expiration of the Term, in which case Tenant shall not
be required to make such restoration but shall pay to Landlord from the Award
received by Tenant and not applied by Tenant to satisfy its Rent obligations
during the period of such Taking, to the costs of such restoration work.
 
ARTICLE 17 – DEFAULTS AND REMEDIES
 
17.1           Events of Default. Any one or more of the following events shall
be deemed an “Event of Default” hereunder:
 
(a)           Tenant shall fail to pay Rent payable by Tenant under this Lease
as and when the same becomes due and payable or within ten (10) days thereafter;
 
(b)           Tenant shall fail to observe or perform any other material term,
covenant or condition of this Lease and such failure is not cured by Tenant
within a period of thirty (30) days after Notice thereof from Landlord, unless
such failure cannot with due diligence be cured within a period of thirty (30)
days, in which case such failure shall not be deemed to continue if Tenant
proceeds promptly and with due diligence to cure the failure and diligently
completes the curing thereof;
 
(c)           Any representation or warranty made by the Tenant in connection
with this Lease, or in any report, certificate, financial statement or other
instrument furnished in connection herewith or therewith, from time to time,
whether under Article 22 of this Lease or otherwise, shall prove to be false or
misleading in any material respect and the same is not corrected within thirty
(30) days after notice thereof from Landlord;
 
(e)           Tenant shall (i) admit in writing its inability to pay its debts
generally as they become due, (ii) file a petition in bankruptcy or a petition
to take advantage of any insolvency law, (iii) make a general assignment for the
benefit of its creditors, (iv) consent to the appointment of a receiver of
itself or of the whole or any substantial part of its property, or (v) file a
petition or answer seeking reorganization or arrangement under the Federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any State thereof;
 
(f)           Tenant shall, on a petition in bankruptcy filed against it, be
adjudicated bankrupt or have an order for relief thereunder entered against it
or a court of competent jurisdiction shall enter an order or decree appointing,
without the consent of Tenant, a receiver of Tenant or of the whole or
substantially all of its property, or approving a petition filed against Tenant
seeking reorganization or arrangement of Tenant under the federal bankruptcy
laws or any other applicable law or statute of the United States of America or
any state thereof, and such judgment, order or decree shall not be vacated or
set aside or stayed within ninety (90) days from the date of the entry thereof;
 
(g)           Tenant shall be liquidated or dissolved (except for an involuntary
dissolution due to a failure to file an annual report with the Secretary of
State or

 
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other applicable officer or department of the State so long as such failure is
cured within 30 days of any notice thereof to Tenant, whether from the State or
otherwise), or shall begin proceedings toward such liquidation or dissolution,
or shall, in any manner, permit the sale or divestiture of substantially all of
its assets other than in connection with a merger or consolidation of Tenant
into, or a sale of substantially all of Tenant’s assets to, another corporation;
 
(h)           the estate or interest of Tenant in the Property or any part
thereof shall be levied upon or attached in any proceeding and the same shall
not be vacated or discharged within the later of sixty (60) days after
commencement thereof or thirty (30) days after Notice thereof from Landlord
(unless Tenant shall be contesting such lien or attachment in good faith in
accordance with Article 13 hereof);
 
(i)           except as a result of damage, destruction or a partial, temporary
or complete Condemnation and except as otherwise permitted by Section 8.3,
Tenant voluntarily ceases operations on the Property;
 
(j)           Tenant, an Affiliate of Tenant, or any Lease Guarantor shall fail
to make any payment due to Landlord on any indebtedness, guaranty, endorsement,
indemnity agreement, lease or other obligation now or hereafter entered into,
whether contingent or otherwise, (each, a “debt”) or on any security (as
“security” is defined for purposes of the federal securities laws), or any event
shall occur or any condition shall exist with respect to any debt or security of
Tenant in favor of Landlord, the effect of which is to cause any or all of such
debt or security to become due prior to its stated maturity or its regularly
scheduled dates of payment.
 
No Event of Default (other than a failure to make a payment of money) shall be
deemed to exist under clause (b) above during, any time the curing thereof is
prevented by an Unavoidable Delay, provided that upon the cessation of such
Unavoidable Delay, Tenant immediately shall remedy such default.
 
17.2           Damages.
 
(a)           Upon the occurrence and during the continuance of any Event of
Default, Landlord shall have the right (i) to terminate this Lease and Tenant’s
right to possession of each Facility by any lawful means, upon ten (10) days’
Notice of such termination (during which time Tenant shall have the opportunity
to cure any such Event of Default) in which case, if Tenant shall fail to cure
all Events of Default within the foregoing ten (10) day period, this Lease shall
terminate and all of Tenant’s rights hereunder shall cease and Tenant shall
immediately surrender possession of the Property to Landlord and, in such event,
Landlord shall be entitled to recover from Tenant all damages incurred by reason
of such Event of Default determined in the manner set forth in this Section
17.2, (ii) to terminate Tenant’s right to possession of each Facility without
thereby terminating this Lease and/or relet the same for Tenant’s account, and
(iii) to enforce all of

 
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Landlord’s rights and remedies under this Lease, including the right to recover
the damages provided for in this Section 17.2. Neither the termination of this
Lease or of Tenant’s right to possession of any Facility pursuant to this
Section 17.2, the repossession of the Facilities, the failure of Landlord,
notwithstanding reasonable good faith efforts, to relet the same, nor the
reletting of all or any portion of the Property, shall relieve Tenant of its
liability and obligations hereunder, all of which shall survive any such
termination, repossession or reletting until Landlord has collected from Tenant
the damages due hereunder.
 
(b)           Upon any such termination of this Lease or of Tenant’s right of
possession of the Property, Tenant shall, forthwith pay to Landlord the full
amount of Landlord’s damages suffered by reason of such Event of Default in an
amount equal to the sum of:
 
(i)           the worth at the time of the award of the unpaid Rent due and
payable to and including the date of such termination, repossession or
reletting;
 
(ii)           the worth at the time of the award, of the amount by which the
unpaid Rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that could have been reasonably
avoided;
 
(iii)           the worth at the time of the award of the amount by which the
unpaid Rent for the balance of the Term after the time of the award exceeds the
amount of such rental loss that could be reasonably avoided; and
 
(iv)           any other amount reasonably necessary to compensate Landlord for
the reasonable costs incurred in regaining possession and reletting the
Property, including, but not limited to, brokerage fees and commissions,
construction costs, rent concessions, and all legal costs and expenses.
 
(c)           The “worth at the time of the award” of the amounts referred to in
subparagraphs (b)(i) and (b)(ii) above shall be computed by allowing interest at
the Overdue Rate. The “worth at the time of award” of the amount referred to in
subparagraph (b)(iii) above shall be computed by discounting such amount at the
discount rate of Federal Reserve Bank of San Francisco at the time of award plus
1%.
 
17.3           Intentionally Deleted.
 
17.4           Application of Funds. Any payments normally made to Tenant
hereunder which are made to and received by Landlord under any of the provisions
of this Lease during the continuance of any Event of Default shall be applied to
Tenant’s obligations in the order which Landlord may determine or as may be
prescribed by applicable laws.
 

 
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17.5           Landlord’s Right to Cure Tenant’s Default. If an Event of Default
occurs under this Lease and is not cured within the time provided under this
Lease with respect to such Event of Default, Landlord, without waiving or
releasing any obligation of Tenant, and without waiving any such Event of
Default, may (but shall be under no obligation to) at any time thereafter cure
such Event of Default for the account and at the expense of Tenant, and may, to
the extent permitted by law, enter upon any portion of the Property for such
purpose and take all such action thereon as, in Landlord’s sole judgment, may be
necessary or appropriate with respect thereto. No such entry by Landlord on any
portion of the Property shall be deemed an eviction of Tenant. All sums so paid
by Landlord and all costs and expenses (including, without limitation,
reasonable attorneys’ fees and expenses, in each case to the extent permitted by
law) so incurred, together with a late charge thereon (to the extent permitted
by law) at the Overdue Rate from the date on which such sums or expenses are
paid or incurred by Landlord until paid, shall be paid by Tenant to Landlord on
demand. The obligations of Tenant and rights of Landlord contained in this
Article shall survive the expiration or earlier termination of this Lease.
 
17.6           Waiver. If this Lease is terminated pursuant to the provisions of
this Article, Tenant waives, to the extent permitted by applicable law, (a) any
right of redemption, re-entry or repossession, (b) any right to trial by jury in
the event of summary proceedings to enforce the remedies set forth in this
Article, and (c) the benefit of any laws now or hereafter in force exempting
Tenant’s property from liability for rent or for debt.
 
ARTICLE 18 – CURE BY TENANT OF LANDLORD DEFAULTS
 
18.1           Landlord Default. Landlord shall be in default of its obligations
under this Lease if Landlord shall fail to observe or perform any term, covenant
or condition of this Lease on its part to be performed, and such failure shall
continue for a period of thirty (30) days after Notice thereof from Tenant (or
such shorter time as may be necessary in order to cure or correct any condition,
the presence of which substantially or materially interferes with Tenant’s
conduct of its usual business for the Permitted Use(s) or to protect the health
or welfare of any patient or other resident of the Property or to ensure the
ongoing compliance of the Property with applicable law), unless such failure
cannot be cured with due diligence within a period of thirty (30) days (or the
above-described shorter time period), in which case such failure shall not be
deemed to continue if Landlord, within such thirty (30) days (or the
above-described shorter time period), promptly commences its attempt to cure the
failure and diligently attempts to complete the curing thereof. The time within
which Landlord shall be obligated to cure any such failure shall also be subject
to extension of time due to the occurrence of any Unavoidable Delay. If Landlord
fails to commence such cure as provided herein, Tenant may cure such default,
and so long as Tenant continues to pay Rent, Tenant shall have the right
(subject to Section 6.1), as Tenant’s sole remedy (except as otherwise provided
in this Section 18.1), by separate and independent action to pursue any claim it
may have against Landlord for monetary damages caused by Landlord’s failure to
cure such default.
 
18.2           Mortgagee Cure. Should Landlord fail to observe or perform any of
the covenants or conditions contained in this Lease, before taking any action,
Tenant shall

 
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comply with the requirements of any Subordination Agreement to which it may then
be a party with respect to the granting of notice and an opportunity to cure to
any such Landlord default. All payments made, and all acts performed by such
lenders in order to cure shall be effective to prevent a forfeiture of the
rights of Landlord under this Lease and a termination of this Lease as if the
payments and acts were performed by Landlord instead of by the lenders.
 
ARTICLE 19 – HOLDING OVER
 
If Tenant for any reason remains in possession of any portion of the Property
after the expiration of the Term or earlier termination of the Term, such
possession shall be a tenancy at sufferance during which time Tenant shall pay
to Landlord as rental each month one hundred fifty percent (150%) of the
aggregate of (i) one-twelfth of the aggregate Base Rent for the Facility payable
with respect to the last 12 calendar months of the Term just expired, (ii) all
Additional Charges accruing during the month with respect to which such payment
relates, and (iii) all other sums, if any, payable by Tenant pursuant to the
provisions of this Lease with respect to the Facility. During such period of
month-to-month tenancy at sufferance, Tenant shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent mandated by law
applicable to tenancies at sufferance, to continue its occupancy and use of the
Facility. Nothing contained herein shall constitute the consent, express or
implied, of Landlord to the holding over of Tenant after the expiration or
earlier termination of this Lease.
 
