EX-10.56.10

MASTER LEASE AGREEMENT

(MASTER LEASE #3)

BETWEEN

HEALTH CARE REIT, INC.

HCRI DRUM HILL PROPERTIES, LLC

HCRI FAIRMONT PROPERTIES, LLC

HCRI KIRKLAND PROPERTIES, LLC

AND

EMERITUS CORPORATION

JUNE 10, 2009

 
 

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TABLE OF CONTENTS

SECTION
   
PAGE
ARTICLE 1:  LEASED PROPERTY, TERM AND DEFINITIONS
   
2
 
1.1
Leased Property
2
 
1.2
Indivisible Lease.
2
 
1.3
Term
2
 
1.4
Definitions
2
 
1.5
Landlord As Agent
11
 
1.6
[RESERVED]
11
 
1.7
Termination of Existing Leases
11
ARTICLE 2:  RENT
   
11
 
2.1
Base Rent
11
 
2.2
Base Rent Adjustments.
12
   
2.2.1     Base Rent Adjustments - Additional Investment Advances
12
 
2.3
General Additional Rent
12
 
2.4
Place of Payment of Rent
12
 
2.5
Net Lease
12
 
2.6
No Termination, Abatement, Etc
12
 
2.7
Transaction Fee
13
ARTICLE 3:  IMPOSITIONS AND UTILITIES
   
13
 
3.1
Payment of Impositions
13
 
3.2
Definition of Impositions
14
 
3.3
Escrow of Impositions
14
 
3.4
Utilities
15
 
3.5
Discontinuance of Utilities
15
 
3.6
Business Expenses
15
 
3.7
Permitted Contests
15
ARTICLE 4:  INSURANCE
   
16
 
4.1
Property Insurance
16
 
4.2
Liability Insurance
17
 
4.3
Builder's Risk Insurance
17
 
4.4
Insurance Requirements
18
 
4.5
Replacement Value
18
 
4.6
Blanket Policy
18
 
4.7
No Separate Insurance
18
 
4.8
Waiver of Subrogation
19
 
4.9
Mortgages
19
 
4.10
Escrows
19
ARTICLE 5:  INDEMNITY
   
19
 
5.1
Tenant's Indemnification
19

 
 

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SECTION
   
PAGE
   
5.1.1     Notice of Claim
20
   
5.1.2     Survival of Covenants
20
   
5.1.3     Reimbursement of Expenses
20
 
5.2
Environmental Indemnity; Audits
20
 
5.3
Limitation of Landlord's Liability
21
ARTICLE 6:  USE AND ACCEPTANCE OF PREMISES
   
21
 
6.1
Use of Leased Property
21
 
6.2
Acceptance of Leased Property
21
 
6.3
Conditions of Use and Occupancy
22
ARTICLE 7:  MAINTENANCE AND MECHANICS' LIENS
   
22
 
7.1
Maintenance
22
 
7.2
Required Alterations
23
 
7.3
Mechanic's Liens
23
 
7.4
Replacements of Fixtures and Landlord's Personal Property
23
ARTICLE 8:  DEFAULTS AND REMEDIES
   
24
 
8.1
Events of Default
24
 
8.2
Remedies
25
 
8.3
Right of Set Off
28
 
8.4
Performance of Tenant's Covenants
29
 
8.5
Late Payment Charge
29
 
8.6
Default Rent
29
 
8.7
Attorneys' Fees
30
 
8.8
Escrows and Application of Payments
30
 
8.9
Remedies Cumulative
30
 
8.10
Waivers
30
 
8.11
Obligations Under the Bankruptcy Code
30
ARTICLE 9:  DAMAGE AND DESTRUCTION
   
31
 
9.1
Notice of Casualty
31
 
9.2
Substantial Destruction
31
 
9.3
Partial Destruction
32
 
9.4
Restoration
32
 
9.5
Insufficient Proceeds
33
 
9.6
Not Trust Funds
33
 
9.7
Landlord's Inspection
33
 
9.8
Landlord's Costs
33
 
9.9
No Rent Abatement
33
ARTICLE 10:  CONDEMNATION
   
34
 
10.1
Total Taking
34
 
10.2
Partial Taking
34
 
10.3
Condemnation Proceeds Not Trust Funds
34

 
(ii)

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SECTION
   
PAGE
ARTICLE 11:  TENANT'S PROPERTY
   
35
 
11.1
Tenant's Property
35
 
11.2
Requirements for Tenant's Property
35
ARTICLE 12:  RENEWAL OPTIONS
   
36
 
12.1
Renewal Options
36
 
12.2
Effect of Renewal
36
ARTICLE 13:  RIGHT OF FIRST OPPORTUNITY
   
37
 
13.1
Right of First Opportunity
37
   
13.1.1     Fair Market Value
38
 
13.2
[RESERVED]
40
ARTICLE 14:  NEGATIVE COVENANTS
   
40
 
14.1
No Debt
40
 
14.2
No Liens
40
 
14.3
No Guaranties
40
 
14.4
No Transfer
40
 
14.5
No Dissolution
40
 
14.6
Subordination of Payments to Affiliates
41
 
14.7
Change of Location or Name
41
ARTICLE 15:  AFFIRMATIVE COVENANTS
   
41
 
15.1
Perform Obligations
41
 
15.2
Proceedings to Enjoin or Prevent Construction
41
 
15.3
Documents and Information
42
   
15.3.1     Furnish Documents
42
   
15.3.2     Furnish Information
42
   
15.3.3     Further Assurances and Information
42
   
15.3.4     Material Communications
42
   
15.3.5     Requirements for Financial Statements
43
 
15.4
Compliance With Laws
43
 
15.5
Broker's Commission
43
 
15.6
Existence and Change in Ownership
43
 
15.7
Financial Covenants
44
   
15.7.1     Definitions
44
   
15.7.2     Coverage Ratio
44
 
15.8
Facility Licensure and Certification
44
   
15.8.1     Notice of Inspection
44
   
15.8.2     Material Deficiencies
45
 
15.9
Transfer of License and Facility Operations
45
   
15.9.1     Licensure
45
   
15.9.2     Facility Operations
45
 
15.1
Bed Operating Rights
46
 
15.11
Power of Attorney
46
 
15.12
Information and Images
46

 
(iii)

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SECTION
   
PAGE
ARTICLE 16:  ALTERATIONS, CAPITAL IMPROVEMENTS, AND SIGNS
   
47
 
16.1
Prohibition on Alterations and Improvements
47
 
16.2
Approval of Alterations
47
 
16.3
Permitted Alterations
47
 
16.4
Requirements for Permitted Alterations
47
 
16.5
Ownership and Removal of Permitted Alterations
48
 
16.6
Minimum Qualified Capital Expenditures
48
 
16.7
Signs
48
ARTICLE 17:  CONTINGENT PAYMENT
   
49
 
17.1
Contingent Payment
49
ARTICLE 18:  ASSIGNMENT AND SALE OF LEASED PROPERTY
   
49
 
18.1
Prohibition on Assignment and Subletting
49
 
18.2
Requests for Landlord's Consent to Assignment, Sublease or Management Agreement
49
 
18.3
Agreements with Residents
50
 
18.4
Sale of Leased Property
50
 
18.5
Assignment by Landlord
51
ARTICLE 19:  HOLDOVER AND SURRENDER
   
51
 
19.1
Holding Over
51
 
19.2
Surrender
51
 
19.3
Indemnity
51
ARTICLE 20:  [RESERVED]
   
52
ARTICLE 21:  QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT AND ESTOPPEL
CERTIFICATES
   
52
 
21.1
Quiet Enjoyment
52
 
21.2
Subordination
52
 
21.3
Attornment
52
 
21.4
Estoppel Certificates
53
ARTICLE 22:  REPRESENTATIONS AND WARRANTIES
   
54
 
22.1
Organization and Good Standing
54
 
22.2
Power and Authority
54
 
22.3
Enforceability
54
 
22.4
Government Authorizations
54
 
22.5
[RESERVED]
54
 
22.6
Condition of Facility
54
 
22.7
Compliance with Laws
54
 
22.8
No Litigation
55
 
22.9
Consents
55
 
22.1
No Violation
55
 
22.11
Reports and Statements
55
 
22.12
ERISA
56

 
(iv)

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SECTION
   
PAGE
 
22.13
Chief Executive Office
56
 
22.14
Other Name or Entities
56
 
22.15
Parties in Possession
56
 
22.16
Access
56
 
22.17
Utilities
56
 
22.18
Condemnation and Assessments
56
 
22.19
Zoning
57
 
22.2
[RESERVED]
57
 
22.21
Environmental Matters
57
 
22.22
Leases and Contracts
57
 
22.23
No Default
58
 
22.24
Tax Status
58
ARTICLE 23:  [RESERVED]
   
58
ARTICLE 24:  SECURITY INTEREST
   
58
 
24.1
Collateral
58
 
24.2
Additional Documents
59
 
24.3
Notice of Sale
59
 
24.4
Recharacterization
59
ARTICLE 25:  MISCELLANEOUS
   
59
 
25.1
Notices
59
 
25.2
Advertisement of Leased Property
60
 
25.3
Entire Agreement
60
 
25.4
Severability
60
 
25.5
Captions and Headings
60
 
25.6
Governing Law
60
 
25.7
Memorandum of Lease
60
 
25.8
Waiver
60
 
25.9
Binding Effect
60
 
25.1
No Offer
61
 
25.11
Modification
61
 
25.12
Landlord's Modification
61
 
25.13
No Merger
61
 
25.14
Laches
61
 
25.15
Limitation on Tenant's Recourse
61
 
25.16
Construction of Lease
62
 
25.17
Counterparts
62
 
25.18
Custody of Escrow Funds
62
 
25.19
Landlord's Status as a REIT
62
 
25.2
Exhibits
62
 
25.21
WAIVER OF JURY TRIAL
62
 
25.22
CONSENT TO JURISDICTION
62
 
25.23
Attorney's Fees and Expenses
63
 
25.24
Survival
63
 
25.25
Time
63
 
25.26
Subtenant
63

 
(v)

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SCHEDULE 1:
INITIAL RENT SCHEDULE

 
EXHIBIT A:
LEGAL DESCRIPTIONS

 
EXHIBIT B:
PERMITTED EXCEPTIONS

 
EXHIBIT C:
FACILITY INFORMATION

 
EXHIBIT D:
LANDLORD’S PERSONAL PROPERTY

 
EXHIBIT E:
DOCUMENTS TO BE DELIVERED

 
EXHIBIT F:
TENANT’S CERTIFICATE AND FACILITY FINANCIAL REPORTS

 
EXHIBIT G:
GOVERNMENT AUTHORIZATIONS TO BE OBTAINED; ZONING PERMITS

 
EXHIBIT H:
PENDING LITIGATION

 
EXHIBIT I:
LIST OF LEASES AND CONTRACTS

 
EXHIBIT J:
WIRE TRANSFER INSTRUCTIONS

 

 
(vi)

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MASTER LEASE AGREEMENT
(Master Lease #3)

THIS MASTER LEASE AGREEMENT (“Lease”) is made effective as of June 10, 2009 (the
“Effective Date”) by and among Health Care REIT, Inc., a corporation organized
under the laws of the State of Delaware (“HCRI” and a “Landlord” as further
defined in §1.4 below), having its principal office located at One SeaGate,
Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475, HCRI DRUM HILL PROPERTIES,
LLC, a limited liability company organized under the laws of the State of
Delaware (“HCRI-Drum Hill” and a “Landlord” as further defined in §1.4 below),
having its principal office located at One SeaGate, Suite 1500, P.O. Box 1475,
Toledo, Ohio 43603-1475, HCRI FAIRMONT PROPERTIES, LLC, a limited liability
company organized under the laws of the State of Delaware (“HCRI-Fairmont” and a
“Landlord” as further defined in §1.3 below), having its principal office
located at One SeaGate, Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475,
HCRI KIRKLAND PROPERTIES, LLC, a limited liability company organized under the
laws of the State of Delaware (“HCRI-Kirkland” and a “Landlord” as further
defined in §1.4 below), having its principal office located at One SeaGate,
Suite 1500, P.O. Box 1475, Toledo, Ohio 43603-1475, and Emeritus Corporation, a
corporation organized under the laws of the State of Washington (“Tenant”),
having its chief executive office located at 3131 Elliott Avenue, Suite 500,
Seattle, Washington 98121.
 
R E C I T A L S
 
A. Effective as of September 29, 2003, HCRI-Drum Hill, HCRI-Fairmont and
HCRI-Kirkland and certain Affiliates of Tenant entered into three separate Lease
Agreements regarding the “Leased Property” as defined herein (as amended, the
“Existing Leases”).
 
B. Concurrently with the execution of the Existing Leases, HCRI, certain
Landlord Affiliates, Tenant and certain Affiliates of Tenant entered into a
Master Lease Roll Up Agreement (as amended, the “Roll Up Agreement”), pursuant
to which the Existing Leases were to be terminated and the Leased Property
included in a Master Lease upon the payoff of a certain outstanding loan.
 
C. The payoff anticipated by the Roll Up Agreement has occurred as of the
Effective Date.
 
D. Landlord desires to lease the Leased Property, as hereinafter defined, to
Tenant and Tenant desires to lease the Leased Property from Landlord upon the
terms set forth in this Lease.
 