ARTICLE 20 – LIABILITY OF PARTIES
 
20.1           Indemnification by Tenant. Notwithstanding the existence of any
insurance provided for in Article 14, and notwithstanding the policy limits of
any such insurance, but subject to the waiver of the right of subrogation set
forth in Section 14.4 hereof, Tenant shall indemnify, defend, protect, save and
hold Landlord and any successor person who is the owner of any Facility or who
holds the licenses to operate any Facility harmless from and against any and all
liabilities, losses, obligations, claims, damages, penalties, causes of action,
costs and expenses (including, without limitation, reasonable attorneys’ fees
and expenses) imposed upon, incurred by or asserted against Landlord arising out
of, connected with or incidental to the following and arising from events
occurring during the Term:
 
(a)           any Hazardous Substance located in, on or under the Land or the
Facility;
 
(b)           any accident, injury to or death of persons, or loss of or damage
to property, occurring on or about the Facility including, without limitation,
any claims of malpractice, except for any such accident, injury, death, loss or
damage proximately caused by Landlord’s gross negligence or willful misconduct
and not resulting from Tenant’s failure to perform and comply with the terms,
covenants, conditions and provisions of this Lease;
 
(c)           any past, present or future use, misuse, non-use, condition,
management, maintenance or repair by Tenant or its agents of the Property, and
any litigation,
 

 
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proceeding or claim by governmental entities or other third parties relating
thereto to which Landlord is made a party;
 
(d)           any Impositions which are the obligations of Tenant to pay
pursuant to the applicable provisions of this Lease if the same are not paid
when due or within any cure period provided for herein;
 
(e)           any failure on the part of Tenant to perform or comply with any of
the terms of this Lease when due or within any cure period provided for in this
Lease;
 
(f)           the non-performance of any of the terms and provisions of any and
all existing and future subleases of any Facility to be performed by Tenant
thereunder; and
 
(g)           any claims by state or federal governmental agencies for repayment
of claims for reimbursement of costs incurred by Tenant in providing care or
services to residents under government supported healthcare or government
supported residential programs.
 
Any amounts payable by Tenant under this Section shall be paid within ten (10)
days after Tenant’s liability therefor is determined by litigation or otherwise.
If such amounts are not timely paid, they shall bear a late charge at the
Overdue Rate from the date of such determination to the date paid. Tenant, at
its expense, shall contest, resist and defend any such claim, action or
proceeding asserted or instituted against Landlord, or may, with Landlord’s
prior written consent, compromise or otherwise dispose of the same as Tenant
sees fit. Nothing herein shall be construed as indemnifying Landlord against its
own gross negligence or willful misconduct.
 
20.2           Indemnification by Landlord. Landlord shall indemnify, defend,
save and hold Tenant harmless from and against any and all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reason­able attorneys, fees and expenses)
imposed upon, incurred by or asserted against Tenant arising out of, connected
with or incidental to the gross negligence or willful misconduct of Landlord;
provided, however, that Tenant’s right to indemnification as provided herein
shall be subject to the limitation set forth in Article 24.
 
20.3           Continuing Liability. Tenant’s and Landlord’s liability for a
breach of the provisions of this Article arising during the Term hereof shall
survive any termination of this Lease or of Tenant’s right to possession of the
Property.
 
ARTICLE 21 – ASSIGNMENT AND SUBLETTING; MANAGEMENT
 
21.1           Assignment. Landlord’s prior written consent shall be required
for an assignment of any of Tenant’s right, title and interest in and to this
Lease to any Person whether or not such proposed assignment relates to all of
the Facilities or to one or more, but fewer than all, of the Facilities. Tenant
shall not, without Landlord’s prior written consent in each instance, allow,
cause, permit or suffer, whether by operation of law or otherwise, any
assignment, conveyance or transfer of, or any lien, mortgage, pledge, charge,
security interest or other encumbrance (including conditional sales or other
title retention

 
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agreements) upon: (x) all or any portion of the Property; or (y) any right,
title, interest or estate of Tenant in this Lease. Except as specifically set
forth below, Landlord may, in Landlord’s sole and absolute discretion, grant,
withhold or place conditions upon such consent. If Tenant desires at any time to
assign any interest in this Lease, it shall first notify Landlord of its desire
to do so and shall submit in writing to Landlord: (i) the name of the proposed
assignee; (ii) the terms and provisions of the proposed assignment; and (iii)
such financial information as Landlord reasonably may request concerning
assignee.
 
If the proposed assignee has a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of Tenant at the time of the proposed assignment of
this Lease or if such assignee shall in writing affirmatively assume all
obligations of the Tenant under this Lease and such assignee’s assumed
obligations are guaranteed by an entity having a Consolidated Net Worth equal to
or greater than the Consolidated Net Worth of Tenant at the time of the proposed
assignment of this Lease, Landlord shall not unreasonably withhold its consent
to the proposed assignment.  Tenant shall remain liable to Landlord for the
payment of all Rent and the performance of all other Tenant obligations under
this Lease regardless of Landlord’s consent to any proposed assignment unless
Landlord in the exercise of its sole and absolute discretion agrees to release
Tenant form such ongoing liability at the time of such assignment or at any time
thereafter.
 
If Tenant so allows, causes, permits or suffers any such assignment, conveyance,
transfer, lien, mortgage, pledge, charge, security interest or other encumbrance
without Landlord’s prior written consent, same shall constitute an Event of
Default by Tenant under this Lease.
 
21.2           Mergers, Business Combinations, etc. Tenant shall be permitted to
merge with, or enter into, a business combination or reorganization with any
other entity and the consent of Landlord shall be not required unless either (i)
Tenant is not the surviving entity in any such proposed merger, business
combination or reorganization and the Consolidated Net Worth of the surviving
entity is anticipated to be less the Consolidated Net Worth of Tenant
immediately prior to the consummation of the proposed merger, business
combination or reorganization or (ii) Tenant is the surviving entity but (A) a
change in the control of Tenant occurs as a result of such merger or business
combination and (B) the Consolidated Net Worth of Tenant immediately after such
merger or business combination is anticipated to be less than the Consolidated
Net Worth of Tenant immediately prior to the proposed merger, business
combination or reorganization. In the event of a proposed merger, business
combination or reorganization which requires the consent of Landlord, such
consent may be withheld in the sole and absolute discretion of Landlord and, in
the event Landlord is unwilling to grant such consent, Landlord shall have the
option, but shall not be required, upon thirty (30) days Notice to Tenant to
terminate this Lease effective as of the date of the closing of such merger or
business combination. In the event of any merger, business combination or
reorganization, any Lease Guarantor’s obligations and covenants under the Lease
Guaranty shall in no way be affected or impaired.  Notwithstanding anything to
the contrary in this Section 21.2, Landlord’s consent shall be not be required
in connection with, and the provisions of this Section 21.2 shall not apply to,
any transfer of Tenant’s stock as a result of a public offering of Tenant’s
stock which (a) constitutes a bona fide public distribution of such

 
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stock pursuant to a firm commitment underwriting or a plan of distribution
registered under the Securities Act of 1933 and (b) results in such stock being
listed on for trading on the American Stock Exchange or the New York Stock
Exchange or authorized for quotation on the NASDAQ National Market immediately
upon the completion of such public offering.  In addition, so long as the
Tenant’s stock is listed for trading on any such exchange or authorized for
quotation on such market, the transfer or exchange of the Tenant’s stock over
such exchange or market shall not be deemed to require the consent of Landlord
even if the same results in a change in the control of Tenant but only if such
change of control results from a tender or similar offer to acquire the
outstanding and issued securities of Tenant.
 
21.3           Subletting. Tenant shall not, without Landlord’s prior written
consent in each instance, allow, cause, permit or suffer all or any portion of
the Property to be leased, subleased or licensed to, or used or occupied by, any
other party or parties, other than (a) residents of any Facility, and (b)
persons permitted to temporarily enter upon the Property from time to time for
the sole purpose of rendering services or providing products (e.g., barber or
beautician services or therapists) to such residents. Landlord may, in
Landlord’s sole and absolute discretion, grant, withhold or place conditions
upon such consent. If Tenant so allows, causes, permits or suffers any such
lease, sublease or occupancy without Landlord’s prior written consent, same
shall constitute an Event of Default by Tenant under this Lease.
 
21.4           Attornment. Tenant shall insert in any sublease to which Landlord
may consent (without obligation for Landlord to do so) provisions satisfactory
to Landlord which provide for the benefit of Landlord that (a) such sublease is
subject and subordinate to all of the terms and provisions of this Lease (b) in
the event this Lease shall terminate before the expiration of such sublease, the
sublessee thereunder will attorn to Landlord and waive any right the sublessee
may have to terminate the sublease or surrender possession under such sublease,
and (c) in the event the sublessee receives a Notice from Landlord or Landlord’s
assignees, if any, stating that Tenant is in default under this Lease, the
sublessee shall thereafter be obligated to pay all rentals accruing under such
sublease directly to the party giving such Notice, or as such party may
otherwise direct. All rentals received from the sublessee by Landlord or
Landlord’s assignees, if any, as the case may be, shall be credited against the
amounts owed to Landlord under this Lease.
 
21.5           Management by Third Persons.  Tenant agrees that it will not
enter into any management agreement (or similar arrangement) under which the
right to manage the operations of any Facility is granted to a third party.
Tenant may enter into a management agreement with an Affiliate of Tenant if
Landlord gives its written approval thereto and provided that:
 
(i)           the management agreement is in writing and a complete copy thereof
is delivered to Landlord prior to its effective date;
 
(ii)           the management agreement provides for total compensation to the
manager not to exceed 5% of the gross revenues of any Facility; and
 

 
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(iii)           the Manager shall have entered into an agreement with Landlord
acknowledging that the management agreement and such manager’s rights to payment
of fees thereunder is subordinate to this Lease and to the rights and interests
of Landlord in the Facility under management.
 
ARTICLE 22 – INFORMATION FROM TENANT
 
22.1           Estoppel Certificates.
 
(a)           Tenant Certificates. At any time and from time to time, upon not
less than twenty (20) days Notice by Landlord which notice shall make specific
reference to this Section 22.1, Tenant shall furnish to Landlord or to
Landlord’s lenders and to any persons intending to purchase any Facility or to
lease any Facility at the termination or expiration of this Lease an estoppel
certificate (which shall be an Officer’s Certificate) certifying that this Lease
is unmodified and in full force and effect (or that this Lease is in full force
and effect as modified and setting forth the modifications); the date to which
the Rent has been paid; whether, to Tenant’s actual knowledge and belief, there
exists any Event of Default or any situation which, with the giving of notice,
passage of time, or both, would constitute an Event of Default hereunder,
whether Tenant contends that Landlord is in default hereunder, and if Tenant so
contends, the basis for such contention, the date upon which the Term
terminates; and such other information (which can be provided within twenty (20)
days) as Landlord reasonably may request including, but not limited to, matters
relating to operations of any such Facility. The failure by Tenant to deliver
such estoppel certificate to Landlord within twenty (20) days of Landlord’s
request therefor shall be conclusively deemed to be Tenant’s certification (i)
that this Lease is in full force and effect, without modification except as
represented by Landlord; (ii) that there are no uncured defaults in Landlord’s
performance hereunder, (iii) that not more than one month’s Rent has been paid
in advance; and (iv) that all reports previously given to Landlord are true and
correct. Any such certificate furnished pursuant to this Section 22.1 shall be
addressed to Landlord and to any prospective purchaser of the Property, the
Facility Mortgagee and/or Landlord Lender as Landlord may request, and may be
relied upon by the parties to whom such certificate is addressed.
 