 
 

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NOW, THEREFORE, Landlord and Tenant agree as follows:
 
ARTICLE 1:  LEASED PROPERTY, TERM AND DEFINITIONS
 
1.1           Leased Property.  Landlord hereby leases to Tenant and Tenant
hereby leases from Landlord the Leased Property, subject, however, to the
Permitted Exceptions and subject to the terms and conditions of this Lease.
 
1.2           Indivisible Lease.  This Lease constitutes one indivisible lease
of the entire Leased Property.  The Leased Property constitutes one economic
unit and the Base Rent and all other provisions, including, but not limited to,
the provisions concerning the Contingent Payment Advance, have been negotiated
and agreed to based on a lease of all of the Leased Property as a single,
composite, inseparable transaction and would have been materially different had
separate leases or a divisible lease been intended.  Except as expressly
provided herein for specific, isolated purposes (and then only to the extent
expressly otherwise stated), all provisions of this Lease shall apply equally
and uniformly to all the Leased Property as one unit and any Event of Default
under this Lease is an Event of Default as to the entire Leased Property.  The
parties intend that the provisions of this Lease shall at all times be
construed, interpreted and applied so as to carry out their mutual objective to
create a single indivisible lease of all the Leased Property and, in particular
but without limitation, that for purposes of any assumption, rejection or
assignment of this Lease under the Bankruptcy Code, this is one indivisible and
non-severable lease and executory contract dealing with one legal and economic
unit which must be assumed, rejected or assigned as a whole with respect to all
(and only all) the Leased Property covered hereby.  The parties agree that the
existence of more than one Landlord under this Lease does not affect the
indivisible, non-severable nature of this Lease. The parties may amend this
Lease from time to time to include one or more additional Facility Properties as
part of the Leased Property and such future addition to the Leased Property
shall not in any way change the indivisible and non-severable nature of this
Lease and all of the foregoing provisions shall continue to apply in full force.
 
1.3           Term.  The initial term (“Initial Term”) of this Lease commenced
on the Effective Date and expires at 12:00 Midnight Eastern Time on
September 30, 2018 (the “Expiration Date”); provided, however, that Tenant has
an option to renew the Lease pursuant to Article 12.
 
1.4           Definitions.  Except as otherwise expressly provided, [i] the
terms defined in this section have the meanings assigned to them in this section
and include the plural as well as the singular; [ii] all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
generally accepted accounting principles as of the time applicable; and
[iii] the words “herein”, “hereof”, and “hereunder” and similar words refer to
this Lease as a whole and not to any particular section.
 
“ADA” means the federal statute entitled Americans with Disabilities Act,
42 U.S.C. §12101, et seq.
 
                      “Affiliate” means any person, corporation, partnership,
limited liability company, trust, or other legal entity that, directly or
indirectly, controls, or is controlled by, or is under
 

 
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common control with Tenant.  “Control” (and the correlative meanings of the
terms “controlled by” and “under common control with”) means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such entity.  An Affiliate of Tenant shall
specifically exclude [i] Saratoga Partners IV, L.P. (“Saratoga”); [ii] Daniel R.
Baty; [iii] Columbia Pacific Management, Inc.; [iv] Apollo Advisors, Inc.; and
[v] any Affiliate of any of the entities listed in clauses [i] through [iv].
 
                      “Affiliate Lease” means each lease now or hereafter made
between Landlord or any Landlord Affiliate and Tenant or any Affiliate (except
this Lease), as amended, modified, extended or renewed from time to time.
 
“Affiliate Tenant” means each tenant under an Affiliate Lease.
 
                      “Amended Commencement Date” means the Amended Effective
Date if such date is the first day of a month, and if it is not, the first day
of the first month following the Amended Effective Date.
 
“Amended Effective Date” means the Amendment Effective Date set forth in the
introductory paragraph of an amendment to this Lease.
 
“Annual Company Budget” means Company’s projection of its financial statement
for the next fiscal year (or the 12-month rolling forward period, if
applicable), which shall include the balance sheet, statement of income,
statement of cash flows, statement of shareholders’ equity and statement of
capital expenditures for the applicable period.
 
“Annual Facility Budget” means Tenant’s projection of the Facility Financial
Statement for the next fiscal year (or the 12-month rolling forward period, if
applicable).
 
“Annual Financial Statements” means [i] for Tenant, an audited balance sheet,
statement of income, and statement of cash flows for the most recent fiscal year
on a consolidated basis and [ii] for each Facility, an unaudited Facility
Financial Statement for the most recent fiscal year.
 
“Average Daily Census” means the number determined by dividing the total
resident days for a Facility during a specific month by the actual number of
days contained in that month.
 
“Bankruptcy Code” means the United States Bankruptcy Code set forth in 11 U.S.C.
§101 et. seq., as amended from time to time.
 
“Base Price” means an amount equal to the greater of [i] Total Investment
Amount; or [ii] the sum of [a] the Total Investment Amount plus [b] 50% of the
difference between the Fair Market Value at the time of the option exercise and
the sum of [I] the Investment Amount and [II] $3,300,000.00 less any Contingent
Payment Advance.
 
“Base Rent” has the meaning set forth in §2.1, as increased from time to time
pursuant to §2.2.
 

 
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“Business Day” means any day other than a Saturday, Sunday, or national holiday.
 
“CERCLA” means the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended from time to time.
 
“Closing” means the closing of the lease of the Leased Property to Tenant.
 
“Collateral” has the meaning set forth in §24.1.
 
“Commencement Date” means July 1, 2009.
 
“Commitment” means the Commitment Letter for the Existing Leases dated March 5,
2002, as modified by the letter dated March 31, 2003.
 
“Company” means Tenant.
 
“Contingent Payment Advance” means any advance of funds by Landlord to Tenant
pursuant to Article 17.
 
“Contingent Payment Amount” means any payment by Landlord pursuant to the terms
of this Lease.
 
“CPI” means the United States Department of Labor, Bureau of Labor Statistics
Revised Consumer Price Index for All Urban Consumers (1982-1984=100), U.S. City
Average, All Items, or, if that index is not available at the time in question,
the index designated by such Department as the successor to such index, and if
there is no index so designated, an index for an area in the United States that
most closely corresponds to the entire United States, published by such
Department, or if none, by any other instrumentality of the United States.
 
“Default Rent” has the meaning set forth in §8.6.
 
“Denominator Amount” has the meaning set forth in §15.7.1.
 
“Disbursing Agreement” means any Construction Disbursing Agreement between
Landlord and Tenant setting forth the terms and conditions pursuant to which
Landlord shall make Contingent Payments to or for the benefit of Tenant for
certain Project Improvements and any amendments thereto or substitutions and
replacements therefore.
 
“Effective Date” means June 10, 2009.
 
“Environmental Laws” means all federal, state, and local laws, ordinances and
policies the purpose of which is to protect human health and the environment, as
amended from time to time, including, but not limited to, [i] CERCLA; [ii] the
Resource Conservation and Recovery Act; [iii] the Hazardous Materials
Transportation Act; [iv] the Clean Air Act; [v] Clean Water Act; [vi] the Toxic
Substances Control Act; [vii] the Occupational Safety and Health Act; [viii] the
Safe Drinking Water Act; and [ix] analogous state laws and regulations.
 

 
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“Event of Default” has the meaning set forth in §8.1.
 
“Expiration Date” has the meaning set forth in §1.3.
 
“Facility” means each facility located on a portion of the Land, including the
Facility Property associated with such Facility.  References in this Lease to
“the Facility” shall mean each Facility individually unless expressly stated
otherwise.
 
“Facility Financial Statement” means a financial statement for each Facility
which shall include the balance sheet, statement of income, statement of cash
flows, statement of shareholders’ equity, occupancy census data (including payor
mix), statement of capital expenditures and a comparison of the actual financial
data versus the Annual Facility Budget for the applicable period.
 
“Facility Name” means the name under which a Facility has done business during
the Term.  The Facility Name in use by each Facility on the Effective Date is
set forth on the attached Exhibit C.
 
“Facility Property” means the portion of the Land on which a Facility is
located, the legal description of which is set forth beneath the applicable
Facility Name on Exhibit A, the Improvements on such portion of the Land, the
Related Rights with respect to such portion of the Land, and Landlord’s Personal
Property with respect to such Facility.
 
“Facility State” means the State in which a respective Facility is located.
 
“Facility States” means, collectively, the States in which the Leased Property
is located.
 
“Facility Uses” means the uses relating to the operation of a Facility as a
facility of the type and operating the number of beds and units set forth on
Exhibit C with respect to such Facility.
 
“Fair Market Value” has the meaning set forth in §13.1.1.
 
“Financial Statements” means [i] the annual, quarterly and year to date
financial statements of Tenant; and [ii] any operating statements that were
submitted to Landlord prior to the Effective Date.
 
“Fixtures” means all permanently affixed equipment, machinery, fixtures and
other items of real and/or personal property (excluding Landlord’s Personal
Property), including all components thereof, now and hereafter located in, on or
used in connection with, and permanently affixed to or incorporated into the
Improvements, including, without limitation, 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 and apparatus, sprinkler systems and fire and theft
protection equipment, built-in oxygen and vacuum systems, towers and other
devices for the transmission of radio, television and other signals, all of
which, to the greatest extent permitted by law, are
 

 
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hereby deemed by the parties hereto to constitute real estate, together with all
replacements, modifications, alterations and additions thereto.
 
“General Additional Rent” has the meaning set forth in §2.3.
 
“Government Authorizations” means all permits, licenses, approvals, consents,
and authorizations required to comply with all Legal Requirements, including,
but not limited to, [i] zoning permits, variances, exceptions, special use
permits, conditional use permits, and consents; [ii] the permits, licenses,
provider agreements and approvals required for licensure and operation of each
Facility in accordance with its respective Facility Uses and, if applicable,
certified as a provider under the federal Medicare and state Medicaid programs;
[iii] environmental, ecological, coastal, wetlands, air, and water permits,
licenses, and consents; [iv] curb cut, subdivision, land use, and planning
permits, licenses, approvals and consents; [v] building, sign, fire, health, and
safety permits, licenses, approvals, and consents; and [vi] architectural
reviews, approvals, and consents required under restrictive covenants.
 
“Guarantor” means each Subtenant, individually and collectively.
 
“Guaranty” means the Unconditional and Continuing Lease Guaranty dated as of the
Effective Date, executed by Guarantor, as guarantor, in favor of Landlord, to
guarantee payment and performance of the Lease Obligations and any amendments
thereto or substitutions or replacements therefor.
 
“Hazardous Materials” means any substance [i] the presence of which poses a
hazard to the health or safety of persons on or about the Land, including, but
not limited to, asbestos containing materials; [ii] which requires removal or
remediation under any Environmental Law, including, without limitation, any
substance which is toxic, explosive, flammable, radioactive, or otherwise
hazardous; or [iii] which is regulated under or classified under any
Environmental Law as hazardous or toxic, including, but not limited to, any
substance within the meaning of “hazardous substance”, “hazardous material”,
“hazardous waste”, “toxic substance”, “regulated substance”, “solid waste”, or
“pollutant” as defined in any Environmental Law.
 
“HCRI” has the meaning set forth in the Recitals hereto.
 
“HCRI-Drum Hill has the meaning set forth in the Recitals hereto.
 
“HCRI-Fairmont has the meaning set forth in the Recitals hereto.
 
“HCRI-Kirkland has the meaning set forth in the Recitals hereto.
 
“HIPDB” means the Healthcare Integrity and Protection Data Bank maintained by
the Department of Health and Human Services.
 
“Impositions” has the meaning set forth in §3.2.
 
“Improvements” means all buildings, structures, Fixtures and other improvements
of every kind on any portion of the Land, including, but not limited to, alleys,
sidewalks, utility
 

 
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pipes, conduits and lines (on-site and off-site), parking areas and roadways
appurtenant to such buildings and structures, now or hereafter situated upon any
portion of the Land.
 
“Initial Term” has the meaning set forth in §1.3.
 
“Investment Advance” means any advance of funds by Landlord to Tenant pursuant
to the terms of this Lease.
 
“Investment Advance Amount” means the amount of any Investment Advance.
 
“Investment Amount” is an aggregate concept and means the sum of the Investment
Advance Amounts outstanding at the applicable time.  As of the Effective Date,
the Investment Amount is as indicated on the Rent Schedule attached as
Schedule 1 hereto.
 
“Land” means the real property described in Exhibit A attached hereto.
 
“Landlord” means HCRI, HCRI-Drum Hill, HCRI-Fairmont and HCRI-Kirkland,
individually and collectively, during the time period that such entity is the
fee owner of any portion of the Land.  If HCRI, HCRI-Drum Hill, HCRI-Fairmont or
HCRI-Kirkland  is no longer a fee owner of the Land, then, from and after that
date, that entity will no longer be a Landlord under the terms hereof and its
successor (whether by assignment or by operation of law) will be a Landlord
under the terms hereof without the need for any amendment to this document.
 
“Landlord Affiliate” means any person, corporation, partnership, limited
liability company, trust, or other legal entity that, directly or indirectly,
controls, or is controlled by, or is under common control with
Landlord.  “Control” (and the correlative meanings of the terms “controlled by”
and “under common control with”) means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such entity.
 
“Landlord’s Personal Property” means all Personal Property owned by Landlord on
the Effective Date and located at the Facility, including, without limitation,
all personal property listed on the attached Exhibit D, together with any and
all replacements thereof, and all Personal Property that pursuant to the terms
of this Lease becomes the property of Landlord during the Term.
 
“Lease” means this Master Lease Agreement, as amended and/or restated from time
to time.
 
“Lease Documents” means this Lease and all documents executed by Landlord and
Tenant relating to this Lease or the Facility.
 
“Lease Payments” means the sum of the Base Rent payments (as increased from time
to time) for the applicable period.
 
“Lease Year” generally means each consecutive period of 365 or 366 days
throughout the Term.  However, the first Lease Year commences on the
Commencement Date and expires on September 30, 2010.  Each succeeding Lease Year
begins on October 1 and ends on the next following September 30.
 

 
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“Leased Property” means all of the Land, Improvements, Related Rights and
Landlord’s Personal Property.
 
“Legal Requirements” means all laws, regulations, rules, orders, writs,
injunctions, decrees, certificates, requirements, agreements, conditions of
participation and standards of any federal, state, county, municipal or other
governmental entity, administrative agency, insurance underwriting board,
architectural control board, private third-party payor, accreditation
organization, or any restrictive covenants applicable to the development,
construction, condition and operation of the Facility by Tenant for the Facility
Uses, including, but not limited to, [i] zoning, building, fire, health, safety,
sign, and subdivision regulations and codes; [ii] certificate of need laws (if
applicable); [iii] licensure to operate as each Facility in accordance with its
respective Facility Uses; [iv] Medicare and Medicaid certification requirements
(if applicable); [v] the ADA; [vi] any Environmental Laws; and
[vii] requirements, conditions and standards for participation in third-party
payor insurance programs (if applicable).
 
“Material Obligation” means [i] any indebtedness with respect to any critical
care equipment and for all other equipment any indebtedness in excess of
$250,000.00 at the Facility secured by a security interest in or a lien, deed of
trust or mortgage on any of the Leased Property (or any part thereof, including
any Personal Property) and any agreement relating thereto; [ii] any obligation
or agreement that is material to the construction or operation of the Facility
or that is material to Tenant’s business or financial condition and where a
breach thereunder, if not cured within any applicable cure period, would have a
material adverse affect on the financial condition of Tenant or the results of
operations at the Facility; [iii] any unsecured indebtedness or lease of Tenant
or Subtenant that has an outstanding principal balance or obligation of at least
$1,000,000.00 and any agreement relating thereto; and [iv] any indebtedness or
lease of Subtenant or of any other party that has been guaranteed by Subtenant,
other than this Lease, that has an outstanding principal balance or obligation
of at least $250,000.00.
 
“Modified Offer” has the meaning set forth in §13.1.
 
“Modified Opportunity Notice” has the meaning set forth in §13.1.
 
“Negotiation Period” has the meaning set forth in §13.1.1.1.
 
“Net Operating Income” means the pre-tax net income of Tenant or Subtenant plus
[i] the amount of the provision for depreciation and amortization; plus [ii] the
amount of the provision for interest and lease payments, if any; plus [iii] the
amount of the provision for Rent payments; plus [iv] the amount of the provision
for management fees.
 
“Obligor Group Obligations” means all payment and performance obligations of
Tenant and Subtenant to Landlord or any Landlord Affiliate, including, but not
limited to, all obligations under this Lease, any loans extended to Tenant or
Subtenant by Landlord or any Landlord Affiliate and all documents executed by
Tenant or Subtenant in favor of Landlord or any Landlord Affiliate in connection
with this Lease, any loan or any other obligation.
 
“Offer” has the meaning set forth in §13.1.
 

 
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“Opportunity Notice” has the meaning set forth in §13.1.
 
“Opportunity Transaction” has the meaning set forth in §13.1.
 
“Organization State” means the State in which an entity is organized.
 
“Organizational Documents” means [i] for a corporation, its Articles of
Incorporation certified by the Secretary of State of the Organization State, as
amended to date, and its Bylaws certified by such entity, as amended to date;
[ii] for a partnership, its Partnership Agreement certified by such entity, as
amended to date, and the Partnership Certificate, certified by the appropriate
authority (if applicable), as amended to date; and [iii] for a limited liability
company, its Articles of Organization certified by the Secretary of State of the
Organization State, as amended to date, and its Operating Agreement certified by
such entity, as amended to date.
 
“Periodic Financial Statements” means [i] for Tenant, an unaudited balance sheet
and statement of income for the most recent quarter; and [ii] for the Facility,
an unaudited Facility Financial Statement for the most recent month.
 
“Permitted Exceptions” means all easements, liens, encumbrances, restrictions,
agreements and other title matters existing as of the Effective Date, including,
without limitation, the exceptions to title set forth on Exhibit B attached
hereto, and any sublease of any portion of the Leased Property made in complete
accordance with Article 18.
 
“Permitted Liens” means [i] liens granted to Landlord; [ii] liens customarily
incurred by Tenant or Subtenant in the ordinary course of business for items not
delinquent, including mechanic’s liens and deposits and charges under worker’s
compensation laws; [iii] liens for taxes and assessments not yet due and
payable; [iv] any lien, charge, or encumbrance which is being contested in good
faith pursuant to this Lease; [v] the Permitted Exceptions; and [vi] purchase
money financing and capitalized equipment leases for the acquisition of personal
property provided, however, that Landlord obtains a nondisturbance agreement
from the purchase money lender or equipment lessor in form and substance as may
be satisfactory to Landlord if the original cost of the equipment exceeds
$250,000.00 per Facility.
 
“Personal Property” means all machinery, equipment, furniture, furnishings,
movable walls or partitions, computers (and all associated software), trade
fixtures and other personal property (but excluding consumable inventory and
supplies owned by Tenant) used in connection with the Leased Property, together
with all replacements and alterations thereof and additions thereto, except
items, if any, included within the definition of Fixtures or Improvements.
 
“Portfolio Cash Flow” has the meaning set forth in §15.7.1.
 
“Portfolio Cash Flow Shortfall” has the meaning set forth in §15.7.1.
 
“Portfolio Coverage Ratio” has the meaning set forth in §15.7.1.
 

 
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“Pro Forma Statement” means a financial forecast for the Facility for the next
five-year period prepared in accordance with the standards for forecasts
established by the American Institute of Certified Public Accountants.
 
“Protected Period” has the meaning set forth in §13.1(a).
 
“Qualified Capital Expenditures” means the expenditures capitalized on the books
of Tenant or Subtenant for any of the following:  replacement of furniture,
fixtures and equipment, including refrigerators, ranges, major appliances,
bathroom fixtures, doors (exterior and interior), central air conditioning and
heating systems (including cooling towers, water chilling units, furnaces,
boilers and fuel storage tanks) and replacement of siding; roof replacements,
including replacements of gutters, downspouts, eaves and soffits; repairs and
replacements of plumbing and sanitary systems; overhaul of elevator systems;
repaving, resurfacing and sealcoating of sidewalks, parking lots and driveways;
repainting of entire building exterior and normal maintenance and repairs needed
to maintain the quality and condition of the Facility in the market in which it
operates, but excluding Alterations.
 
“Receivables” means [i] all of Tenant’s or Subtenant’s rights to receive payment
for providing resident care and services at the Facility as set forth in any
accounts, contract rights, and instruments, and [ii] those documents, chattel
paper, inventory proceeds, provider agreements, participation agreements, ledger
sheets, files, records, computer programs, tapes, and agreements relating to
Tenant’s or Subtenant’s rights to receive payment for providing resident care
services at the Facility.
 
“Related Rights” means all easements, rights (including bed operating rights)
and appurtenances relating to the Land and the Improvements.
 
“Renewal Date” means the first day of each Renewal Term.
 
“Renewal Option” has the meaning set forth in §12.1.
 
“Renewal Term” has the meaning set forth in §12.1.
 
“Rent” means Base Rent, General Additional Rent and Default Rent.
 
“Rent Schedule” means the schedule issued by Landlord to Tenant showing the Base
Rent to be paid by Tenant pursuant to the terms of this Lease, as such schedule
is amended from time to time by Landlord.  The Rent Schedule as of the Effective
Date, reflecting the Base Rent that has been due and payable under the Lease
since the Commencement Date, is attached hereto as Schedule 1.
 
“Replacement Operator” has the meaning set forth in §15.9.1.
 
“Right of First Opportunity Event” has the meaning set forth in §13.1.
 
“Right of First Refusal Event” has the meaning set forth in §13.1.
 
“Right of First Refusal Notice” has the meaning set forth in §13.1.
 

 
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“Secured Party” has the meaning set forth in §24.1.
 
“Seller” means each person or entity that conveyed title to a Facility to
Landlord.
 
“Sublease” means, individually and collectively, the sublease with respect to
each Facility between Tenant and Subtenant, as the same may be amended or
modified from time to time with the consent of Landlord.  References in this
Lease to “Sublease” shall mean each sublease individually and shall relate to
the respective Facility to which such sublease relates unless expressly stated
otherwise.
 
“Subtenant” means the entity identified on Exhibit C that subleases the Facility
from Tenant and is the licensed operator of its respective Facility as shown on
Exhibit C, individually and collectively.  References in this Lease to
“Subtenant” shall mean each Subtenant individually and shall relate to such
Subtenant’s respective Facility unless expressly stated otherwise.
 
“Tenant” has the meaning set forth in the introductory paragraph of this Lease.
 
“Term” means the Initial Term and each Renewal Term.
 
“Total Investment Amount” means the Investment Amount plus any Contingent
Payment Advance.
 
“Transaction Documents” has the meaning set forth in §13.1.
 
1.5           Landlord As Agent.  With respect to its respective Facility, each
HCRI Landlord appoints HCRI as the agent and lawful attorney-in-fact of such
HCRI Landlord to act for such HCRI Landlord for all purposes and actions of
Landlord under this Lease and the other Lease Documents.  All notices, consents,
waivers and all other documents and instruments executed by HCRI pursuant to the
Lease Documents from time to time and all other actions of HCRI as Landlord
under the Lease Documents shall be binding upon such HCRI Landlord.  All Rent
payable under this Lease shall be paid to HCRI.
 
1.6           [RESERVED]
 
1.7           Termination of Existing Leases.  As of the Effective Date, the
Existing Leases shall be and hereby are terminated, and HCRI shall cause the
Landlord Affiliates party to the Existing Leases to execute and record memoranda
of termination of the Existing Leases to reflect such termination, and Tenant
and Landlord shall execute and record memoranda of lease to evidence the lease
of the Leased Property under this Lease.
 
ARTICLE 2:  RENT
 
2.1           Base Rent.  Tenant shall pay Landlord base rent (“Base Rent”) in
advance in consecutive monthly installments payable on the first day of each
month during the Term commencing on the Commencement Date.  If the Effective
Date is not the first day of a month, Tenant shall pay Landlord Base Rent on the
Effective Date for the partial month, i.e., for the period commencing on the
Effective Date and ending on the day before the Commencement
 

 
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Date.  The Base Rent payable for the Initial Term is as shown on the Rent
Schedule.  The Base Rent for each Renewal Term will be determined in accordance
with §12.2.
 
2.2           Base Rent Adjustments
 
2.2.1           Base Rent Adjustments – Additional Investment Advances.  If
Landlord makes an Investment Advance after the Effective Date, the Base Rent
will be increased effective on the Investment Advance Date based upon the
applicable rate of return in effect on the Investment Advance Date as set forth
on Schedule 1.  Until Tenant receives a revised Rent Schedule from Landlord,
Tenant shall for each month [i] continue to make installments of Base Rent
according to the Rent Schedule in effect on the day before the Investment
Advance Date; and [ii] within 10 days following Landlord’s issuance of an
invoice, pay the difference between the installment of Base Rent that Tenant
paid to Landlord for such month and the installment of Base Rent actually due to
Landlord for such month as a result of the Investment Advance.  On the first day
of the month following receipt of the revised Rent Schedule, Tenant shall pay
the monthly installment of Base Rent specified in the revised Rent Schedule.
 
2.3           General Additional Rent  In addition to Base Rent, Tenant shall
pay all other amounts, liabilities, obligations and Impositions which Tenant
assumes or agrees to pay under this Lease including any fine, penalty, interest,
charge and cost which may be added for nonpayment or late payment of such items
(collectively the “General Additional Rent”).
 
2.4           Place of Payment of Rent.  Tenant shall make all payments of Rent
to Landlord by electronic wire transfer in accordance with the wiring
instructions set forth in Exhibit J attached hereto, subject to change in
accordance with other written instructions provided by Landlord from time to
time.
 
                      2.5           Net Lease.  This Lease shall be deemed and
construed to be an “absolute net lease”, and Tenant shall pay all Rent and other
charges and expenses in connection with the Leased Property throughout the Term,
without abatement, deduction, recoupment or set-off.  Landlord shall have all
legal, equitable and contractual rights, powers and remedies provided either in
this Lease or by statute or otherwise in the case of nonpayment of the Rent.
 
                      2.6           No Termination, Abatement, Etc.  Except as
otherwise specifically provided in this Lease, Tenant shall remain bound by this
Lease in accordance with its terms.  Tenant shall not, without the consent of
Landlord, modify, surrender or terminate the Lease, nor seek nor be entitled to
any abatement, deduction, deferment or reduction of Rent, or set-off or
recoupment against the Rent.  Except as expressly provided in this Lease, the
obligations of Landlord and Tenant shall not be affected by reason of [i] any
damage to, or destruction of, the Leased Property or any part thereof from
whatever cause or any Taking (as hereinafter defined) of the Leased Property or
any part thereof; [ii] the lawful or unlawful prohibition of, or restriction
upon, Tenant’s use of the Leased Property, or any part thereof, the interference
with such use by any person, corporation, partnership or other entity, or by
reason of eviction by paramount title; [iii] any claim which Tenant has or might
have against Landlord or 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; [iv] any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or
 

 
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other proceeding affecting Landlord or any assignee or transferee of Landlord;
or [v] any other cause, whether similar or dissimilar to any of the foregoing,
other than a discharge of Tenant from any such obligations as a matter of
law.  Except as otherwise specifically provided in this Lease, Tenant hereby
specifically waives all rights, arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law [a] to modify, surrender or
terminate this Lease or quit or surrender the Leased Property or any portion
thereof; or [b] entitling Tenant to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Tenant hereunder.  The
obligations of Landlord and Tenant hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Tenant
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default.  Nothing in this §2.6 shall be construed to limit any right which
Tenant may have to bring a separate action against Landlord for any claim which
Tenant may have or allege to have against Landlord.
 