(b)           Landlord Certificates. At any time and from time to time, upon not
less than twenty (20) days Notice by Tenant, Landlord shall furnish to Tenant an
estoppel certificate (which shall be an Officer’s Certificate) certifying that
this Lease is unmodified and in full force and effect (or that this Lease is in
full force and effect as modified and setting forth the modifications), the date
to which the Base Rent has been paid, and whether to Landlord’s actual knowledge
and belief there exists any Event of Default or any situation which with the
giving of notice, passage of time, or both, would constitute an Event of Default
hereunder, and if Landlord so contends, the basis for such contention, the date
upon which the Term terminates; and such other information (which can be
provided within twenty (20) days) as Tenant reasonably may request. In the event
Landlord should

 
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fail to provide an estoppel certificate within the time allowed after the
Tenant’s request therefore duly made, such failure to respond shall be deemed to
constitute Landlord’s certification that (i) this Lease is in full force and
effect, without modification except as represented by Tenant in its request to
Landlord, (ii) that there are no uncured defaults in Tenant’s performance and
(iii) that not more than one month’s rent has been paid in advance.  Any such
certificate furnished pursuant to this Section 22.1(b) may be relied upon by
Tenant and any assignee (so long as such assignee is approved and consented to
by Landlord in accordance with Article 21) or lender of Tenant to whom such
certificate is addressed.
 
22.2           Financial Information. Tenant shall furnish within the time
periods specified with respect thereto, the following statements to Landlord:
 
(a)           Annual Financials/Tenant. As soon as available and in any event
within one hundred five (105) days after the end of each Fiscal Year of Tenant,
a copy of the annual audit report for such Fiscal Year of Tenant, including
therein the balance sheets of Tenant as of the end of such Fiscal Year and
statements of earnings and statements of cash flow of Tenant for such Fiscal
Year, in each case certified in a manner acceptable to Lender by independent
certified public accountants of recognized standing in the state of Washington
or any State selected by Tenant and reasonably acceptable to Lender;
 
(b)           Quarterly Financials/Tenant. As soon as available and in any event
within forty-five (45) days of the end of each of the first three calendar
quarters of each Fiscal Year of Tenant and within one hundred five (105) days of
the end of the last quarter of each Fiscal Year, balance sheets of Tenant as of
the end of such quarter and statements of earnings and statements of cash flow
of Tenant for such quarter and for the Fiscal Year to date setting forth in
comparative form and details the figures for the corresponding period of the
previous Fiscal Year, certified by an officer of Tenant, and a Certificate of
Compliance in the form attached hereto as Exhibit J and incorporated herein by
this referenced signed by an officer of Tenant (the “Quarterly Compliance
Certificate”);
 
(c)           Monthly Facility Information. As soon as available after the end
of each month but in any event no later than thirty (30) days after the end of
the preceding month, (i) an itemized operating statement for each Facility by
month and year to date showing all revenues and operating costs of such
Facility, (ii) a schedule for such Facility, in form reasonably satisfactory to
the Lender but excluding such information as Tenant reasonably determines is
required to be deleted in order for Tenant and Landlord to comply with their
obligations under Section 22.4 of this Lease, setting forth by unit number the
name, charges and source of payment of or for each resident and showing whether
any amounts are past due from the resident and (iii) a monthly occupancy summary
showing percentage occupancy and payor source;
 
(d)           Capital Expenditure Compliance Certificate. Tenant shall provide
to Landlord quarterly, commencing for the quarter ending March 31, 2010, an

 
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itemized list of the Capital Expenditures made by Tenant for the quarter for
which the report is provided and year to date, identifying which Facility the
specific Capital Expenditure was incurred for.  Within one hundred five (105)
days after the end of each Lease Year, a certificate of compliance certified by
an officer of Tenant stating with respect to the Facilities (i) the amount of
Capital Expenditures made at the Facilities during the prior year, (ii) whether
the Targeted Expenditure Amount has been met for the prior year (taking into
account any unused  Aggregate Overage Amount), (iii) the amount of Capital
Expenditures made at each specific Facility during the twenty four (24) month
period ending with the last month of the year in question, (iv) whether the
Targeted Expenditure Amount has been met during said twenty four (24) month
period (taking into account any unused Facility Overage Amount); and (v) if the
Targeted Expenditure Amount has not been met (after taking into account any
unused Overage Amount), stating the amount to be deposited into the Cap Ex
Account. Within thirty (30) days after a request from Landlord, Tenant shall
provide to Landlord copies of invoices or other supporting documentation for the
Capital Expenditures reflected in each such annual certificate of compliance;
 
(e)           Event of Default Notices. Promptly after any Tenant obtains actual
knowledge thereof, notice of the occurrence of any Event of Default, or event
which, after notice or lapse of time (or both), would constitute an Event of
Default, together with a statement of an officer of Tenant setting forth details
of such Event of Default or event and the action that Tenant has taken and
proposes to take with respect thereto;
 
(f)           Notice to Authorities. Concurrently with any material notice from
Tenant to any Authority, copies of such notice;
 
(g)           Notice of Violation. Promptly upon Tenant’s receipt of any
material notice from, or the taking of any other action by, any Authority with
respect to a claimed violation of a Requirement, a reasonably detailed statement
by Tenant specifying the notice given or other action taken by such Authority,
the nature of the claimed violation and what action Tenant is taking or proposes
to take with respect thereto;
 
(h)           Malpractice Matters. Promptly upon Tenant’s receipt, written
notice of the filing of any medical malpractice action against Tenant with
respect to any of the Facilities seeking damages in excess of $200,000.00;
 
(i)           Guarantors’ Reports.  A current Financial Statement of Guarantor
as required by any Guaranty Agreement.
 
(j)           Insurance Certificate.  During any period when the insurance
required by Article XIV is being provided by Tenant through a captive insurance
company as permitted by Section 14.7, Tenant shall provide to Landlord
concurrently with the delivery of the financial report required by Section 14.7,
the certificate attached hereto as Exhibit K.

 
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(k)           Other Information. Such other information about Tenant and its
operations at the Facilities or any Facility as Landlord or any successor owner
of the Facilities may reasonably request from time to time.
 
22.3           Licensing Information. Tenant shall promptly furnish to Landlord
for each Facility upon request complete copies of all Tenant’s cost reports, if
any, and all surveys, examinations, inspections, compliance certificates and
similar reports of any kind issued to Tenant by any governmental agencies or
authorities having jurisdiction over the licensing of the operation of such
Facility which are material to that Facility or its ownership or operation.
 
22.4           Confidentiality of Protected Health Information.  For purposes of
this Section of this Lease, “protected health information”, or PHI, shall have
the meaning defined by the Standards for Privacy of Individually Identifiable
Health Information, 45 C.F.R. Part 160 and Subparts A and E of Part 164 (the
“Privacy Standards”), as promulgated by the Department of Health and Human
Services (“HHS”) pursuant to the Administrative Simplification provisions of the
Health Insurance Portability and Accountability Act of 1996 (“HIPAA”).  Tenant
agrees to reasonably safeguard PHI from any intentional or unintentional
disclosure in violation of the Privacy Standards by implementing appropriate
administrative, technical and physical safeguards to protect the privacy of
PHI.  Tenant further agrees to implement appropriate administrative, technical
and physical safeguards to limit incidental disclosures of PHI, including
disclosures to Landlord, its subcontractors and agents.  The parties agree that
neither the Landlord nor its contractors, subcontractors or agents shall need
access to, nor shall they use or disclose, any PHI of Tenant.  However, in the
event PHI is disclosed by Tenant or its agents to Landlord, its contractors,
subcontractors or agents, regardless as to whether the disclosure is inadvertent
or otherwise, Landlord agrees to take reasonable steps to maintain, and to
require its contractors, subcontractors and agents to maintain, the privacy and
confidentiality of such PHI.  The parties agree that the foregoing does not
create, and is not intended to create, a “business associate” relationship
between the parties as that term is defined by the Privacy Standards.
 
ARTICLE 23 – FACILITY MORTGAGES
 
Without the consent of Tenant, Landlord may, subject to the terms and conditions
set forth below in this Article, from time to time, directly or indirectly,
create or otherwise cause to exist any lien, encumbrance or title retention
agreement (“Encumbrance”) upon the Property, or any portion thereof or interest
therein, whether to secure any borrowing or other means of financing or
refinancing. Any such Encumbrance (i) shall contain the right to prepay (whether
or not subject to a prepayment penalty), (ii) shall provide that it is subject
to the rights of Tenant under this Lease (including Tenant’s rights to insurance
proceeds, condemnation awards, and the option to purchase the Property as
provided in this Lease) and (iii) shall not increase the obligations imposed on,
or reduce the rights granted to, Tenant under this Lease; provided, however,
that Tenant agrees that its interest under this Lease is subordinate to any
mortgage or deed of trust that may hereafter from time to time be recorded on
the Property, and to any and all advances made or to be made thereunder, and to
renewals, replacements and extensions thereof. Any such subordination, however,
shall be subject to the condition precedent that the mortgagee

 
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under such mortgage or the beneficiary under such deed of trust enter into a
written non-disturbance and attornment agreement with Tenant, in form and
content reasonably satisfactory to such lender, whereunder it is agreed that in
the event of a sale or foreclosure under such mortgage or deed of trust, the
purchaser of that Facility (including the mortgagee or beneficiary under such
mortgage or deed of trust), shall acquire or hold that Facility subject to this
Lease and Tenant’s rights hereunder (including, but not limited to, its Purchase
Option as set forth in Section 25.16) so long as no Event of Default exists.
Tenant hereby agrees to recognize such purchaser as the landlord under this
Lease and agrees to attorn to such purchaser and, if instructed to do so by such
purchaser, to make rental payments directly to it. Such subordination agreement
may also include an acknowledgment by Tenant that any purported cancellation of
this Lease, reduction in its effective rate of rent, shortening of its term or
extension of its term at a reduced effective rate of rent, shall not be binding
upon any encumbrancer or any other person, firm or corporation acquiring the
Property at any sale or other proceedings, or pursuant to the exercise of any
rights, powers or remedies under any Encumbrance, without such encumbrancer’s
prior written consent.
 
ARTICLE 24 – LIMITATION OF LANDLORD’S LIABILITY
 
24.1           Landlord’s Liability. Tenant specifically agrees that neither
Landlord, nor any officer, shareholder, employee or agent of Landlord, shall be
held to any personal liability, jointly or severally, for any obligation of, or
claims against Landlord. Notwithstanding any other provisions of this Lease
which may be to the contrary, Tenant agrees to look solely to Landlord’s equity
interest in the Property for recovery of any judgment under this Lease.  The
provisions of this Section shall not limit any right that Tenant might otherwise
have under this Lease for specific performance or other injunctive relief
against Landlord. In no event shall Landlord (original or successor) or any
Affiliate of Landlord be required to respond in monetary damages from Landlord’s
assets other than Landlord’s equity interest in any portion of the Property.
Furthermore, except as otherwise expressly provided herein, in no event shall
Landlord or any Affiliate of Landlord (original or successor) ever be liable to
Tenant for any indirect or consequential damages suffered by Tenant from
whatever cause.
 
ARTICLE 25 – MISCELLANEOUS.
 