2.7           Transaction Fee.  Tenant has paid transaction fees as required by
Landlord prior to the Effective Date.  There is no transaction fee payable as of
the Effective Date.
 
ARTICLE 3:  IMPOSITIONS AND UTILITIES
 
3.1           Payment of Impositions.  Tenant shall pay, as Additional Rent, all
Impositions that may be levied or become a lien on the Leased Property or any
part thereof at any time (whether prior to or during the Term), without regard
to prior ownership of said Leased Property, before any fine, penalty, interest,
or cost is incurred; provided, however, Tenant may contest any Imposition in
accordance with §3.7.  Tenant shall deliver to Landlord [i] not more than five
days after the due date of each Imposition, copies of the invoice for such
Imposition and the check delivered for payment thereof; and [ii] not more than
30 days after the due date of each Imposition, a copy of the official receipt
evidencing such payment or other proof of payment satisfactory to
Landlord.  Tenant’s obligation to pay such Impositions shall be deemed
absolutely fixed upon the date such Impositions become a lien upon the Leased
Property or any part thereof.  Tenant, at its expense, shall prepare and file
all tax returns and reports in respect of any Imposition as may be required by
governmental authorities.  Tenant shall be entitled to any refund due from any
taxing authority if no Event of Default shall have occurred hereunder and be
continuing and if Tenant shall have paid all Impositions due and payable as of
the date of the refund.  Landlord shall be entitled to any refund from any
taxing authority if an Event of Default has occurred and is continuing.  Any
refunds retained by Landlord due to an Event of Default shall be applied as
provided in §8.8.  Landlord and Tenant shall, upon request of the other, provide
such data as is maintained by the party to whom the request is made with respect
to the Leased Property as may be necessary to prepare any required returns and
reports.  In the event governmental authorities classify 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 the other party, upon request, with cost and depreciation records
necessary for filing returns for any property so classified as personal
property.  Where Landlord is legally required to file personal property tax
returns, Tenant will be provided with copies of assessment notices indicating a
value in excess of the reported value in sufficient time for Tenant to file a
protest.  Tenant may, at Tenant’s option and at Tenant’s sole cost and expense,
protest, appeal or
 

 
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institute such other proceedings as Tenant may deem appropriate to effect a
reduction of real estate or personal property assessments and Landlord, at
Tenant’s expense as aforesaid, shall fully cooperate with Tenant in such
protest, appeal, or other action.  Tenant shall reimburse Landlord for all
personal property taxes paid by Landlord within 30 days after receipt of
billings accompanied by copies of a bill therefor and payments thereof which
identify the personal property with respect to which such payments are
made.  Impositions imposed in respect to the tax-fiscal period during which the
Term terminates shall be adjusted and prorated between Landlord and Tenant as of
the termination date, whether or not such Imposition is imposed before or after
such termination, and Tenant’s obligation to pay its prorated share thereof
shall survive such termination.
 
3.2           Definition of Impositions.  “Impositions” means, collectively,
[i] taxes (including, without limitation, all capital stock and franchise taxes
of Landlord imposed by the Facility State or any governmental entity in the
Facility State due to this lease transaction or Landlord’s ownership of the
Leased Property and the income arising therefrom, or due to Landlord being
considered as doing business in the Facility State because of Landlord’s
ownership of the Leased Property or lease thereof to Tenant), all real estate
and personal property ad valorem, sales and use, business or occupation, single
business, gross receipts, transaction privilege, rent or similar taxes;
[ii] assessments (including, without limitation, all assessments for public
improvements or benefits, whether or not commenced or completed prior to the
date hereof and whether or not to be completed within the Term); [iii] ground
rents, water, sewer or other rents and charges, excises, tax levies, and fees
(including, without limitation, license, permit, inspection, authorization and
similar fees); [iv] all taxes imposed on Tenant’s operations of the Leased
Property, including, without limitation, employee withholding taxes, income
taxes and intangible taxes; [v] all taxes imposed by the Facility State or any
governmental entity in the Facility State with respect to the conveyance of the
Leased Property by Landlord to Tenant or Tenant’s designee, including, without
limitation, conveyance taxes; and [vi] all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character in respect of the Leased Property or any part
thereof and/or the Rent (including all interest and penalties thereon due to any
failure in payment by Tenant), which at any time prior to, during or in respect
of the Term hereof may be assessed or imposed on or in respect of or be a lien
upon [a] Landlord or Landlord’s interest in the Leased Property or any part
thereof; [b] the Leased Property or any part thereof or any rent therefrom or
any estate, right, title or interest therein; or [c] any occupancy, operation,
use or possession of, or sales from, or activity conducted on, or in connection
with the Leased Property or the leasing or use by Tenant of the Leased Property
or any part thereof.  Tenant shall not, however, be required to pay any capital
gains tax or any tax based on net income imposed on Landlord by any governmental
entity other than the capital stock and franchise taxes described in clause [i]
above.
 
3.3           Escrow of Impositions.  Tenant shall deposit with Landlord on the
first day of each month a sum equal to 1/12th of the Impositions assessed
against the Leased Property for the preceding tax year for real estate taxes,
which sums shall be used by Landlord toward payment of such Impositions.  In
addition, if an Event of Default occurs and while it remains uncured, Tenant
shall, at Landlord’s election, deposit with Landlord on the first day of each
month a sum equal to 1/12th of the Impositions assessed against the Leased
Property for the preceding tax year other than real estate taxes, which sums
shall be used by Landlord toward
 

 
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payment of such Impositions.  Tenant, on demand, shall pay to Landlord any
additional funds necessary to pay and discharge the obligations of Tenant
pursuant to the provisions of this section.  The receipt by Landlord of the
payment of such Impositions by and from Tenant shall only be as an accommodation
to Tenant, the mortgagees, and the taxing authorities, and shall not be
construed as rent or income to Landlord, Landlord serving, if at all, only as a
conduit for delivery purposes.
 
3.4           Utilities.  Tenant shall pay, as Additional Rent, all taxes,
assessments, charges, deposits, and bills for utilities, including, without
limitation, charges for water, gas, oil, sanitary and storm sewer, electricity,
telephone service, and trash collection, which may be charged against the
occupant of the Improvements during the Term.  If an Event of Default occurs and
while it remains uncured, Tenant shall, at Landlord’s election, deposit with
Landlord on the first day of each month a sum equal to 1/12th of the amount of
the annual utility expenses for the preceding Lease Year, which sums shall be
used by Landlord to pay such utilities.  Tenant shall, on demand, pay to
Landlord any additional amount needed to pay such utilities.  Landlord’s receipt
of such payments shall only be an accommodation to Tenant and the utility
companies and shall not constitute rent or income to Landlord.  Absent
circumstances beyond Tenant’s reasonable control, Tenant shall at all times
maintain that amount of heat necessary to ensure against the freezing of water
lines.  Tenant hereby agrees to indemnify and hold Landlord harmless from and
against any liability or damages to the utility systems and the Leased Property
that may result from Tenant’s failure to maintain sufficient heat in the
Improvements absent circumstances beyond Tenant’s reasonable control.
 
3.5           Discontinuance of Utilities.  Landlord will not be liable for
damages to person or property or for injury to, or interruption of, business for
any discontinuance of utilities nor will such discontinuance in any way be
construed as an eviction of Tenant or cause an abatement of rent or operate to
release Tenant from any of Tenant’s obligations under this Lease.
 
3.6           Business Expenses.  Tenant shall promptly pay all expenses and
costs incurred in connection with the operation of the Facility on the Leased
Property, including, without limitation, employee benefits, employee vacation
and sick pay, consulting fees, and expenses for inventory and supplies.
 
3.7           Permitted Contests.  Tenant, on its own or on Landlord’s behalf
(or in Landlord’s name), but at Tenant’s expense, may contest, by appropriate
legal proceedings conducted in good faith and with due diligence, the amount or
validity or application, in whole or in part, of any Imposition or any Legal
Requirement or insurance requirement or any lien, attachment, levy, encumbrance,
charge or claim provided that [i] 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 and from the Leased Property; [ii] neither the Leased Property nor any
Rent therefrom nor any part thereof or interest therein would be in any
immediate danger of being sold, forfeited, attached or lost; [iii] in the case
of a Legal Requirement, Landlord would not be in any immediate danger of civil
or criminal liability for failure to comply therewith pending the outcome of
such proceedings; [iv] in the event that any such contest shall involve a sum of
money or potential loss in excess of $50,000.00, Tenant shall deliver to
Landlord and its counsel an opinion of Tenant’s counsel to the effect set forth
in clauses [i], [ii] and [iii], to the extent applicable; [v] in the case of a
Legal
 

 
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Requirement and/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 Leased
Property or the Rent by reason of such nonpayment or noncompliance; provided,
however, the provisions of this section 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 any Imposition or the basis for the
assertion of any other claim) or any other sums payable by Tenant to Landlord
hereunder; [vi] in the case of an insurance requirement, the coverage required
by Article 4 shall be maintained; and [vii] if such contest be finally resolved
against Landlord or Tenant, Tenant shall, as Additional Rent 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.  Landlord, at Tenant’s expense, shall execute and deliver
to Tenant such authorizations and other documents as may be reasonably required
in any such contest, and, if reasonably requested by Tenant or if Landlord so
desires, Landlord shall join as a party therein.  Tenant hereby agrees to
indemnify and save Landlord harmless from and 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 4:  INSURANCE
 
4.1           Property Insurance.  At Tenant’s expense, Tenant shall maintain in
full force and effect a property insurance policy or policies insuring the
Leased Property against the following:
 
(a) Loss or damage commonly covered by a “Special Form” or “All Risk” policy
insuring against physical loss or damage to the Improvements and Personal
Property, including, but not limited to, risk of loss from fire and other
hazards, collapse, transit coverage, vandalism, malicious mischief, theft,
earthquake (if the Leased Property is in earthquake zone 1 or 2) and sinkholes
(if usually recommended in the area of the Leased Property).  The policy shall
be in the amount of the full replacement value (as defined in §4.5) of the
Improvements and Personal Property and shall contain a deductible amount
acceptable to Landlord.  Landlord shall be named as an additional insured.  The
policy shall include a stipulated value endorsement or agreed amount endorsement
and endorsements for contingent liability for operations of building laws,
demolition costs, and increased cost of construction.
 
(b) If applicable, loss or damage by explosion of steam boilers, pressure
vessels, or similar apparatus, now or hereafter installed on the Leased
Property, in commercially reasonable amounts acceptable to Landlord.
 
(c) Consequential loss of rents and income coverage insuring against all “All
Risk” or “Special Form” risk of physical loss or damage with limits and
deductible amounts acceptable to Landlord covering risk of loss during the first
nine months of reconstruction, and containing an endorsement for extended period
of indemnity of at least 90 days, and shall be written with a stipulated amount
of coverage if available at a reasonable premium.
 
(d) If the Leased Property is located, in whole or in part, in a federally
designated 100-year flood plain area, flood insurance for the Improvements in an
amount equal
 

 
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to the lesser of [i] the full replacement value of the Improvements; or [ii] the
maximum amount of insurance available for the Improvements under all federal and
private flood insurance programs.
 
(e) Loss or damage caused by the breakage of plate glass in commercially
reasonable amounts acceptable to Landlord.
 
(f) Loss or damage commonly covered by blanket crime insurance, including
employee dishonesty, loss of money orders or paper currency, depositor’s
forgery, and loss of property of patients accepted by Tenant for safekeeping, in
commercially reasonable amounts acceptable to Landlord.
 
4.2           Liability Insurance.  At Tenant’s expense, Tenant shall maintain
liability insurance against the following:
 
(a) Claims for personal injury or property damage commonly covered by
comprehensive general liability insurance with endorsements for incidental
malpractice, contractual, personal injury, owner’s protective liability,
voluntary medical payments, products and completed operations, broad form
property damage, and extended bodily injury, with commercially reasonable
amounts for bodily injury, property damage, and voluntary medical payments
acceptable to Landlord, but with a combined single limit of not less than
$5,000,000.00 per occurrence.
 
(b) Claims for personal injury and property damage commonly covered by
comprehensive automobile liability insurance, covering all owned and non-owned
automobiles, with commercially reasonable amounts for bodily injury, property
damage, and for automobile medical payments acceptable to Landlord, but with a
combined single limit of not less than $5,000,000.00 per occurrence.
 
(c) Claims for personal injury commonly covered by medical malpractice insurance
in commercially reasonable amounts acceptable to Landlord.
 
(d) Claims commonly covered by worker’s compensation insurance for all persons
employed by Tenant on the Leased Property.  Such worker’s compensation insurance
shall be in accordance with the requirements of all applicable local, state, and
federal law.
 
4.3           Builder’s Risk Insurance.  In connection with any construction,
Tenant shall maintain in full force and effect a builder’s completed value risk
coverage (“Builder’s Risk Coverage”) of insurance in a nonreporting form
insuring against all “All Risk” or “Special Form” risk of physical loss or
damage to the Improvements, including, but not limited to, risk of loss from
fire and other hazards, collapse, transit coverage, vandalism, malicious
mischief, theft, earthquake (if Leased Property is in earthquake zone 1 or 2)
and sinkholes (if usually recommended in the area of the Leased Property).  The
Builder’s Risk Coverage shall include endorsements providing coverage for
building materials and supplies and temporary premises.  The Builder’s Risk
Coverage shall be in the amount of the full replacement value of the
Improvements and shall contain a deductible amount acceptable to
Landlord.  Landlord shall be named as an additional insured.  The Builder’s Risk
Coverage shall include an endorsement permitting initial occupancy.
 

 
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4.4           Insurance Requirements.  The following provisions shall apply to
all insurance coverages required hereunder:
 
(a) The form and substance of all policies shall be subject to the approval of
Landlord, which approval will not be unreasonably withheld.
 
(b) The carriers of all policies shall have a Best’s Rating of “A” or better and
a Best’s Financial Category of XII or higher and shall be authorized to do
insurance business in the Facility State.
 
(c) Tenant shall be the “named insured” and Landlord shall be an “additional
insured” on each policy.
 
(d) Tenant shall deliver to Landlord certificates or policies showing the
required coverages and endorsements.  The policies of insurance shall provide
that the policy may not be canceled or not renewed, and no material change or
reduction in coverage may be made, without at least 30 days’ prior written
notice to Landlord.
 
(e) The policies shall contain a severability of interest and/or cross-liability
endorsement, provide that the acts or omissions of Tenant or Landlord will not
invalidate the coverage of the other party, and provide that Landlord shall not
be responsible for payment of premiums.
 
(f) All loss adjustment shall require the written consent of Landlord and
Tenant, as their interests may appear.
 
(g) At least 30 days prior to the expiration of each insurance policy, Tenant
shall deliver to Landlord a certificate showing renewal of such policy and
payment of the annual premium therefor and a current Certificate of Compliance
(in the form delivered at the time of Closing) completed and signed by Tenant’s
insurance agent.
 
4.5           Replacement Value.  The term “full replacement value” means the
actual replacement cost thereof from time to time, including increased cost of
construction endorsement, with no reductions or deductions.  Tenant shall, in
connection with each annual policy renewal, deliver to Landlord a
redetermination of the full replacement value by the insurer or an endorsement
indicating that the Leased Property is insured for its full replacement
value.  If Tenant makes any Permitted Alterations (as hereinafter defined) to
the Leased Property, Landlord may have such full replacement value redetermined
at any time after such Permitted Alterations are made, regardless of when the
full replacement value was last determined.
 
4.6           Blanket Policy.  Notwithstanding anything to the contrary
contained in this Article 4, Tenant may carry the insurance required by this
Article under a blanket policy of insurance, provided that the coverage afforded
Tenant will not be reduced or diminished or otherwise be different from that
which would exist under a separate policy meeting all of the requirements of
this Lease.
 
4.7           No Separate Insurance.  Tenant shall not take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article, or
 

 
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increase the amounts of any then existing insurance, by securing an additional
policy or additional policies, unless all parties having an insurable interest
in the subject matter of the insurance, including Landlord and any mortgagees,
are included therein as additional insureds or loss payees, the loss is payable
under said insurance in the same manner as losses are payable under this Lease,
and such additional insurance is not prohibited by the existing policies of
insurance.  Tenant shall immediately notify Landlord of the taking out of such
separate insurance or the increasing of any of the amounts of the existing
insurance by securing an additional policy or additional policies.
 
4.8           Waiver of Subrogation.  Each party hereto hereby waives any and
every claim which arises or may arise in its favor and against the other party
hereto during the Term for any and all loss of, or damage to, any of its
property located within or upon, or constituting a part of, the Leased Property,
which loss or damage is covered by valid and collectible insurance policies, to
the extent that such loss or damage is recoverable under such policies.  Said
mutual waiver shall be in addition to, and not in limitation or derogation of,
any other waiver or release contained in this Lease with respect to any loss or
damage to property of the parties hereto.  Inasmuch as the said waivers will
preclude the assignment of any aforesaid claim by way of subrogation (or
otherwise) to an insurance company (or any other person), each party hereto
agrees immediately to give each insurance company which has issued to it
policies of insurance, written notice of the terms of said mutual waivers, and
to have such insurance policies properly endorsed, if necessary, to prevent the
invalidation of said insurance coverage by reason of said waivers, so long as
such endorsement is available at a reasonable cost.
 
4.9           Mortgages.  The following provisions shall apply if Landlord now
or hereafter places a mortgage on the Leased Property or any part
thereof:  [i] Tenant shall obtain a standard form of lender’s loss payable
clause insuring the interest of the mortgagee; [ii] Tenant shall deliver
evidence of insurance to such mortgagee; [iii] loss adjustment shall require the
consent of the mortgagee; and [iv] Tenant shall provide such other information
and documents as may be required by the mortgagee.
 
4.10           Escrows.  After an Event of Default occurs hereunder, Tenant
shall make such periodic payments of insurance premiums in accordance with
Landlord’s requirements after receipt of notice thereof from Landlord.
 
ARTICLE 5:  INDEMNITY
 
5.1           Tenant’s Indemnification.  Tenant hereby indemnifies and agrees to
hold harmless Landlord, any successors or assigns of Landlord, and Landlord’s
and such successor’s and assign’s directors, officers, employees and agents from
and against any and all demands, claims, causes of action, fines, penalties,
damages (including consequential damages), losses, liabilities (including strict
liability), judgments, and expenses (including, without limitation, reasonable
attorneys’ fees, court costs, and the costs set forth in §8.7) incurred in
connection with or arising from:  [i] the use or occupancy of the Leased
Property by Tenant or any persons claiming under Tenant; [ii] any activity,
work, or thing done, or permitted or suffered by Tenant in or about the Leased
Property; [iii] any acts, omissions, or negligence of Tenant or any person
claiming under Tenant, or the contractors, agents, employees, invitees, or
visitors of Tenant or any such person; [iv] any breach, violation, or
nonperformance by Tenant or any person claiming
 

 
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under Tenant or the employees, agents, contractors, invitees, or visitors of
Tenant or of any such person, of any term, covenant, or provision of this Lease
or any law, ordinance, or governmental requirement of any kind, including,
without limitation, any failure to comply with any applicable requirements under
the ADA; [v] any injury or damage to the person, property or business of Tenant,
its employees, agents, contractors, invitees, visitors, or any other person
entering upon the Leased Property; [vi] any construction, alterations, changes
or demolition of the Facility performed by or contracted for by Tenant or its
employees, agents or contractors; and [vii] any obligations, costs or expenses
arising under any Permitted Exceptions.  If any action or proceeding is brought
against Landlord, its employees, or agents by reason of any such claim, Tenant,
upon notice from Landlord, will defend the claim at Tenant’s expense with
counsel reasonably satisfactory to Landlord.  All amounts payable to Landlord
under this section shall be payable on written demand and any such amounts which
are not paid within 10 days after demand therefor by Landlord shall bear
interest at Landlord’s rate of return as provided in the Commitment.  In case
any action, suit or proceeding is brought against Tenant by reason of any such
occurrence, Tenant shall use its commercially reasonable efforts to defend such
action, suit or proceeding.  Nothing in this §5.1 shall be construed as
requiring Tenant to indemnify Landlord with respect to Landlord’s own gross
negligence or willful misconduct.
 
5.1.1           Notice of Claim.  Landlord shall notify Tenant in writing of any
claim or action brought against Landlord in which indemnity may be sought
against Tenant pursuant to this section.  Such notice shall be given in
sufficient time to allow Tenant to defend or participate in such claim or
action, but the failure to give such notice in sufficient time shall not
constitute a defense hereunder nor in any way impair the obligations of Tenant
under this section unless the failure to give such notice precludes Tenant’s
defense of any such action.
 
5.1.2           Survival of Covenants.  The covenants of Tenant contained in
this section shall remain in full force and effect after the termination of this
Lease until the expiration of the period stated in the applicable statute of
limitations during which a claim or cause of action may be brought and payment
in full or the satisfaction of such claim or cause of action and of all expenses
and charges incurred by Landlord relating to the enforcement of the provisions
herein specified.
 
5.1.3           Reimbursement of Expenses.  Unless prohibited by law, Tenant
hereby agrees to pay to Landlord all of the reasonable fees, charges and
reasonable out-of-pocket expenses related to the Facility and required hereby,
or incurred by Landlord in enforcing the provisions of this Lease.
 
5.2           Environmental Indemnity; Audits.  Tenant hereby indemnifies and
agrees to hold harmless Landlord, any successors to Landlord’s interest in this
Lease, and Landlord’s and such successors’ directors, officers, employees and
agents from and against any losses, claims, damages (including consequential
damages), penalties, fines, liabilities (including strict liability), costs
(including cleanup and recovery costs), and expenses (including expenses of
litigation and reasonable consultants’ and attorneys’ fees) incurred by Landlord
or any other indemnitee or assessed against any portion of the Leased Property
by virtue of any claim or lien by any governmental or quasi-governmental unit,
body, or agency, or any third party, for cleanup costs or other costs pursuant
to any Environmental Law.  Tenant’s indemnity shall survive the termination of
this Lease.  Provided, however, Tenant shall have no indemnity obligation with
 

 
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respect to [i] Hazardous Materials first introduced to the Leased Property
subsequent to the date that Tenant’s occupancy of the Leased Property shall have
fully terminated; or [ii] Hazardous Materials introduced to the Leased Property
by Landlord, its agent, employees, successors or assigns.  If at any time during
the Term of this Lease any governmental authority notifies Landlord or Tenant of
a violation of any Environmental Law or Landlord reasonably believes that a
Facility may violate any Environmental Law, Landlord may require one or more
environmental audits of such portion of the Leased Property, in such form, scope
and substance as specified by Landlord, at Tenant’s expense.  Tenant shall,
within 30 days after receipt of an invoice from Landlord, reimburse Landlord for
all costs and expenses incurred in reviewing any environmental audit, including,
without limitation, reasonable attorneys’ fees and costs.
 
5.3           Limitation of Landlord’s Liability.  Landlord, its agents, and
employees, will not be liable for any loss, injury, death, or damage (including
consequential damages) to persons, property, or Tenant’s business occasioned by
theft, act of God, public enemy, injunction, riot, strike, insurrection, war,
court order, requisition, order of governmental body or authority, fire,
explosion, falling objects, steam, water, rain or snow, leak or flow of water
(including water from the elevator system), rain or snow from the Leased
Property or into the Leased Property or from the roof, street, subsurface or
from any other place, or by dampness or from the breakage, leakage, obstruction,
or other defects of the pipes, sprinklers, wires, appliances, plumbing, air
conditioning, or lighting fixtures of the Leased Property, or from construction,
repair, or alteration of the Leased Property or from any acts or omissions of
any other occupant or visitor of the Leased Property, or from any other cause
beyond Landlord’s control.
 
ARTICLE 6:  USE AND ACCEPTANCE OF PREMISES
 
6.1           Use of Leased Property.  Tenant shall use and occupy the Leased
Property exclusively for the Facility Uses specified for each Facility and for
all lawful and licensed ancillary uses, including the operation of an
Alzheimer’s Memory Loss Unit, provided Tenant complies with all applicable Legal
Requirements, and for no other purpose without the prior written consent of
Landlord.  Tenant or Subtenant, as the case may be, shall obtain and maintain
all approvals, licenses, and consents needed to use and operate the Leased
Property as herein permitted.  Tenant shall deliver to Landlord complete copies
of surveys, examinations, certification and licensure inspections, compliance
certificates, and other similar reports issued to Tenant by any governmental
agency within 10 Business Days after Tenant’s receipt of each item.
 
6.2           Acceptance of Leased Property.  Tenant acknowledges that
[i] Tenant and its agents have had an opportunity to inspect the Leased
Property; [ii] Tenant has found the Leased Property fit for Tenant’s use;
[iii] Landlord will deliver the Leased Property to Tenant in “as-is” condition;
[iv] Landlord is not obligated to make any improvements or repairs to the Leased
Property; and [v] the roof, walls, foundation, heating, ventilating, air
conditioning, telephone, sewer, electrical, mechanical, elevator, utility,
plumbing, and other portions of the Leased Property are in good working
order.  Tenant waives any claim or action against Landlord with respect to the
condition of the Leased Property.  LANDLORD MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED PROPERTY OR ANY PART THEREOF,
EITHER AS TO ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR
PURPOSE OR OTHERWISE, OR AS
 

 
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TO QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING
AGREED THAT ALL SUCH RISKS ARE TO BE BORNE BY TENANT.
 
6.3           Conditions of Use and Occupancy.  Tenant agrees that during the
Term it shall use and keep the Leased Property in a careful, safe and proper
manner; not commit or suffer waste thereon; not use or occupy the Leased
Property for any unlawful purposes; not use or occupy the Leased Property or
permit the same to be used or occupied, for any purpose or business deemed
extrahazardous on account of fire or otherwise; keep the Leased Property in such
repair and condition as may be required by the Board of Health, or other city,
state or federal authorities, free of all cost to Landlord; not permit any acts
to be done which will cause the cancellation, invalidation, or suspension of any
insurance policy; and permit Landlord and its agents to enter upon the Leased
Property at all reasonable times to examine the condition thereof.  Landlord
shall have the right to have an annual inspection of the Leased Property
performed and Tenant shall pay an inspection fee of the lesser of $1,500.00 per
Facility or Landlord’s reasonable out-of-pocket expenses within 30 days after
receipt of Landlord’s invoice.
 