25.1           Landlord’s Right to Inspect. Landlord and its authorized
representatives may, at any time and from time to time, upon reasonable notice
to Tenant, inspect all or any Facility during usual business hours subject to
any security, health, safety or patient business confidentiality requirements of
Tenant or any governmental agency, or created by any Insurance Requirement or
Legal Requirement relating to that Facility.
 
25.2           No Waiver. No failure by Landlord or Tenant to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
provided hereunder, and no acceptance of full or partial payment of Rent during
the continuance of any such breach, shall constitute a waiver of any such breach
or of any such term. To the extent permitted by applicable law, no waiver of any
breach shall affect or alter this Lease, which shall continue in full force and
effect with respect to any other then existing or subsequent breach.

 
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25.3           Remedies Cumulative. To the extent permitted by law, each legal,
equitable or contractual right, power and remedy of Landlord or Tenant now or
hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy. The exercise or beginning of the exercise by Landlord or Tenant of
any one or more of such rights, powers and remedies shall not preclude the
simultaneous or subsequent exercise by Landlord or Tenant of any or all of such
other rights, powers and remedies. The provisions of this Section are subject in
all respects to the provisions of Article 24.
 
25.4           Acceptance of Surrender. No surrender to Landlord of this Lease
or of all or any portion of or interest in the Facility shall be valid or
effective unless agreed to and accepted in writing by Landlord, and no act by
Landlord or any representative or agent of Landlord, other than such a written
acceptance by Landlord, shall constitute an acceptance of any such surrender by
Tenant.
 
25.5           No Merger of Title. There shall be no merger of this Lease or of
the leasehold estate created hereby if the same person, firm, corporation or
other entity acquires, owns or holds, directly or indirectly, this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate, and the fee estate in the Property.
 
25.6           Conveyance by Landlord. If Landlord or any successor owner of the
Property conveys the Property in accordance with the terms hereof (other than as
security for a debt), and the grantee or transferee of the Property expressly
assumes all obligations of Landlord hereunder arising or accruing from and after
the date of such conveyance or transfer, Landlord or such successor owner, as
the case may be, thereupon shall be released from all liabilities and
obligations of Landlord under this Lease arising after such conveyance or
transfer.
 
25.7           Quiet Enjoyment. So long as Tenant pays all Rent as the same
becomes due and fully complies with all of the terms of this Lease and fully
performs its obligations hereunder when due or within any cure period provided
for herein, Tenant shall peaceably and quietly have, hold and enjoy the Property
for the Term hereof, free of any claim or other action by Landlord or anyone
claiming by, through or under Landlord, but subject to the Permitted
Encumbrances and/or any liens and encumbrances of record hereafter consented to
by Tenant. Except as otherwise provided in this Lease, no failure by Landlord to
comply with the foregoing covenant shall give Tenant any right to cancel or
terminate this Lease or abate, reduce or make a deduction from or offset against
the Rent or any other sum payable under this Lease, or to fail or refuse to
perform any other obligation of Tenant hereunder. Notwithstanding the foregoing,
Tenant shall have the right, by separate and independent action, to pursue any
claim it may have against Landlord as a result of a breach by Landlord of the
covenant of quiet enjoyment contained in this Section.
 
25.8           Notices. All notices, demands, requests, consents, approvals and
other communications (“Notice” or “Notices”) hereunder shall be in writing and
shall be deemed to have been duly given when delivered in person or received by
telegraphic or other electronic means (including telecopy and telex) or, if
mailed, five days after being

 
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deposited in the United States mail, certified or registered mail, postage
prepaid, or if sent via Federal Express or similar courier service via overnight
delivery, the next business day following receipt, addressed to the respective
parties as follows (or to such other address as a party may hereafter
designate):
 
If to Tenant:                                Emeritus Corporation
3131 Elliott Avenue
Suite 500
Seattle, WA 98121-1031
Attn: Eric Mendelsohn, Senior Vice President Corporate Development
Telecopy No.: 206-357-7388

and a copy to:
The Nathanson Group PLLC

 
One Union Square

 
600 University Street, Suite 2000

 
Seattle, WA 98101

 
Attn: Randi S. Nathanson

 
Telecopy No.: 206-299-9335

If to Landlord:
National Health Investors, Inc.

 
222 Robert Rose Drive

 
Murfreesboro, TN 37129

 
Attention: Kristin S. Gaines

Telecopy No.: 615-225-3030

and a copy to:
Stites & Harbison PLLC

 
401 Commerce Street

Suite 800
 
Nashville, TN 37219

 
Attention: Robert N. Buchanan III

Telecopy No.: 615/782-2371

25.9           Survival of Terms; Applicable Law. Anything contained in this
Lease to the contrary notwithstanding, all claims against, and liabilities of,
Tenant or Landlord arising prior to any date of termination of this Lease shall
survive such termination. If any term or provision of this Lease or any
application thereof shall be invalid or unenforceable for any reason whatsoever,
the remainder of this Lease and any other application of such term or provisions
shall not be affected thereby. If any late charge or any interest rate provided
for in any provision of this Lease based upon a rate in excess of the maximum
rate permitted by applicable law, such charges shall be fixed at the maximum
permissible rate. Subject to any limitations on assignment contained in this
Lease, all the terms and provisions of this Lease shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns. The headings in this Lease are for convenience of reference only and
shall not limit or otherwise affect the meaning hereof. The Recitals to this
Lease are incorporated herein by this reference. This Lease as to each Facility
shall be governed by and construed in accordance with the laws of the State of
Tennessee or the applicable State, but not including its conflicts of laws
rules.

 
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25.10           Exculpation of Officers and Agents. This Lease is made on behalf
of Landlord and Tenant by an officer of each, not individually, but solely in
his capacity in such office as authorized by the directors of each, pursuant to
their respective bylaws. The obligations of this Lease are not binding upon, nor
shall resort be had to the private property of, any of the directors,
shareholders, officers, members, employees or agents of Landlord or Tenant.
 
25.11           Licenses Following Termination; Tenant’s Cooperation.
 
(a)           If Tenant does not close its purchase of the Land and Facilities
under the Purchase Option provided in Section 25.16 hereof, to the extent not
then prohibited by applicable Legal Requirements, unless otherwise directed by
Landlord, upon the expiration or termination of the Term, Tenant shall use
reasonable good faith efforts to (i) transfer to Landlord or Landlord’s nominee
(or to cooperate with Landlord or Landlord’s nominee in connection with the
processing by Landlord or Landlord’s nominee of any applications for) all
Licenses then in effect which relate to the operation of any Facility and/or
cooperate with Landlord or its nominee in their efforts to secure licenses for
which Landlord or its nominee wishes to apply and which may be required by
Landlord or Landlord’s nominee relating to the ownership and operation of any
Facility (provided, however, that the costs and expenses of any such transfer or
the processing of any such application shall be paid by Landlord or Landlord’s
nominee), and (ii) file all final cost reports, if any, relating to Tenant’s
operation of the Facility.
 
(b)           Tenant acknowledges and agrees that to the extent and only to the
extent permitted by law, title to (i) any zoning or building approvals, or other
governmental approvals (the “Approvals”) which, by their nature, pertain to a
Facility, its ownership and its use and occupancy and (ii) all licenses and
permits which, by their nature, pertain specifically to such Facility, its
ownership and its use and occupancy shall, in every respect, be and remain with
such Facility or Landlord, as the case may be, and are not and shall not be the
property of Tenant. Tenant shall take no action and shall have no right, power
or authority to encumber same except in favor of Landlord and then only to the
extent permitted by applicable law or to sell, assign or transfer same to any
third person other than Landlord or its nominee in accordance with the
provisions of Section 25.11(a), either during the Term or upon any termination
of this Lease, or to use, in any manner which would impair or adversely affect
the use of such Approvals with respect to the Facility, such Approvals at any
other location.
 
(c)           Upon the expiration or earlier termination of the Term (other than
as a result of the purchase of the Facilities by Tenant pursuant to the Purchase
Option set forth in Section 25.16), Tenant shall execute in favor of the
Landlord as to each Facility the Assignment of Resident Agreements, to the
extent and only to the extent permitted by law, and the Assignment of Contracts
and Operating Leases. In addition, Tenant shall cooperate with Landlord in order
to ensure a smooth transfer without interruption of the operation of each
Facility from Tenant

 
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to Landlord or Landlord’s nominee. Such cooperation shall include, without
limitation, turning over (i) all Records and other information with respect to
residents and patients of the Facility which are in the possession of Tenant or
any Affiliate of Tenant (subject to applicable Legal Requirements governing
confidentiality of patient records, Tenant agreeing, however, that Tenant’s
cooperation under this subparagraph (c) shall include cooperation in
facilitating requests to the residents and patients of the Facility to consent
to the transfer of such patient records), and (ii) a cash amount equal to all
prepaid income, rents, and revenues of any kind with respect to the Facility,
including, but not limited to, security deposits, rents and other sums paid by
residents covering any period from and after the date of such expiration or
termination, but reduced to the extent and amount any such prepaid items must
be, and are, refunded to the payor(s) by Tenant.
 
(d)           Upon the expiration or earlier termination of the Term (other than
as a result of the purchase of the Facilities by Tenant pursuant to the Purchase
Option set forth in Section 25.16) Landlord or its nominee shall, upon request,
enter into an Operations Transfer Agreement with Tenant in form and substance
substantially the same at the OTA executed by the parties at the commencement of
the Term of the Lease.
 
25.12  Memorandum of Lease. Landlord and Tenant shall, concurrently with the
execution of this Lease, enter into a short form memorandum of this Lease for
each Facility in form suitable for recording under the laws of the State.
Landlord and Tenant shall equally share all costs and expenses of recording such
memorandum of this Lease.  The Memorandum shall include a reference to Tenant’s
Purchase Option under Section 25.16 hereof.
 
25.13 Entire Agreement; Modifications. This Lease contains the entire agreement
between Landlord and Tenant regarding the subject matter hereof and supersedes
any and all other prior oral or written agreements, communications, covenants,
representations or warranties between the parties regarding the subject matter
hereof. No provision of this Lease may be waived, amended, supplemented or
otherwise modified except by an agreement in writing signed by the parties
hereto or their respective successors in interest.
 
25.14  Attorneys’ Fees. During the Term each party shall pay all reasonable
legal fees and other out-of-pocket costs of the other incurred in connection
with any event which would after due notice and the passage of time would
constitute an Event of Default if not cured; and in the event either party
brings an action to enforce any of the terms hereof or in connection herewith,
the prevailing party in such action shall be entitled to and the losing party
agrees to pay the reasonable attorneys’ fees and expenses, including attorneys’
fees and expenses of appellate proceedings, of the prevailing party.  Tenant
shall be responsible for Landlord’s reasonable attorneys’ fees and expenses in
connection with the administration and enforcement of this Lease, including
without limitation, any renewals or extensions of this Lease, the exercise of
the Purchase Option, and the review of any documents related to Landlord
consents. Tenant shall be responsible for Landlord’s reasonable attorneys’ fees
and expenses in the event Tenant requests that

 
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Landlord amend the Lease, grant an easement over the Property or execute and
deliver an estoppel certificate.
 
25.15           Time is of the Essence. Time is hereby expressly made of the
essence with respect to each and every term and provision of this Lease,
including, but in no way limiting the generality of the foregoing, with respect
to each and every time constraint and deadline imposed by the terms of this
Lease. The parties intend that they be strictly bound by the provisions
concerning the timing performance of their respective obligations contained in
this Lease. Further, if any attempt is made by either party to perform an
obligation required by it to be performed or comply with a provision of this
Lease required by it to be complied with, in any manner, other than in strict
compliance with the time constraints applicable thereto, even if such purported
attempt is but one day late, then such purported attempt at performance or
compliance shall be deemed (i) violative of this “Time is of the Essence”
clause, (ii) in contravention of the intent of the parties thereto and (iii)
null and void and of no force and effect.
 
25.16           Purchase Option.
 
(a)           Landlord hereby grants to Tenant the right and option to purchase
all of the Facilities (but not fewer than all of the Facilities then subject to
the terms of this Lease) (the “Purchase Option”) at any time during the period
commencing on the first day of the eleventh (11th) year of the Initial Term and
expiring on the last day of the Term (the “Option Period”). Provided that no
Event of Default then exists, Tenant may exercise the option by delivering to
Landlord written notice thereof at any time before or during the Option Period,
and the closing of the sale and purchase shall occur no later than one hundred
twenty (120) days after the delivery of such written notice of exercise; unless
such day is a Saturday, Sunday or legal holiday, in which event the closing
shall be on the next business day thereafter (“Closing Date”).  Tenant shall
have the right to assign this purchase option upon the assignment of this Lease
permitted by the terms hereof without Landlord’s consent or consummated with the
consent of Landlord if and as required by the terms of this Lease, to any
Affiliate of Tenant or to an entity providing, or formed for the purpose of
obtaining, financing for the Purchase Option transaction (the party purchasing
pursuant to this purchase option shall hereinafter be referred to as the
“Purchaser”).  This Purchase Option may not otherwise be assigned by Tenant
without Landlord’s prior written consent.  In the event Tenant gives notice of
its election to purchase the Property but fails to close the purchase of the
Property within the time allowed herein, the Lease shall remain in full force
and effect and Tenant shall be liable for all of Landlord’s costs and expenses
relating to the Tenant’s election to exercise the purchase option, including,
but not limited to, the fees and expenses of the Landlord’s appraiser and
reasonable attorneys fees.

(b)           The Purchase Price for the exercise of the Purchase Option shall
be the sum of (x) the principal amount of Thirty Six Million Six Hundred Sixty
Six Thousand Six Hundred Sixty Seven and no/100 Dollars ($36,666,667.00) (less
any amount previously paid to Landlord pursuant to Articles 15 or Article 16 as
a result of damage to or destruction or Condemnation of any of the Facilities)
(the “Base Purchase Price”) plus (y) fifty percent (50%) of the amount, if any,
by which the fair market value of the

 
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Facilities subject to this Lease at the time the Purchase Option is exercised
determined in the manner set forth below (herein the “Fair Market Value”)
exceeds the Base Purchase Price.

(c)           The Fair Market Value of the Facilities subject to this Lease at
the time the Purchase Option is exercised shall be such amount as may be agreed
upon by Landlord and Tenant; provided, however, in the event Landlord and Tenant
are unable to agree after negotiating in good faith for a  period of sixty (60)
days upon the Fair Market Value of the Facilities subject to the terms of this
Lease at the time the Purchase Option is exercised, then the Fair Market Value
of the Facilities shall be determined by an independent appraisal firm, in which
one or more of the members, officers or principals of such firm are Members of
the Appraisal Institute (or any successor organization thereto), as may be
selected by Landlord (the “Appraiser”). Landlord shall give Tenant notice of the
identity of such Appraiser. Landlord shall cause such Appraiser to determine the
Fair Market Value as of the relevant date (giving effect to the impact, if any,
of inflation from the date of the Appraiser’s decision to the relevant date)
and, absent Tenant’s selection of a second appraiser within the time permitted
and otherwise pursuant to the provisions of this Section, the determination of
such Appraiser shall be final and binding upon the parties. A written report of
such Appraiser shall be delivered and addressed to each of Landlord and Tenant.
To the extent consistent with sound appraisal practice as then existing at the
time of any such appraisal, an appraisal of Fair Market Value for purposes of
this Lease shall take into account and shall give appropriate consideration to
the sales comparison approach and the income approach (the cost approach shall
not be considered), and neither method or approach shall be deemed conclusive.
This provision for determination by appraisal shall be specifically enforceable
to the extent such remedy is available under applicable law, and any
determination hereunder shall be final and binding upon the parties except as
otherwise provided by applicable law. Landlord and Tenant shall each pay
one-half (1/2) of the fees and expenses of the Appraiser and one-half (1/2) of
all other costs and expenses incurred in connection with such appraisal. If
Tenant does not accept the choice of the Appraiser selected by Landlord as
provided above, then the following shall apply:

(i)           Within fifteen (15) days after Tenant’s receipt of Landlord’s
selected Appraiser, Tenant shall by notice to Landlord appoint a second
Appraiser meeting the requirements set forth above to act on its behalf. In such
event, the Appraisers thus appointed shall, within sixty (60) days after the
date of Landlord’s notice of its originally selected Appraiser, proceed to
determine the Fair Market Value as of the relevant date (giving effect to the
impact, if any, of inflation from the date of their decision to the relevant
date); provided, however, that if Tenant fails to appoint its Appraiser within
the time permitted, or if two Appraisers shall have been so appointed but only
one such Appraiser shall have made such determination within such sixty (60) day
period, then the determination of such sole Appraiser shall be final and binding
upon the parties.

(ii)           If the two Appraisers shall have been appointed and shall have
made their determinations within the respective requisite periods set forth
above

 
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and if the difference between the amounts so determined shall not exceed ten
percent (10%) of the lesser of such amounts, then the Fair Market Value of such
Facility shall be an amount equal to average of the two appraisals. If the
difference between the amounts so determined shall exceed ten percent (10%) of
the lesser of such amounts, then such two Appraisers shall have twenty (20) days
to appoint a third Appraiser meeting the above requirements, but if such
Appraisers fail to do so, then either party may request the American Arbitration
Association (the “AAA”) or any successor organization thereto to appoint an
Appraiser meeting the above requirements within twenty (20) days of such
request, and both parties shall be bound by any appointment so made within such
twenty (20) day period. If no such Appraiser shall have been appointed within
such twenty (20) days or within one hundred five (105) days of the original
request for a determination of Fair Market Value, whichever is earlier, either
Landlord or Tenant may apply to any court having jurisdiction to have such
appointment made by such court. Any Appraiser appointed by the original
Appraisers, by the AAA or by such court shall be instructed to determine the
Fair Market Value of such Facilities within thirty (30) days after appointment
of such Appraiser in accordance with the methodologies and approaches set forth
herein.

(iii)           Following the determination by the third Appraiser described
above (if applicable), the determination of the Appraiser which differs most in
terms of dollar amount from the determinations of the other two Appraisers shall
be excluded, and the average of the remaining two determinations shall be final
and binding upon Landlord and Tenant as the Fair Market Value of the Facilities.
This provision for determination by appraisal shall be specifically enforceable
to the extent such remedy is available under applicable law, and any
determination hereunder shall be final and binding upon the parties except as
otherwise provided by applicable law.

(iv)           If the foregoing two (2) or three (3) Appraiser system is
utilized, then Landlord and Tenant shall each pay the fees and expenses of the
Appraiser appointed by it and each shall pay one-half (1/2) of the fees and
expenses of any third Appraiser.

(d)           The purchase price shall be paid in full at the closing, although
Purchaser may, at its option, use all or any portion of the purchase price as
may be necessary to discharge any mortgages or other liens or encumbrances
affecting Landlord’s interest in the Property.  In the event that the aggregate
amount required to pay and discharge all such mortgages, liens and encumbrances
exceeds the purchase price, Landlord shall pay or reimburse Purchaser all such
additional sums and obtain full release and discharge of such deeds of trust,
mortgages, liens and encumbrances.  At the closing, Landlord shall convey to
Purchaser by special warranty deeds, bills of sale and assignments, all of
Landlord’s right, title and interest to the Property, but free and clear of all
mortgages, deeds of trust, liens and other encumbrances whatsoever, excepting
real estate taxes not yet due and payable, easements, restrictive covenants and
other matters encumbering the Land on the Commencement Date or otherwise
approved by Tenant. Upon such

 
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conveyance this Lease shall terminate and neither party shall have any further
rights or obligations hereunder except those expressly stated to survive
termination.  Unless otherwise agreed by Tenant and any sublessee, such
termination shall not result in the termination of any sublease. The closing
costs and expenses in connection with the transfer of the Facilities to Tenant,
including, but not limited to,  real property conveyance or transfer fees or
deed stamps, title search fees, title insurance commitment fees, and title
insurance premiums, survey fees, environmental assessment fees, recording fees
and the fees of any escrow agent shall be paid by Tenant. Tenant shall be solely
responsible for Tenant’s and Landlord’s respective legal fees incurred in
connection with the transfer of the Facilities to Tenant.  Notwithstanding the
foregoing provision relating to legal fees, Landlord shall be solely responsible
for Landlord’s legal fees incurred in cleaning any encumbrances or exceptions to
title to any portion of the Land or Property which title matter Landlord is
required to have cleared or removed pursuant to this Section 25.16(d).

(e)           Tenant shall be entitled to specific enforcement of the rights and
obligations contained in this Section 25.16.

25.17           Submission to Jurisdiction. Landlord and Tenant each hereby
irrevocably:
 
(i)           submits, in any legal proceeding related to this Lease, to the
non-exclusive in personam jurisdiction of Arizona, South Carolina, Tennessee or
any United States court of competent jurisdiction sitting in any State and agree
to suit being brought in any such court;
 
(ii)           waives any objection that it may now or hereafter have to the
venue of such proceeding in any such court located in any county in which the
Facility involved in such litigation is located, or Davidson County, Tennessee
or Rutherford County, Tennessee or that such proceeding was brought in any
inconvenient court; and
 
(iii)           agrees that nothing herein shall affect the right of either
party to bring any legal proceedings (including a proceeding for enforcement of
a judgment entered by any of the aforementioned courts) against the other party
in any other court or jurisdiction in accordance with applicable law.
 
25.18           Waiver of Jury Trial. EACH OF LANDLORD AND TENANT HEREBY
SEVERALLY, VOLUNTARILY, KNOWINGLY AND INTELLIGENTLY WAIVES ANY AND ALL RIGHTS TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF OR IN
CONNECTION WITH, OR IN ANY WAY RELATED TO, DIRECTLY OR INDIRECTLY, THIS LEASE,
ANY OF THE OTHER ALS LEASES, AND/OR ANY RELATIONSHIP, COURSE OF CONDUCT OR
DEALINGS OR NEGOTIATIONS PERTAINING TO ANY OF THE FOREGOING. EACH OF LANDLORD
AND TENANT SEVERALLY ACKNOWLEDGES THAT THIS WAIVER OF JURY TRIAL IS A MATERIAL
INDUCEMENT TO LANDLORD TO ENTER INTO THIS LEASE, AND THAT EACH OF LANDLORD AND
TENANT HAS BEEN REPRESENTED BY INDEPENDENT LEGAL COUNSEL, SELECTED

 
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BY SUCH PARTY’S OWN FREE WILL, AND HAS HAD AN OPPORTUNITY TO CONSULT WITH SUCH
INDEPENDENT LEGAL COUNSEL CONCERNING THE LEGAL EFFECT OF THIS WAIVER.
 