ARTICLE 7:  MAINTENANCE AND MECHANICS’ LIENS
 
7.1           Maintenance.  Tenant shall maintain, repair, and replace the
Leased Property, including, without limitation, all structural and nonstructural
repairs and replacements to the roof, foundations, exterior walls, HVAC systems,
equipment, parking areas, sidewalks, water, sewer and gas connections, pipes and
mains.  Tenant shall pay, as Additional Rent, the full cost of maintenance,
repairs, and replacements.  Tenant shall maintain all drives, sidewalks, parking
areas, and lawns on or about the Leased Property in a clean and orderly
condition, free of accumulations of dirt, rubbish, snow and ice.  Tenant shall
at all times maintain, operate and otherwise manage the Leased Property on a
basis and in a manner consistent with the standards currently maintained by
Tenant at the Leased Property.  All repairs shall, to the extent reasonably
achievable, be at least equivalent in quality to the original work or the
property to be repaired shall be replaced.  Tenant will not take or omit to take
any action the taking or omission of which might materially impair the value or
the usefulness of the Leased Property or any parts thereof for the Facility
Uses.  Tenant shall permit Landlord to inspect the Leased Property at all
reasonable times and on reasonable advance notice, and if Landlord has a
reasonable basis to believe that there are maintenance problem areas and gives
Tenant written notice thereof setting forth its concerns in reasonable detail,
Tenant shall deliver to Landlord a plan of correction within 10 Business Days
after receipt of the notice.  Tenant shall diligently pursue correction of all
problem areas within 60 days after receipt of the notice or such longer period
as may be necessary for reasons beyond its reasonable control such as shortage
of materials or delays in securing necessary permits, but not caused by lack of
diligence by Tenant, and, upon expiration of the 60-day period, shall deliver
evidence of completion to Landlord or an interim report evidencing Tenant’s
diligent progress towards completion and, at the end of the next 60-day period,
evidence of satisfactory completion.  Upon completion, Landlord shall have the
right to re-inspect the Facility and Tenant shall pay a re-inspection fee of
$750.00 per Facility plus Landlord’s reasonable out-of-pocket expenses within
30 days after receipt of Landlord’s invoice.  At each inspection of the Leased
Property by Landlord, the Facility employee in charge of maintenance shall be
available to tour the Facility with Landlord and answer questions.
 

 
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7.2           Required Alterations.  Tenant shall, at Tenant’s sole cost and
expense, make any additions, changes, improvements or alterations to the Leased
Property, including structural alterations, which may be required by any
governmental authorities, including those required to maintain licensure or
certification under the Medicare and Medicaid programs (if so certified),
whether such changes are required by Tenant’s use, changes in the law,
ordinances, or governmental regulations, defects existing as of the date of this
Lease, or any other cause whatsoever.  All such additions, changes, improvements
or alterations shall be deemed to be Permitted Alterations and shall comply with
all laws requiring such alterations and with the provisions of §16.4.
 
7.3           Mechanic’s Liens.  Tenant shall have no authority to permit or
create a lien against Landlord’s interest in the Leased Property, and Tenant
shall post notices or file such documents as may be required to protect
Landlord’s interest in the Leased Property against liens.  Tenant hereby agrees
to defend, indemnify, and hold Landlord harmless from and against any mechanic’s
liens against the Leased Property by reason of work, labor, services or
materials supplied or claimed to have been supplied on or to the Leased
Property.  Subject to Tenant’s right to contest the same in accordance with the
terms of this Lease, Tenant shall remove, bond-off, or otherwise obtain the
release of any mechanic’s lien filed against the Leased Property within 10 days
after notice of the filing thereof.  Tenant shall pay all expenses in connection
therewith, including, without limitation, damages, interest, court costs and
reasonable attorneys’ fees.
 
7.4           Replacements of Fixtures and Landlord’s Personal Property.  Tenant
shall not remove Fixtures and Landlord’s Personal Property from the Leased
Property except to replace the Fixtures and Landlord’s Personal Property with
other similar items of equal quality and value.  Items being replaced by Tenant
may be removed and shall become the property of Tenant and items replacing the
same shall be and remain the property of Landlord.  Tenant shall execute, upon
written request from Landlord, any and all documents necessary to evidence
Landlord’s ownership of Landlord’s Personal Property and replacements
therefor.  Tenant may finance replacements for the Fixtures and Landlord’s
Personal Property by equipment lease or by a security agreement and financing
statement if, with respect to any financing of critical care equipment and with
respect to any other Personal Property having a value per Facility in excess of
$250,000.00, [i] Landlord has consented to the terms and conditions of the
equipment lease or security agreement; and [ii] the equipment lessor or lender
has entered into a nondisturbance agreement with Landlord upon terms and
conditions reasonably acceptable to Landlord, including, without limitation, the
following:  [a] Landlord shall have the right (but not the obligation) to assume
such security agreement or equipment lease upon the occurrence of an Event of
Default under this Lease; [b] the equipment lessor or lender shall notify
Landlord of any default by Tenant under the equipment lease or security
agreement and give Landlord a reasonable opportunity to cure such default; and
[c] Landlord shall have the right to assign its rights under the equipment
lease, security agreement, or nondisturbance agreement.  Tenant shall, within
30 days after receipt of an invoice from Landlord, reimburse Landlord for all
costs and expenses incurred in reviewing and approving the equipment lease,
security agreement, and nondisturbance agreement, including, without limitation,
reasonable attorneys’ fees and costs.
 

 
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ARTICLE 8:  DEFAULTS AND REMEDIES
 
8.1           Events of Default.  The occurrence of any one or more of the
following shall be an event of default (“Event of Default”) hereunder without
any advance notice to Tenant unless specified herein:
 
(a) Tenant fails to pay in full any installment of Base Rent, any Additional
Rent or any other monetary obligation payable by Tenant under this Lease within
10 days after such payment is due.
 
(b) Tenant, Subtenant or Guarantor (where applicable) fails to comply with any
covenant set forth in Article 14, §§15.6, 15.7 or 15.8 of this Lease.
 
(c) Tenant fails to observe and perform any other covenant, condition or
agreement under this Lease to be performed by Tenant and [i] such failure
continues for a period of 30 days after written notice thereof is given to
Tenant by Landlord; or [ii] if, by reason of the nature of such default it
cannot be remedied within 30 days, Tenant fails to proceed with diligence
reasonably satisfactory to Landlord after receipt of the notice to cure the
default or, in any event, fails to cure such default within 60 days after
receipt of the notice.  The foregoing notice and cure provisions do not apply to
any Event of Default otherwise specifically described in any other subsection of
§8.1.
 
(d) Tenant or Subtenant abandons or vacates (except during a period of repair or
reconstruction after damage, destruction or a Taking) any Facility Property or
any material part thereof, ceases to operate any Facility, ceases to do business
or ceases to exist for any reason for any one or more days.
 
(e) [i] The filing by Tenant or Subtenant of a petition under the Bankruptcy
Code or the commencement of a bankruptcy or similar proceeding by Tenant,
Subtenant or Guarantor; [ii] the failure by Tenant, Subtenant or Guarantor
within 60 days to dismiss an involuntary bankruptcy petition or other
commencement of a bankruptcy, reorganization or similar proceeding against such
party, or to lift or stay any execution, garnishment or attachment of such
consequence as will impair its ability to carry on its operation at the Leased
Property; [iii] the entry of an order for relief under the Bankruptcy Code in
respect of Tenant, Subtenant or Guarantor; [iv] any assignment by Tenant,
Subtenant or Guarantor for the benefit of its creditors; [v] the entry by
Tenant, Subtenant or Guarantor into an agreement of composition with its
creditors; [vi] the approval by a court of competent jurisdiction of a petition
applicable to Tenant, Subtenant or Guarantor in any proceeding for its
reorganization instituted under the provisions of any state or federal
bankruptcy, insolvency, or similar laws; [vii] appointment by final order,
judgment, or decree of a court of competent jurisdiction of a receiver of the
whole or any substantial part of the properties of Tenant, Subtenant or
Guarantor (provided such receiver shall not have been removed or discharged
within 60 days of the date of his qualification).
 
(f) [i] Any receiver, administrator, custodian or other person takes possession
or control of any of the Leased Property and continues in possession for
60 days; [ii] any writ against any of the Leased Property is not released within
60 days; [iii] any judgment
 

 
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is rendered or proceedings are instituted against the Leased Property, Tenant or
Subtenant which adversely affect the Leased Property or any part thereof, which
is not dismissed for 60 days (except as otherwise provided in this section);
[iv] all or a substantial part of the assets of Tenant, Subtenant or Guarantor
are attached, seized, subjected to a writ or distress warrant, or are levied
upon, or come into the possession of any receiver, trustee, custodian, or
assignee for the benefit of creditors; [v] Tenant or Subtenant is enjoined,
restrained, or in any way prevented by court order, or any proceeding is filed
or commenced seeking to enjoin, restrain or in any way prevent Tenant, Subtenant
or Guarantor from conducting all or a substantial part of its business or
affairs; or [vi] except as otherwise permitted hereunder, a final notice of
lien, levy or assessment is filed of record with respect to all or any part of
the Leased Property or any property of Tenant or Subtenant located at the Leased
Property and is not dismissed, discharged, or bonded-off within 30 days.
 
(g) Any representation or warranty made by Tenant, Subtenant or Guarantor in
this Lease or any other document executed in connection with this Lease, any
guaranty of or other security for this Lease, or any report, certificate,
application, financial statement or other instrument furnished by Tenant,
Subtenant or Guarantor pursuant hereto or thereto shall prove to be false,
misleading or incorrect in any material respect as of the date made.
 
(h) Tenant, any Subtenant or any Affiliate defaults on any indebtedness or
obligation to Landlord or any Landlord Affiliate, any Obligor Group Obligation
or any agreement with Landlord or any Landlord Affiliate, including, without
limitation, any lease with Landlord or any Landlord Affiliate, or the occurrence
of a default under any Material Obligation and any applicable grace or cure
period with respect to default under such indebtedness or obligation expires
without such default having been cured.  This provision applies to all such
indebtedness, obligations and agreements as they may be amended, modified,
extended, or renewed from time to time.
 
(i) Any guarantor of this Lease dissolves, terminates, is adjudicated
incompetent, files a petition in bankruptcy, or is adjudicated insolvent under
the Bankruptcy Code or any other insolvency law, or fails to comply with any
covenant or requirement of such guarantor set forth in this Lease or in the
guaranty of such guarantor, which is not cured within any applicable cure
period.
 
(j) The license for the Facility or any other Government Authorization is
canceled, suspended, reduced to provisional or temporary, or otherwise
invalidated, or license revocation or decertification proceedings are commenced
against Tenant or Subtenant and, in each instance, such action is not stayed
pending appeal, or, as a result of the acts or omissions of Tenant or Subtenant,
any reduction of more than 5% occurs in the number of licensed beds or units at
the Facility, or an admissions ban is issued for the Facility and remains in
effect for a period of more than 45 days.
 
8.2           Remedies.  Upon the occurrence of an Event of Default under this
Lease or any Lease Document, and at any time thereafter until Landlord waives
the default in writing or acknowledges cure of the default in writing, at
Landlord’s option, without declaration, notice of nonperformance, protest,
notice of protest, notice of default, notice to quit or any other notice
 

 
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or demand of any kind, Landlord may exercise any and all rights and remedies
provided in this Lease or any Lease Document or otherwise provided under law or
in equity, including, without limitation, any one or more of the following
remedies:
 
(a) Landlord may re-enter and take possession of the Leased Property or any
portion thereof without terminating this Lease, and lease such Leased Property
for the account of Tenant, holding Tenant liable for all costs of Landlord in
reletting such Leased Property and for the difference in the amount received by
such reletting and the amounts payable by Tenant under the Lease.
 
(b) Landlord may terminate this Lease with respect to all or any portion of the
Leased Property by written notice to Tenant, exclude Tenant from possession of
such Leased Property and use commercially reasonable efforts to lease such
Leased Property to others, holding Tenant liable for the difference in the
amounts received from such reletting and the amounts payable by Tenant under
this Lease.
 
(c) Landlord may re-enter the Leased Property or any portion thereof and have,
repossess and enjoy such Leased Property as if this Lease had not been made, and
in such event, Tenant and its successors and assigns shall remain liable for any
contingent or unliquidated obligations or sums owing at the time of such
repossession.
 
(d) Landlord may have access to and inspect, examine and make copies of the
books and records and any and all accounts, data and income tax and other
returns of Tenant insofar as they pertain to the Leased Property subject to
Landlord’s obligation to maintain the confidentiality of any patient or employee
information in accordance with the requirements of applicable State or federal
law.
 
(e) Landlord may accelerate all of the unpaid Rent hereunder based on the then
current Rent Schedule so that the aggregate Rent for the unexpired term of this
Lease becomes immediately due and payable.
 
(f) Landlord may take whatever action at law or in equity as may appear
necessary or desirable to collect the Rent and other amounts payable under this
Lease then due and thereafter to become due, or to enforce performance and
observance of any obligations, agreements or covenants of Tenant under this
Lease.
 
(g) With respect to the Collateral or any portion thereof and Secured Party’s
security interest therein, Secured Party may exercise all of its rights as
secured party under Article 9 of the Uniform Commercial Code.  Secured Party may
sell the Collateral by public or private sale upon five days notice to Tenant or
Subtenant.  Tenant and Subtenant agree that a commercially reasonable manner of
disposition of the Collateral shall include, without limitation and at the
option of Secured Party, a sale of the Collateral, in whole or in part,
concurrently with the sale of the Leased Property.
 
(h) Secured Party may obtain control over and collect the Receivables and apply
the proceeds of the collections to satisfaction of the Obligor Group Obligations
unless prohibited by law.  Tenant and Subtenant appoint HCRI or its designee as
attorney for Tenant and Subtenant, respectively, with powers [i] to receive, to
endorse, to sign and/or to deliver, in
 

 
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Tenant’s or Subtenant’s name or Secured Party’s name, any and all checks,
drafts, and other instruments for the payment of money relating to the
Receivables, and to waive demand, presentment, notice of dishonor, protest, and
any other notice with respect to any such instrument; [ii] to sign Tenant’s or
Subtenant’s name on any invoice or bill of lading relating to any Receivable,
drafts against account debtors, assignments and verifications of Receivables,
and notices to account debtors; [iii] to send verifications of Receivables to
any account debtor; and [iv] to do all other acts and things necessary to carry
out this Lease.  Absent gross negligence or willful misconduct of Secured Party,
Secured Party shall not be liable for any omissions, commissions, errors of
judgment, or mistakes in fact or law made in the exercise of any such
powers.  At Secured Party’s option, Tenant and Subtenant shall [i] provide
Secured Party a full accounting of all amounts received on account of
Receivables with such frequency and in such form as Secured Party may require,
either with or without applying all collections on Receivables in payment of the
Obligor Group Obligations or [ii] deliver to Secured Party on the day of receipt
all such collections in the form received and duly endorsed by Tenant or
Subtenant, as applicable.  At Secured Party’s request, Tenant and Subtenant
shall institute any action or enter into any settlement determined by Secured
Party to be necessary to obtain recovery or redress from any account debtor in
default of Receivables.  Secured Party may give notice of its security interest
in the Receivables to any or all account debtors with instructions to make all
payments on Receivables directly to Secured Party, thereby terminating Tenant’s
and Subtenant’s authority to collect Receivables.  After terminating Tenant’s
and Subtenant’s authority to enforce or collect Receivables, Secured Party shall
have the right to take possession of any or all Receivables and records thereof
and is hereby authorized to do so, and only Secured Party shall have the right
to collect and enforce the Receivables.  Prior to the occurrence and during the
continuance of an Event of Default, at Tenant’s and Subtenant’s cost and
expense, but on behalf of Secured Party and for Secured Party’s account, Tenant
and Subtenant shall collect or otherwise enforce all amounts unpaid on
Receivables and hold all such collections in trust for Secured Party, but Tenant
and Subtenant may commingle such collections with Tenant’s and Subtenant’s own
funds, until Tenant’s and Subtenant’s authority to do so has been terminated,
which may be done only after an Event of Default.  Notwithstanding any other
provision hereof, Secured Party does not assume any of Tenant’s or Subtenant’s
obligations under any Receivable, and Secured Party shall not be responsible in
any way for the performance of any of the terms and conditions thereof by Tenant
or Subtenant.
 
(i) Without waiving any prior or subsequent Event of Default, Landlord may waive
any Event of Default or, with or without waiving any Event of Default, remedy
any default.
 
(j) Landlord may terminate its obligation, if any, to disburse Investment
Advances.
 
(k) Landlord may enter and take possession of the Land or any portion thereof
and any one or more Facilities without terminating this Lease and complete
construction and renovation of the Improvements (or any part thereof) and
perform the obligations of Tenant under the Lease Documents.  Without limiting
the generality of the foregoing and for the purposes aforesaid, Tenant hereby
appoints HCRI its lawful attorney-in-fact with full power to do any of the
following:  [i] complete construction, renovation and equipping of the
Improvements in the name of Tenant; [ii] use unadvanced funds remaining under
the Investment
 

 
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Amount, or funds that may be reserved, escrowed, or set aside for any purposes
hereunder at any time, or to advance funds in excess of the Investment Amount,
to complete the Improvements; [iii] make changes in the plans and specifications
that shall be necessary or desirable to complete the Improvements in
substantially the manner contemplated by the plans and specifications;
[iv] retain or employ new general contractors, subcontractors, architects,
engineers, and inspectors as shall be required for said purposes; [v] pay,
settle, or compromise all existing bills and claims, which may be liens or
security interests, or to avoid such bills and claims becoming liens against the
Facility or security interest against fixtures or equipment, or as may be
necessary or desirable for the completion of the construction and equipping of
the Improvements or for the clearance of title; [vi] execute all applications
and certificates, in the name of Tenant, that may be required in connection with
any construction; [vii] do any and every act that Tenant might do in its own
behalf, to prosecute and defend all actions or proceedings in connection with
the Improvements; and [viii] to execute, deliver and file all applications and
other documents and take any and all actions necessary to transfer the
operations of the Facility to Secured Party or Secured Party’s designee.  This
power of attorney is a power coupled with an interest and cannot be revoked.
 
(l) Landlord may apply, with or without notice to Tenant, for the appointment of
a receiver (“Receiver”) for Tenant or Tenant’s business or for the Leased
Property; provided, however, in the case of an Event of Default which relates to
less than all of the Leased Property, such Receiver’s power and authority shall
be limited to the affected Facility.  Unless prohibited by law, such appointment
may be made either before or after termination of Tenant’s possession of the
Leased Property, without notice, without regard to the solvency or insolvency of
Tenant at the time of application for such Receiver and without regard to the
then value of the Leased Property, and Secured Party may be appointed as
Receiver.  After the occurrence and during the continuance of an Event of
Default, Landlord shall be entitled to appointment of a receiver as a matter of
right and without the need to make any showing other than the existence of an
Event of Default.  The Receiver shall have the power to collect the rents,
income, profits and Receivables of the Leased Property during the pendency of
the receivership and all other powers which may be necessary or are usual in
such cases for the protection, possession, control, management and operation of
the Leased Property during the whole of said proceeding.  All sums of money
received by the Receiver from such rents and income, after deducting therefrom
the reasonable charges and expenses paid or incurred in connection with the
collection and disbursement thereof, shall be applied to the payment of the Rent
or any other monetary obligation of Tenant under this Lease, including, without
limitation, any losses or damages incurred by Landlord under this
Lease.  Tenant, if requested to do so, will consent to the appointment of any
such Receiver as aforesaid.
 
(m) Landlord may terminate any management agreement with respect to any of the
Leased Property and shall have the right to retain one or more managers for the
Leased Property at the expense of Tenant, such manager(s) to serve for such term
and at such compensation as Landlord reasonably determines is necessary under
the circumstances.
 
8.3           Right of Set-Off.  Landlord may, and is hereby authorized by
Tenant to, at any time and from time to time without advance notice to Tenant
(any such notice being expressly waived by Tenant), set-off or recoup and apply
any and all sums held by Landlord, any indebtedness of Landlord to Tenant, and
any claims by
 

 
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Tenant against Landlord, against any obligations of Tenant hereunder and against
any claims by Landlord against Tenant, whether or not such obligations or claims
of Tenant are matured and whether or not Landlord has exercised any other
remedies hereunder.  The rights of Landlord under this section are in addition
to any other rights and remedies Landlord may have against Tenant.
 
8.4           Performance of Tenant’s Covenants.  Landlord may perform any
obligation of Tenant which Tenant has failed to perform within five days after
Landlord has sent a written notice to Tenant informing it of its specific
failure.  Tenant shall reimburse Landlord on demand, as General Additional Rent,
for any expenditures thus incurred by Landlord and shall pay interest thereon at
Landlord’s rate of return as provided in the Commitment.
 
8.5           Late Payment Charge.
 
(a) Rent.  Tenant acknowledges that any default in the payment of any
installment of Rent payable hereunder will result in loss and additional expense
to Landlord in servicing any indebtedness of Landlord secured by the Leased
Property, handling such delinquent payments, and meeting its other financial
obligations, and because such loss and additional expense is extremely difficult
and impractical to ascertain, Tenant agrees that in the event any Rent payable
to Landlord hereunder is not paid within 10 days after the due date, Tenant
shall pay a late charge of 5% of the amount of the overdue payment as a
reasonable estimate of such loss and expenses, unless applicable law requires a
lesser charge, in which event the maximum rate permitted by such law may be
charged by Landlord.  The 10-day period set forth in this section shall run
concurrently with the 10-day period contemplated under §8.1(a) and shall not
otherwise extend the time for payment of Rent or the period for curing any
default or constitute a waiver of such default.
 
(b) Non-Rent Obligations.  With respect to Non-Rent obligations, Tenant
acknowledges that any default in the payment of any amount payable by Tenant to
Landlord under this Lease will result in loss and additional expense to Landlord
in servicing any indebtedness of Landlord secured by the Leased Property,
handling such delinquent payments, and meeting its other financial obligations,
and because such loss and additional expense is extremely difficult and
impractical to ascertain, Tenant agrees that in the event such amount is not
paid within 10 days after the due date or within 10 days after receipt of any
invoice from Landlord (if Landlord is obligated under the terms of the Lease to
provide an invoice), Tenant shall pay a late charge of 5% of the amount of the
overdue payment as a reasonable estimate of such loss and expenses, unless
applicable law requires a lesser charge, in which event the maximum rate
permitted by such law may be charged by Landlord.  The 10-day period set forth
in this section shall run concurrently with the 10-day period contemplated under
§8.1(a) and shall not otherwise extend the time for payment of the invoice or
the period for curing any default or constitute a waiver of such default.
 
8.6           Default Rent.  At Landlord’s option at any time after the
occurrence of an Event of Default and while such Event of Default remains
uncured, the Base Rent payable under this Lease shall be increased to reflect
Landlord’s rate of return of 18.5% per annum on the Investment Amount (“Default
Rent”); provided, however, that if a court of competent jurisdiction determines
that any other amounts payable under this Lease are deemed to be
 

 
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interest, the Default Rent shall be adjusted to ensure that the aggregate
interest payable under this Lease does not accrue at a rate in excess of the
maximum legal rate.
 
8.7           Attorneys’ Fees.  Tenant shall pay all reasonable costs and
expenses incurred by Landlord in enforcing or preserving Landlord’s rights under
this Lease, whether or not an Event of Default has actually occurred or has been
declared and thereafter cured, including, without limitation, [i] the fees,
expenses, and costs of any litigation, appellate, receivership, administrative,
bankruptcy, insolvency or other similar proceeding; [ii] reasonable attorney,
paralegal, consulting and witness fees and disbursements; and [iii] the
expenses, including, without limitation, lodging, meals, and transportation, of
Landlord and its employees, agents, attorneys, and witnesses in preparing for
litigation, administrative, bankruptcy, insolvency or other similar proceedings
and attendance at hearings, depositions, and trials in connection
therewith.  All such reasonable costs, expenses, charges and fees payable by
Tenant shall be deemed to be General Additional Rent under this Lease.
 
8.8           Escrows and Application of Payments.  As security for the
performance of the Obligor Group Obligations, Tenant hereby assigns to Landlord
all its right, title, and interest in and to all monies escrowed with Landlord
under this Lease and all deposits with utility companies, taxing authorities and
insurance companies; provided, however, that Landlord shall not exercise its
rights hereunder until an Event of Default has occurred.  Any payments received
by Landlord under any provisions of this Lease during the existence or
continuance of an Event of Default shall be applied to the Obligor Group
Obligations in the order which Landlord may determine.
 
8.9           Remedies Cumulative.  The remedies of Landlord herein are
cumulative to and not in lieu of any other remedies available to Landlord at law
or in equity.  The use of any one remedy shall not be taken to exclude or waive
the right to use any other remedy.
 
8.10           Waivers.  Tenant waives [i] any notice required by statute or
other law as a condition to bringing an action for possession of, or eviction
from, any of the Leased Property, [ii] any right of re-entry or repossession,
[iii] any right to a trial by jury in any action or proceeding arising out of or
relating to this Lease, [iv] any right of redemption whether pursuant to
statute, at law or in equity, [v] all presentments, demands for performance,
notices of nonperformance, protest, notices of protest, notices of dishonor,
notices to quit and any other notice or demand of any kind (other than those
specifically provided for in this Lease, and [vi] all notices of the existence,
creation or incurring of any obligation or advance under this Lease before or
after this date.
 
8.11           Obligations Under the Bankruptcy Code.  Upon filing of a petition
by or against Tenant under the Bankruptcy Code, Tenant, as debtor and as
debtor-in-possession, and any trustee who may be appointed with respect to the
assets of or estate in bankruptcy of Tenant, agree to pay monthly in advance on
the first day of each month, as reasonable compensation for the use and
occupancy of the Leased Property, an amount equal to all Rent due pursuant to
this Lease.  Included within and in addition to any other conditions or
obligations imposed upon Tenant or its successor in the event of the assumption
and/or assignment of this Lease are the following:  [i] the cure of any monetary
defaults and reimbursement of pecuniary loss within not more than five Business
Days of assumption and/or assignment; [ii] the deposit of an additional
 

 
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amount equal to not less than three months’ Base Rent, which amount is agreed to
be a necessary and appropriate deposit to adequately assure the future
performance under this Lease of the Tenant or its assignee; and [iii] the
continued use of the Leased Property for the Facility Uses.  Nothing herein
shall be construed as an agreement by Landlord to any assignment of this Lease
or a waiver of Landlord’s right to seek adequate assurance of future performance
in addition to that set forth hereinabove in connection with any proposed
assumption and/or assignment of this Lease.
 