25.19  Tax Identification Number.  Tenant’s federal EIN is 91-1605464.
 
25.20           Use of Counterparts.  This Lease may be executed in two or more
counterparts and each counterpart shall be deemed to be an original. Facsimile
signatures shall be sufficient to evidence any party’s agreement to this Lease
and to bind such party hereto.
 
25.21           Calculation of Time Periods. Unless otherwise specified, in
computing any period of time described herein, the day of the act or event on
which the designated period of time begins to run shall not be included and the
last day of the period so computed shall be included, unless such last day is a
Saturday, Sunday or legal holiday, in which event the period shall run until the
5:00 PM Pacific Time on the next day which is not a Saturday, Sunday or a legal
holiday.
 
ARTICLE 26 – NON COMPETITION PROVISIONS.
 
Tenant covenants and agrees that, at all times during the last three years of
this Lease neither Tenant nor any Affiliate of Tenant, will directly or
indirectly, own, management, lease or operate a health care facility within a
ten (10) mile radius of any Facility in Tennessee or South Carolina and within a
five (5) mile radius of any Facility in Arizona, that competes. or would
reasonably be expected to compete with such Facility.  In addition for a period
of one year after expiration of the Term, neither Tenant nor any Affiliate of
Tenant will commence construction of any facility within the respective
protective radii stated above, which newly developed facility would compete or
be reasonably expected to compete with any Facility. The provisions of this
Article 26 shall survive the expiration or termination of this Lease.  Tenant
understands and acknowledges that the violation of this covenant not to compete
by Tenant, or any Affiliate of Tenant, would cause irreparable harm to Landlord
and Landlord would be entitled to seek an injunction from any court of competent
jurisdiction enjoining and restraining Tenant, or any Affiliate of Tenant, from
any act prohibited by this Article 26.  Tenant and Landlord recognize and
acknowledge that the area and time limitations contained in this Article 26 are
reasonable.  In addition, Tenant and Landlord recognize and acknowledge that the
area and time limitations are properly required for the protection of the
business interests of Landlord due to the status and reputation of Tenant in the
industry.  The parties agree that nothing in this Article 26 shall be construed
as prohibiting Landlord from pursuing any other remedies available to it for any
breach or threatened breach of this covenant not to compete, including the
recovery of damages from Tenant or any other person or entity acting in concert
with Tenant.  Tenant agrees that, in the event that Tenant, or any subsidiary
thereof, breaches this covenant not to compete, Tenant will pay reasonable
attorney’s fees and expenses incurred by Landlord in enforcing this covenant not
to compete.
 
It is further agreed that if at any time it shall be determined that this
covenant not to compete is unreasonable as to time or area, or both, by any
court of competent jurisdiction, Landlord shall be entitled to enforce this
covenant for such period of time and within such area as such court may
determine to be reasonable

 
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Notwithstanding the foregoing, this Article 26 shall not prohibit Tenant from
owning, leasing, operating or managing any competing healthcare facility which
has been acquired by Tenant or any Affiliate of Tenant, whether by acquisition,
lease or management agreement, as part of a transaction or series of related
transactions including six (6) or more facilities, any of which is located
within the areas protected by this Article 26.
 
This Article 26 shall be deemed to be void and of no ongoing effect in the event
Tenant should exercise its option to purchase all of the Facilities pursuant to
Section 25.16.
 
ARTICLE 27 – CONDITIONS PRECEDENT.
 
Notwithstanding anything to the contrary contained in this Lease, Landlord and
Tenant  acknowledge and agree that the continued effectiveness of this Lease and
Landlord’s and Tenant’s obligations hereunder are expressly conditioned upon the
satisfaction or waiver in writing on or before December 1, 2009 or such later
date as may be agreed upon by Landlord  and Tenant f the following
 
(a)           It shall be a condition to Tenant’s obligations hereunder that the
Lease and Management Agreement in effect with respect to each Facility shall
have been terminated and, upon request, Landlord shall have provided Tenant with
evidence thereof.
 
(b)           It shall be a condition to Tenant’s obligations hereunder that the
Prior Operator and/or the Prior Manager shall have entered into the OTA or other
documentation deemed by Tenant to be reasonably acceptable with respect to the
transfer of operational and financial responsibility for such Facility from the
Prior Operator and/or Prior Manager to Tenant.
 
(c)           It shall be a condition to Tenant’s obligations hereunder that
Tenant shall be satisfied in its sole and absolute discretion with the results
of its due diligence investigation with respect to the physical, financial and
operational condition of each of the Facilities, which due diligence
investigations shall have been completed by November 13, 2009. (October 12, 2009
through November 13, 2009 being referred to herein as the “Due Diligence
Period”).
 
(d)           It shall be a condition to Tenant’s obligations hereunder that it
has secured the approval of its Board of Directors to the transaction
contemplated herein (prior to the expiration of the Due Diligence Period.
 
(e)           It shall be a condition to Tenant’s obligations hereunder with
respect to each Facility that Tenant shall either (i) have received the Licenses
required by the State for Tenant to operate such Facility for its Permitted Use
or (ii) Tenant shall be authorized to operate a Facility under the terms of the
Interim Operating Agreements.
 

 
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In order to terminate this Lease based upon Tenant’s dissatisfaction with
Tenant’s inspections of the Facilities, Tenant must provide written notice of
termination to Landlord not later than 5:00 p.m. Central Standard Time on
November 16, 2009.  If such notice of termination is not timely given, Tenant
shall be deemed to have satisfied conditions (c) and (d) of this Section 27.
 
[Remainder of this page is blank]

 
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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the dates
shown below to become effective as of 10/13, 2009.

 
TENANT:

Date:10/13/2009
EMERITUS CORPORATION, a Washington corporation

 
 
By:/s/ Eric Mendelsohn

 
Eric Mendelsohn

 
Title: SVP Corporate Development

STATE OF
WASHINGTON                                                                :
: ss
COUNTY OF                                KING                                :

On this, the 13th day of _October, 2009, before me, the undersigned officer,
personally appeared Eric Mendelsohn, who acknowledged himself to be the SVP
Corporate Development of Emeritus Corporation, a Washington corporation
(“Company”), and being duly sworn according to law deposes and says that he, as
such officer, being authorized to do so, executed the foregoing Instrument for
the purposes therein contained, by signing the name of the Company by himself as
SVP Corporate Development.

IN WITNESS WHEREOF, I hereunto set my hand and official seal the day and year
first above written.

/s/ Teresa K. Franklin
Notary Public

My Commission Expires: 02/09/2011

 
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LANDLORD:

Date:_10/13/09
NATIONAL HEALTH INVESTORS, INC., a Maryland corporation

 
By: /s/ Kristin S. Gaines

 
Kristin S. Gaines

 
Title: Vice President, Operations

STATE OF _TENNESSEE                                                      )
)
COUNTY OF _RUTHERFORD                                                      )
 
Before me, _Jessica S. Murphy, a Notary Public of said County and State,
personally appeared Kristin S. Gaines, with whom I am personally acquainted (or
proved to me on the basis of satisfactory evidence), and who, upon oath,
acknowledged herself to be Vice President, Operations of National Health
Investors, Inc., a Maryland corporation, the within named bargainor, and that
she as such officer of the corporation, executed the foregoing instrument for
the purposes therein contained, by signing the name of the corporation, and on
its behalf, by himself as _ Vice President, Operations of the corporation.
 
Witness my hand and seal, at Office in Murfreesboro, this _13th day of October,
2009.
 
 
/s/ Jessica S. Murphy
Notary Public
My Commission Expires: 07-21-2013

 
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SCHEDULE I

List Of Facilities

The Place at Gilbert, Arizona
The Place at Glendale, Arizona
The Place at Tanque Verde, Arizona
The Place at Tucson, Arizona
The Place at Conway, South Carolina
The Place at Gallatin, Tennessee
The Place at Kingsport, Tennessee
The Place at Tullahoma, Tennessee

 
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SCHEDULE II

Allocation of Base Rent

Community
City, State
First Lease Year Annual Base Rent Allocation
     
The Place at Gilbert
Gilbert, AZ
$  254,619
The Place at Glendale
Glendale, AZ
$  444,689
The Place at Tanque Verde
Tanque Verde, AZ
$  687,344
The Place at Tucson
Tucson, Az
$  902,616
The Place at Conway
Conway, SC
$    92,526
The Place at Gallatin
Gallatin, TN
$  291,580
The Place at Kingsport
Kingsport, TN
$  164,571
The Place at Tullahoma
Tullahoma, TN
$  512,055
     
Total
 
$3,350,000

 
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EXHIBIT A

ASSIGNMENT AND ASSUMPTION OF CONTRACTS AND OPERATING LEASES
 
THIS ASSIGNMENT AND ASSUMPTION OF CONTRACTS AND OPERATING LEASES (this
“Assignment”) is made and entered into as of the ____ day of
_____________________ (the “Effective Date”) by and between the undersigned
tenant, a  (“Tenant”), and _________________________________________, a
___________________ (“Landlord”).
 
R E C I T A L S:
 

WHEREAS, Landlord and Tenant entered into a Lease
dated                                                                                                                                ,
2009 (the “Agreement”) for the lease of certain improved real property having a
legal description as set forth on Exhibit A attached hereto and incorporated
herein by this reference and known generally as [        Name of Facility   
   ], together with certain personal property located upon and used in
connection with such improved real property, all as more particularly described
in the Agreement (collectively the “Project”); and,
 
WHEREAS, the Agreement requires that upon the termination thereof, Tenant shall
deliver to Landlord of this Assignment pursuant to which Tenant will convey to
Landlord all of Tenant’s right, title and interest in the Contracts and
Operating Leases; and
 
WHEREAS, the Agreement has been terminated effective as of the date first above
written.
 
NOW, THEREFORE, in consideration of the foregoing premises, for the
consideration as set forth in the Agreement, and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto do covenant and agree as follows:
 
1.           Defined Terms. Capitalized terms not otherwise defined in this
Assignment, including without limitation these recitals and the exhibits, shall
have the meanings set forth in the Agreement.
 
2.           Contracts and Operating Leases. Tenant hereby grants, bargains,
sells, assigns, transfers and conveys unto Landlord to the extent assignable all
of Tenant’s right, title and interest in and to all of the Contracts and
Operating Leases set forth on Exhibit B attached hereto and incorporated herein
by reference (herein the “Assigned Rights”).
 
3.           Cancellation and Indemnification. Tenant agrees to cancel any and
all Contracts and Operating Leases except those listed in Exhibit B hereto (the
“Assumed Contracts and Operating Leases”) and those listed on Exhibit C hereto
(the “Master Contracts and Operating Leases”) and to indemnify and hold Landlord
harmless against any claims and losses under such cancelled Contracts and
Operating Leases, it being the intention of the parties that Landlord will not
assume Tenant’s obligations under any Contract or Operating Lease except those
listed in Exhibit B, if any. With respect to the Master Contracts and Operating
Leases, Tenant shall be not

 
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be required to terminate the same but shall be required to remove the Project
from any continuing benefits or obligations thereunder from and after the
Effective Date.
 
4.           Assumption. Landlord accepts the assignment of all of the Assigned
Rights and Landlord does hereby assume and undertake to abide by the same
according to their respective terms and conditions insofar as they pertain to
the Project as such obligations arise on or after the Effective Date and are not
related to causes occurring prior to the Effective Date. Landlord hereby agrees
to indemnify and hold Tenant harmless from any and all expenses, charges, claims
and liabilities, including costs and attorneys’ fees relating to the Assigned
Rights arising as a result of any action or omission of Landlord from and after
the Effective Date not related to causes occurring prior to the Effective Date.
Tenant agrees to indemnify and hold Landlord harmless from any and all expenses,
charges, claims and liabilities, including costs and attorneys’ fees, associated
with the Assigned Rights or related thereto arising as a result of any action or
omission of Tenant prior to the Effective Date.
 
5.           Limitation.  To the extent that any of the assignments or
assumptions under this Agreement are now or are hereafter deemed to be in
violation of the terms of any of the Operating Contracts and Operating Leases,
such assignment and assumption shall be deemed to be retracted and null and
void.
 
6.           Counterparts. This Assignment may be executed in counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute but one and the same instrument.
 
7.           Entirety. This Assignment represents the entire and final agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior discussions or writings with respect thereto.
 
IN WITNESS WHEREOF, the parties have caused this Assignment to be executed as of
the Effective Date.
 
TENANT:                                                                [TENANT]

By:                                                                           

Print
Name:                                                                           

Title:                                                                           

 
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LANDLORD:                                                                           [LANDLORD]

By:                                                                           

Print
Name:                                                                           

Title:                                                                           

 
69

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EXHIBIT A

Legal Description

EXHIBIT B

Contracts and Operating Leases

 
70

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EXHIBIT B

ASSIGNMENT AND ASSUMPTION OF RESIDENT AGREEMENTS
 
THIS ASSIGNMENT AND ASSUMPTION OF RESIDENT AGREEMENTS (this “Assignment”) is
made and entered into as of the ____ day of _____________________ (the
“Effective Date”) by and between the undersigned tenant, a  (“Tenant”), and
_____________________________, a __________________(“Landlord”).
 
R E C I T A L S:
 

WHEREAS, Tenant and Landlord entered into a Lease dated _________________, 2009
(the “Agreement”) for the lease of certain improved real property having a legal
description as set forth on Exhibit A attached hereto and incorporated herein by
this reference and known generally as [      Name of Facility        ], together
with certain personal property located upon and used in connection with such
improved real property, all as more particularly described in the Agreement
(collectively the “Project”); and,
 
WHEREAS, the Agreement requires that, upon the termination thereof, Tenant shall
deliver to Landlord this Assignment pursuant to which Tenant will convey to
Landlord all of Tenant’s right, title and interest in the Resident Agreements,
including without limitation all security deposits, trust accounts and tenant
applications held in connection therewith (collectively the “Resident
Agreements”); and
 
WHEREAS, the Agreement has been terminated effective as of the date first above
written.
 
NOW, THEREFORE, in consideration of the foregoing premises, for the
consideration as set forth in the Agreement, and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto do covenant and agree as follows:
 
1.           Defined Terms. Capitalized terms not otherwise defined in this
Assignment, including without limitation these recitals and the exhibits, shall
have the meanings set forth in the Agreement.
 
2.           Resident Agreements. Tenant hereby grants, bargains, sells,
assigns, transfers and conveys unto Landlord all of Tenant’s right, title and
interest in and to all of the Resident Agreements to the extent assignable,
including without limitation the Resident Agreements set forth on Exhibit B
attached hereto and incorporated herein by reference. The information set forth
on Exhibit C attached hereto and incorporated herein by this reference regarding
each of the Resident Agreements, including without limitation information
regarding security deposits, custodial and trust accounts, prepaid amounts and
delinquent amounts, is true and correct as of the Effective Date.
 

 
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3.           Payments Under Resident Agreements. Tenant hereby grants, bargains,
sells, assigns, transfers and conveys unto Landlord all of its right, title and
interest in and to (a) payments under the Resident Agreements, and (b) third
party payments received in lieu of payments required under Resident Agreements,
which payments under either (a) or (b) are for services, goods or rentals
accruing from and after the Effective Date.  Any payments received by Landlord
for services, goods or rentals accruing prior to the Effective Date that are
received by Landlord shall be promptly remitted by Landlord to Tenant.
 
4.           Assumption. Landlord accepts the assignment of all of the Resident
Agreements set forth in Exhibit B, together with deposits, and amounts held in
custodial and trust accounts as shown on Exhibit C, and Landlord does hereby
assume and undertake to abide by the same according to their respective terms
and conditions insofar as they pertain to the Project (the “Assignment and
Assumption”), as such obligations arise on or after the Effective Date and are
not related to causes occurring prior to the Effective Date. Landlord hereby
agrees to indemnify and hold Tenant harmless from any and all expenses, charges,
claims and liabilities, including costs and reasonable attorneys’ fees,
associated with the Assignment and Assumption or related thereto arising as a
result of any action or omission of Landlord from and after the Effective Date
not related to causes occurring prior to the Effective Date. Tenant agrees to
indemnify and hold Landlord harmless from any and all expenses, charges, claims
and liabilities, including costs and reasonable attorneys’ fees, associated with
the Assignment and Assumption or related thereto arising as a result of any
action or omission of Tenant prior to the Effective Date.
 
5.           Limitation.  To the extent that any of the assignments or
assumptions under this Agreement are now or are hereafter deemed to be in
violation of any applicable law or regulation, such assignment and assumption
shall be deemed to be retracted and null and void.
 
6.           Counterparts. This Assignment may be executed in counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute but one and the same instrument.
 
7.           Entirety. This Assignment represents the entire and final agreement
of the parties hereto with respect to the subject matter hereof and supersedes
all prior discussions or writings with respect thereto.
 

 
IN WITNESS WHEREOF, the parties have caused this Assignment to be executed as of
the Effective Date.
 
TENANT:                                                                [TENANT]

By:                                                                           

Print
Name:                                                                           

Title:                                                                           

 
72

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LANDLORD:                                                                           [LANDLORD]

By:                                                                           

Print
Name:                                                                           

Title:                                                                           

 
73

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EXHIBIT A
 
Legal Description

 

 

 

 
EXHIBIT B
 
Resident Agreements

 

 

 

 
EXHIBIT C
 
Information Regarding Security Deposits,
Trust Accounts, Prepaid Amounts and Delinquency Reports

 
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EXHIBIT C
 
BILL OF SALE
 
This BILL OF SALE (this “Bill of Sale”) is executed as of the ____ day of
____________________ by the undersigned tenant, a  (“Tenant”), to
_______________________________, a _________________ (“Landlord”).
 
R E C I T A L S:
 

WHEREAS, Tenant and Landlord entered into a Lease
dated                                                                                                                                ,
2009 (the “Agreement”) for the lease of certain improved real property having a
legal description as set forth on Exhibit A attached hereto and incorporated
herein by this reference and known generally as [       Name of
Facility       ], together with certain personal property located upon and used
in connection with such improved real property, all as more particularly
described in the Agreement; and,
 
WHEREAS, the Agreement requires that upon the termination thereof, Tenant shall
deliver to Landlord a Bill of Sale pursuant to which Tenant will convey to
Landlord all of Tenant’s right, title and interest in the Transferred Tenant’s
Personal Property, the Inventory and the Records; and
 
WHEREAS, the Agreement has been terminated effective as of the date first above
written.
 
NOW, THEREFORE, in consideration of the foregoing premises, the consideration
set forth in the Agreement, and for other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, Tenant hereby agrees
as follows:
 
1.           Defined Terms. Capitalized terms not otherwise defined in this Bill
of Sale, including without limitation these recitals and the exhibits, shall
have the meanings set forth in the Agreement.
 
2.           Conveyance. Tenant hereby sells, assigns, conveys, transfers and
delivers to Landlord the following described assets and property (the
“Property”): (a) the Transferred Tenant’s Personal Property; (b) the Inventory;
and (c) the Records, all to the extent of Tenant’s interest therein. A
non-exhaustive list of the Property is set forth on Exhibit B attached hereto
and incorporated herein by this reference.  The sale and assignment of the
Records shall be subject to all applicable rules and regulations governing
confidentiality of resident and patient records.
 

 
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IN WITNESS WHEREOF, Tenant has caused this Bill of Sale to be executed as of the
date first above written.
 
 
Tenant:

 
[TENANT]

 
By:
 

 
Print Name:
 

 
Title:
 

 
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EXHIBIT A
 
REAL PROPERTY DESCRIPTION
 

 

 

 

 

 

 

 
EXHIBIT B
 
PROPERTY DESCRIPTION
 

 
77

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EXHIBIT D

Legal Description of land parcels:

 
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EXHIBIT E

Permitted Encumbrances

To be determined during Due Diligence Period

 

 
79

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EXHIBIT F
 
CAPITAL IMPROVEMENT RESERVE AGREEMENT
 
This CAPITAL IMPROVEMENT RESERVE AGREEMENT (as it may be amended and/or restated
from time to time, this “Agreement”) is executed as of the ____ day of , 2009 by
and among EMERITUS CORPORATION, a Washington corporation (the “Tenant”), and
NATIONAL HEALTH INVESTORS, INC., a Maryland corporation (the “Landlord”).
 
R E C I T A L S:
 
A.           Landlord is or is expected to become the owner of a 70-unit
assisted living facility known as ____________________________________________
in __________________________ (the “Facility”).
 
B.           Landlord and Tenant have entered into a Lease dated
__________________, 2009 (the “Lease”) under which the Tenant shall lease the
Facility from Landlord.
 
C.           The Lease requires that the Tenant maintain the Facility during the
term of the Lease and to that end requires that the Tenant make capital
improvements to each Facility in the amount of not less than the Targeted
Expenditure Amount.

D.           As a condition to the Lease, Landlord further requires that if
Tenant fails to meet the Targeted Expenditure Amount as specified therein,
Tenant shall pay to an escrow account held or controlled by Landlord the
difference in the Targeted Expenditure Amount (after taking into account any
unused Overage Amount) for the period in question and the amount actually spent
by Tenant on Capital Expenditures for the Facility for that period (after taking
into account any unused Overage Amount) (the “Shortage”).
 
F.           Landlord shall hold the Shortage in escrow in a separate deposit
account identified on Exhibit A attached hereto and incorporated herein by this
reference, including, without limitation, all such property or type of property
presently existing and hereafter acquired or arising and all proceeds (including
insurance proceeds) or products attributable to or arising from any of such
property and all replacements thereof and additions thereto, including without
limitation any Permitted Cash Investments (the “Capital Improvement Reserve”).
 
G.           For their mutual convenience, Tenant and Landlord desire to enter
into this Agreement to evidence their agreement that Landlord hold and
distribute the Capital Improvement Reserve as set forth herein.
 
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
 
1. Defined Terms. (a) Capitalized terms used in this Agreement shall have the
following meanings:
 

 
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“Agreement” means this Capital Improvement Reserve Agreement.
 
“Approved Costs” has the meaning set forth in Section 4(a) hereof.
 
“Capital Expenditure Documentation” has the meaning set forth in Section 4(a)
hereof.
 
“Capital Improvement Reserve” has the meaning set forth in the Recitals hereof.
 
“Facility” has the meaning set forth in the Recitals hereof.
 
“Permitted Cash Investments” means (a) securities issued or fully guaranteed or
insured by the United States Government or any agency thereof and backed by the
full faith and credit of the United States maturing not more than one year from
the date of acquisition; (b) certificates of deposit, time deposits or
Eurodollar time deposits having in each case a remaining term to maturity of not
more than one year, which are either (i) fully insured by the Federal Deposit
Insurance Corporation or (ii) issued by any commercial bank under the laws of
any State or any national banking association that has combined capital and
surplus of not less than $500,000,000 and whose short-term securities are rated
at least A-1 by S&P or P-1 by Moody’s; (c) commercial paper that is rated at
least A-1 by S&P or P-1 by Moody’s, issued by a company that is incorporated
under the laws of the United States or of any State and directly issues its own
commercial paper, and has a remaining term to maturity of not more than one
year; (d) a repurchase agreement with a maturity date of no more than thirty
(30) days with (i) any commercial bank that is organized under the laws of any
State or any national banking association and that has net worth or capital and
surplus of at least $500,000,000, or (ii) any investment bank that is organized
under the laws of any State and that has net worth or capital and surplus of at
least $500,000,000, which agreement is secured by any one or more of the
securities and obligations described in clauses (a), (b) or (c) of this
definition of Permitted Cash Investments, which shall have a market value
(exclusive of accrued interest and valued at least monthly) at least equal to
the principal amount of such investment; and (e) any money market or other
investment fund the investments of which are limited to investments described in
clauses (a), (b), (c) and (d) of this definition of Permitted Cash Investments
and which is managed by (i) a commercial bank that is organized under the laws
of any state or any national banking association and that has net worth or
capital and surplus of at least $500,000,000, or (ii) an investment bank that is
organized under the laws of any state and that has net worth or capital and
surplus of at least $500,000,000.
 
“Requested Amount” has the meaning set forth in Section 4(a) hereof.
 
“Shortage” has the meaning set forth in the Recitals hereof.
 
(b)           Other Capitalized Words. All other capitalized terms not otherwise
defined in this Agreement, including its preamble, recitals and exhibits, shall
have the meanings set forth in the Lease. All capitalized terms shall be equally
applicable to the singular and plural forms thereof and to any gender form
thereof.
 
2. Capital Improvement Reserve. (a) Upon the creation of the Capital Improvement
Reserve in accordance with the terms of this Agreement, Landlord shall invest
the Capital Improvement Reserve in Permitted Cash Investments mutually
acceptable to Landlord and
 

 
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Tenant. Tenant hereby grants to Landlord a security interest in the Capital
Improvement Reserve as security for the payment and performance of all
obligations Tenant owes to Landlord under the Lease. The Capital Improvement
Reserve shall be established under the tax identification number of Tenant.
 
(b)           Absent the occurrence and continuation of an Event of Default, any
earnings on the Capital Improvement Reserve shall be paid not more frequently
than quarterly or upon request of Tenant as long as no Event of Default exists
to Tenant. During the continuation of an Event of Default, earnings on the
Capital Improvement Reserve shall remain in and become a part of the Capital
Improvement Reserve. Tenant shall be responsible for preparation and filing of
all tax returns and payment of all income and other taxes imposed in connection
with earnings on the Capital Improvement Reserve.
 
3. Use of Funds. Subject to the terms of Section 5 hereof, and after Tenant
meets the Capital Expenditure Target for a given year, Tenant may draw funds
from the Capital Improvement Reserve to pay the costs of additional Capital
Expenditures made that same year to the extent of available funds in the Capital
Improvement Reserve. In the event the Capital Expenditures withdrawn from the
Capital Improvement Reserve are insufficient to pay for the Capital
Expenditures, Tenant shall expend such additional funds as shall be necessary to
pay such costs.
 
4. Release of Capital Improvement Reserve to Tenant. (a) Whenever Tenant desires
to request a withdrawal from the Capital Improvement Reserve permitted by
Section 4 hereof, an  officer of Tenant shall deliver to Landlord the following:
(i) a written request that Landlord withdraw from the Capital Improvement
Reserve a stated amount (the “Requested Amount”), and (ii) invoices dated on or
after the date hereof marked “paid in full” for which Tenant is seeking
reimbursement in the amount of the Requested Amount, or invoices in excess of
$25,000.00 for which Tenant is requesting direct payment from the Capital
Improvement Reserve along with such other certifications and documentation as
Landlord shall reasonably require (including, without limitation, a certificate
of completion) to evidence the Capital Expenditures for which Tenant is seeking
reimbursement or direct payment (the “Capital Expenditure Documentation”). All
Capital Expenditure Documentation shall be subject to Landlord’s review and
approval. Landlord shall, within fifteen (15) days, either (i) approve the
Capital Expenditure Documentation as submitted to Landlord or (ii) deliver to
Tenant a written explanation of the basis for Landlord’s disapproval of the
Capital Expenditure Documentation submitted to Landlord or any part thereof and
a statement of the costs set forth in such Capital Expenditure Documentation
that Landlord approves as being reimbursable or approved for payment from the
Capital Improvement Reserve (the “Approved Costs”).
 
(b)           Landlord shall release funds in the amount of the Approved Costs
from the Capital Improvement Reserve upon Landlord’s receipt from time to time
of Capital Expenditure Documentation. In no event shall Landlord release funds
from the Capital Improvement Reserve unless such release is expressly permitted
by Section 5 hereof. Tenant may make repeated demands for payment from the
Capital Improvement Reserve in accordance with this Section 5, but not more
frequently than once per calendar month.
 

 
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5. Termination. This Agreement shall terminate upon the expiration of the Lease,
including any renewals or extensions thereof.  All amounts, if any, then
remaining in the Capital Improvement Reserve, including all remaining earnings
thereon, shall become the property of Landlord, subject to Section 7.4 and
Section 15.1 of the Lease.
 
6. Release of Capital Improvement Reserve to Landlord. (a) Upon the occurrence
and continuation of an Event of Default, the Capital Improvement Reserve may be
used by Landlord at Landlord’s sole election in accordance with the terms of
Section 9(b) hereof to pay for Capital Expenditures at the Facility.
 
(b)           During the term of the Lease, should Tenant fail to make any
repair or replacement at any Facility, or otherwise have breached any covenant
to maintain the Facility, Landlord on behalf of Tenant, but at Landlord’s sole
discretion and without any obligation to do so, may elect to withdraw funds from
the Capital Improvement Reserve to pay for Capital Expenditures on the Facility
or the Facility incurred at the direction of Landlord. If Landlord makes such
use of funds in the Capital Improvement Reserve, Landlord will give Tenant
concurrent written notice thereof.
 
(c)           Landlord may withdraw from the Capital Improvement Reserve the
amount of any past due obligation of Tenant under the Lease when the following
conditions shall have been satisfied: (i) an Event of Default has occurred and
is continuing, (ii) Landlord has given Tenant notice, if any, required under the
Lease, (iii) certain of the Obligations are due and owing and Tenant has failed
to pay same, and (iv) Landlord has notified Tenant in writing that Landlord
intends to make a withdrawal from the Capital Improvement Reserve. Landlord may
make repeated withdrawals from the Capital Improvement Reserve in accordance
with this Section 6(c).
 
7. Incomplete Exhibit. The parties hereto hereby agree that the Capital
Improvement Reserve may not be opened on the Effective Date and that the
information set forth on Exhibit C hereto may not be complete on the Effective
Date. Upon the opening of the Capital Improvement Reserve, the parties hereto
agree that the information set forth on Exhibit C shall be completed and Tenant
and Landlord shall evidence their agreement to same by initialing Exhibit C
hereto at the appropriate locations.
 
8. Exercise of Purchase Option. Provided that no Event of Default then exists,
if Tenant should purchase the Facilities from Landlord, any funds then in the
Capital Improvement Reserve shall be paid to Tenant at the closing of Tenant’s
purchase of the Facilities.
 
9. Notice. The notice provisions of Section 25.8 of the Lease shall apply to
this Agreement.
 
10.           Other.  The provisions of Sections 25.17 and 25.18 of the Lease
are incorporated herein by reference.
 
11.           Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute but one and the same instrument.
 

 
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
 
 
TENANT

 
EMERITUS CORPORATION

 
 
By:
 

 
 
Name:
 

 
 
Title:
 

 
LANDLORD

 
NATIONAL HEALTH INVESTORS, INC.

 
By:
 

 
 
Name:
 

 
 
Title:
 

 
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EXHIBIT G

SECURITY AGREEMENT

To be agreed upon during Due Diligence Period

 
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EXHIBIT J

QUARTERLY COMPLIANCE CERTIFICATE

 
National Health Investors, Inc. (herein “NHI”)
 
222 Robert Rose Drive
 
Murfreesboro, TN 37130
 

 
Re:
Lease among NHI (the “Landlord”), and Emeritus Corporation (the “Tenant”) dated
as of ______________, 2009 (as it may be amended and/or restated from time to
time, the “Lease”)

 

 
Tenant hereby certifies that for the __________ months ended
___________________:
 
1.  
Capitalized terms not otherwise defined in this Certificate shall have the
meanings set forth in the Lease.  All capitalized terms shall be equally
applicable to the singular and plural forms thereof and to any gender form
thereof.

 
2.  
No Event of Default under the Lease, or event which, after lapse of time, would
constitute such an Event of Default, has occurred or exists, except:
_________________________________________________________________________________________________________.

 
3.  
The Lease Coverage Ratio for the preceding twelve (12) months (or such shorter
period, annualized, if the Lease has been in effect for less than a period of
twelve (12) months) through the end of such period was:

 
(a)  
Net Income of the
Facilities                                                                             $_________________

(b)  
Less 5% of gross
revenues                                                                           
($________________)

(c)  
Plus Tenant’s Base Rent
Obligation                                                             
$_________________

(d)  
Plus Tenant’s depreciation
expense                                                              $_________________

(e)  
Plus Tenant’s amortization
expense                                                             
$_________________

(f)  
Less Targeted Capital Expenditures

(as described in Section 7.1 of the Lease)                                  
($                                )
(g)  
Plus actual management fees paid or

accrued for period
$_________________

 
TOTAL NET OPERATING INCOME (sum of (a) through
(g))                                                                                                           $_________________
 
TOTAL BASE
RENT                                                                                                $_________________
 

 
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LEASE COVERAGE RATIO:
 
Actual
 
Required
 

 
4.  
Occupancy Information:  Year-to-Date as of _______/______/______

 
Attach current rent roll
 
5.  
Annual Information Requirements:

 
(a)  
Insurance: Date Last Paid (enclosed Certificate of Insurance when renewed)
___________________________________________________________

 
(b)  
Property Taxes:  Date Last Paid (enclosed receipt when paid)
__________________________________________

 
(c)  
Copy of Annual License/Certification
Survey:                                                                                                                     

 
6.  
All information provided herein and in the attached financial statement is true
and correct.

 
Date:____________________ Certified by:____________________
Title:__________________

 
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EXHIBIT K
 
COMPLIANCE CERTIFICATE
 
As required by Section 22.2(j) of that Lease Agreement dated October ___, 2009
entered into by and between Emeritus Corporation, as Tenant (“Emeritus”), and
National Health Investors, Inc., as Landlord (the “Lease”), Emeritus does hereby
certify, based on a review of the audited financial statements of National Orion
Insurance, Inc., a Hawaii corporation (the “Captive”) for the fiscal year ended
_____________ and the actuarial report dated ___________ prepared by
_______________ with respect to the Captive, that, as of the date hereof, there
are no claims pending with respect to any or all of the facilities operated by
Emeritus and for which insurance coverage is being provided by the Captive that
would reasonably be expected to reduce the insurance coverage available through
the Captive to the Facilities covered by the Lease below the limits required by
the terms of the Lease.
 
EMERITUS CORPORATION
 
 
By:         

 
Its:        
 

 
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