ARTICLE 9:  DAMAGE AND DESTRUCTION
 
9.1           Notice of Casualty.  If the Leased Property shall be destroyed, in
whole or in part, or damaged by fire, flood, windstorm or other casualty in
excess of $150,000.00 (a “Casualty”), Tenant shall give written notice thereof
to Landlord within two Business Days after the occurrence of the
Casualty.  Within 15 days after the occurrence of the Casualty or as soon
thereafter as such information is reasonably available to Tenant, Tenant shall
provide the following information to Landlord:  [i] the date of the Casualty;
[ii] the nature of the Casualty; [iii] a description of the damage or
destruction caused by the Casualty, including the type of Leased Property
damaged and the area of the Improvements damaged; [iv] a preliminary estimate of
the cost to repair, rebuild, restore or replace the Leased Property; [v] a
preliminary estimate of the schedule to complete the repair, rebuilding,
restoration or replacement of the Leased Property; [vi] a description of the
anticipated property insurance claim, including the name of the insurer, the
insurance coverage limits, the deductible amount, the expected settlement
amount, and the expected settlement date; and [vii] a description of the
business interruption claim, including the name of the insurer, the insurance
coverage limits, the deductible amount, the expected settlement amount, and the
expected settlement date.  Within five days after request from Landlord, Tenant
will provide Landlord with copies of all correspondence to the insurer and any
other information reasonably requested by Landlord.
 
9.2           Substantial Destruction.
 
9.2.1           If any Facility’s Improvements are substantially destroyed at
any time other than during the final 18 months of the Initial Term or any
Renewal Term, Tenant shall promptly rebuild and restore such Improvements in
accordance with §9.4 and Landlord shall make the insurance proceeds available to
Tenant for such restoration.  The term “substantially destroyed” means any
casualty resulting in the loss of use of 50% or more of the licensed beds at any
one Facility.
 
9.2.2           If any Facility’s Improvements are substantially destroyed
during the final 18 months of the Initial Term or any Renewal Term, Landlord may
elect to terminate this Lease with respect to the entire Leased Property and
retain the insurance proceeds unless Tenant exercises its option to renew as set
forth in §9.2.3.  If Landlord elects to terminate, Landlord shall give notice
(“Termination Notice”) of its election to terminate this Lease within 30 days
after receipt of Tenant’s notice of the damage.  If Tenant does not exercise its
option to renew under §9.2.3 within 15 days after delivery of the Termination
Notice, this Lease shall terminate on the 15th day after delivery of the
Termination Notice.  If this Lease is so terminated, Tenant shall be liable to
Landlord for all Rent and all other obligations accrued under this Lease through
the effective date of termination.
 

 
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9.2.3           If any Facility’s Improvements are substantially destroyed
during the final 18 months of the Initial Term and Landlord gives the
Termination Notice, Tenant shall have the option to renew this Lease with
respect to the entire Leased Property (but not any part thereof).  Tenant shall
give Landlord irrevocable notice of Tenant’s election to renew within 15 days
after delivery of the Termination Notice.  If Tenant elects to renew, the
Renewal Term will be in effect for the balance of the then current Term plus a
15-year period.  The Renewal Term will commence on the third day following
Landlord’s receipt of Tenant’s notice of renewal.  All other terms of this Lease
for the Renewal Term shall be in accordance with Article 12.  The Improvements
will be restored by Tenant in accordance with the provisions of this Article 9
regarding partial destruction.
 
9.3           Partial Destruction.  If any Facility’s Improvements are not
substantially destroyed, then Tenant shall comply with the provisions of §9.4
and Landlord shall make the insurance proceeds available to Tenant for such
restoration.
 
9.4           Restoration.  Subject to any limitations imposed by law with
respect to the rebuilding of the Leased Premises, Tenant shall promptly repair,
rebuild, or restore the damaged Leased Property, at Tenant’s expense, so as to
make the Leased Property at least equal in value to the Leased Property existing
immediately prior to such occurrence and as nearly similar to it in character as
is practicable and reasonable.  Before beginning such repairs or rebuilding, or
letting any contracts in connection with such repairs or rebuilding with respect
to any Casualty, Tenant will submit for Landlord’s approval, which approval
Landlord will not unreasonably withhold or delay, plans and specifications
meeting the requirements of §16.2 for such repairs or rebuilding.  Promptly
after receiving Landlord’s approval of the plans and specifications, Tenant will
begin such repairs or rebuilding and will prosecute the repairs and rebuilding
to completion with diligence, subject, however, to strikes, lockouts, acts of
God, embargoes, governmental restrictions, and other causes beyond Tenant’s
reasonable control.  Landlord will make available to Tenant the net proceeds of
any fire or other casualty insurance paid to Landlord for such repair or
rebuilding as the same progresses, after deduction of any costs of collection,
including reasonable attorneys’ fees.  Payments will be made against properly
certified vouchers of a competent architect in charge of the work and approved
by Landlord.  Payments for deposits for the repairing or rebuilding or delivery
of materials to the Facility will be made upon Landlord’s receipt of evidence
satisfactory to Landlord that such payments are required in advance.  With
respect to any Casualty, prior to commencing the repairing or rebuilding, Tenant
shall deliver to Landlord for Landlord’s approval a schedule setting forth the
estimated monthly draws for such work.  Landlord will contribute to such
payments out of the insurance proceeds an amount equal to the proportion that
the total net amount received by Landlord from insurers bears to the total
estimated cost of the rebuilding or repairing, multiplied by the payment by
Tenant on account of such work.  Landlord may, however, withhold 10% from each
payment until the work is completed and proof has been furnished to Landlord
that no lien or liability has attached or will attach to the Leased Property or
to Landlord in connection with such repairing or rebuilding.  Upon the
completion of rebuilding and the furnishing of such proof, the balance of the
net proceeds of such insurance payable to Tenant on account of such repairing or
rebuilding will be paid to Tenant.  If required by law as a result of the nature
or extent of the damage, Tenant will obtain and deliver to Landlord a temporary
or final certificate of occupancy before the damaged Leased Property is
reoccupied for any purpose.  Tenant shall complete such repairs or rebuilding
free and clear of mechanic’s or other liens, and in accordance with the building
codes and all
 

 
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applicable laws, ordinances, regulations, or orders of any state, municipal, or
other public authority affecting the repairs or rebuilding, and also in
accordance with all requirements of the insurance rating organization, or
similar body.  Any remaining proceeds of insurance after such restoration will
be Tenant’s property.
 
9.5           Insufficient Proceeds.  If the proceeds of any insurance
settlement are not sufficient to pay the costs of Tenant’s repair, rebuilding or
restoration under §9.4 in full, Tenant shall deposit with Landlord at Landlord’s
option, and within 10 days of Landlord’s request, an amount sufficient in
Landlord’s reasonable judgment to complete such repair, rebuilding or
restoration or shall provide Landlord with evidence reasonably satisfactory to
Landlord that Tenant has available the funds needed to complete such repair,
rebuilding or restoration.  Tenant shall not, by reason of the deposit or
payment, be entitled to any reimbursement from Landlord or diminution in or
postponement of the payment of the Rent.
 
9.6           Not Trust Funds.  Notwithstanding anything herein or at law or
equity to the contrary, none of the insurance proceeds paid to Landlord as
herein provided shall be deemed trust funds, and Landlord shall be entitled to
dispose of such proceeds as provided in this Article 9.  Tenant expressly
assumes all risk of loss, including a decrease in the use, enjoyment or value,
of the Leased Property from any casualty whatsoever, whether or not insurable or
insured against.
 
9.7           Landlord’s Inspection.  During the progress of such repairs or
rebuilding, Landlord and its architects and engineers may, from time to time,
inspect the Leased Property and will be furnished, if required by them, with
copies of all plans, shop drawings, and specifications relating to such repairs
or rebuilding.  Tenant will keep all plans, shop drawings, and specifications at
the building, and Landlord and its architects and engineers may examine them at
all reasonable times and on reasonable notice.  If, during such repairs or
rebuilding, Landlord and its architects and engineers determine that the repairs
or rebuilding are not being done in accordance with the approved plans and
specifications, Landlord will give prompt notice in writing to Tenant,
specifying in detail the particular deficiency, omission, or other respect in
which Landlord claims such repairs or rebuilding do not accord with the approved
plans and specifications.  Upon the receipt of any such notice, Tenant will
cause corrections to be made to any deficiencies, omissions, or such other
respect.  Tenant’s obligations to supply insurance, according to Article 4, will
be applicable to any repairs or rebuilding under this section.
 
9.8           Landlord’s Costs.  Tenant shall, within 30 days after receipt of
an invoice from Landlord, pay the costs, expenses, and fees of any architect or
engineer employed by Landlord to review any plans and specifications and to
supervise and approve any construction, or for any services rendered by such
architect or engineer to Landlord as contemplated by any of the provisions of
this Lease, or for any services performed by Landlord’s attorneys in connection
therewith.
 
9.9           No Rent Abatement.  Rent will not abate pending the repairs or
rebuilding of the Leased Property.
 

 
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ARTICLE 10:  CONDEMNATION
 
10.1           Total Taking.  If, by exercise of the right of eminent domain or
by conveyance made in response to the threat of the exercise of such right
(“Taking”), any entire Facility Property is taken, or so much of any Facility
Property is taken that the number of licensed beds/units at the Facility
Property is reduced by more than 25% as a result of such Taking, then this Lease
will end with respect to such Facility Property only on the earlier of the
vesting of title to the Facility Property in the condemning authority or the
taking of possession of the Facility Property by the condemning authority.  Upon
such termination, the Investment Amount shall be reduced by the amount received
by Landlord as a result of the Taking unless there is only one Facility Property
subject to this Lease in which case the Lease will terminate.  The removal from
this Lease of one Facility Property due to a taking is the result of
circumstances beyond the control of Landlord and Tenant and the parties affirm
that, except for such isolated situation or as otherwise specifically provided
elsewhere in this Lease for the removal of one or more of the Facility under
certain defined circumstances, this Lease is intended to be a single indivisible
Lease.  All damages awarded for such Taking under the power of eminent domain
shall be the property of Landlord, whether such damages shall be awarded as
compensation for diminution in value of the leasehold or the fee of the Facility
Property; provided, however, nothing herein shall preclude Tenant from pursuing
a separate award for the Taking of its Tenant’s Property (as defined below) or
for relocation costs or expenses.
 
10.2           Partial Taking.  If, after a Taking, so much of the Facility
Property remains that the Facility Property can be used for substantially the
same purposes for which it was used immediately before the Taking, then [i] this
Lease will end as to the part taken on the earlier of the vesting of title to
such Leased Property in the condemning authority or the taking of possession of
such Leased Property by the condemning authority and the Rent will be adjusted
accordingly; [ii] at its cost, Tenant shall restore so much of the Facility
Property as remains to a sound architectural unit substantially suitable for the
purposes for which it was used immediately before the Taking, using good
workmanship and new, first-class materials; [iii] upon completion of the
restoration, Landlord will pay Tenant the lesser of the net award made to
Landlord on the account of the Taking (after deducting from the total award,
reasonable attorneys’, appraisers’, and other fees and costs incurred in
connection with the obtaining of the award and amounts paid to the holders of
mortgages secured by the Facility Property), or Tenant’s actual out-of-pocket
costs of restoring the Facility Property; and [iv] Landlord shall be entitled to
the balance of the net award except to the extent specifically allocated to the
value of Tenant’s Property or any relocation costs or expenses incurred by
Tenant as a result of such Partial Taking.  The restoration shall be completed
in accordance with §§9.4, 9.5, 9.7, 9.8 and 9.9 with such provisions deemed to
apply to condemnation instead of casualty.
 
10.3           Condemnation Proceeds Not Trust Funds.  Notwithstanding anything
in this Lease or at law or equity to the contrary, none of the condemnation
award paid to Landlord shall be deemed trust funds, and Landlord shall be
entitled to dispose of such proceeds as provided in this Article 10.  Tenant
expressly assumes all risk of loss, including a decrease in the use, enjoyment,
or value, of the Leased Property from any Condemnation.
 

 
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ARTICLE 11:  TENANT’S PROPERTY
 
11.1           Tenant’s Property.  Tenant shall have the right to install,
place, and use on the Leased Property such fixtures, furniture, equipment,
inventory and other personal property in addition to Landlord’s Personal
Property as may be required or as Tenant may, from time to time, deem necessary
or useful to operate the Leased Property for its permitted purposes.  All
fixtures, furniture, equipment, inventory, and other personal property
installed, placed, or used on the Leased Property which is owned by Tenant or
leased by Tenant from third parties is hereinafter referred to as “Tenant’s
Property”.
 
11.2           Requirements for Tenant’s Property.  Tenant shall comply with all
of the following requirements in connection with Tenant’s Property:
 
(a) Tenant shall, at Tenant’s sole cost and expense, maintain, repair, and
replace Tenant’s Property.
 
(b) Tenant shall, at Tenant’s sole cost and expense, keep Tenant’s Property
insured against loss or damage by fire, vandalism and malicious mischief,
sprinkler leakage, earthquake, and other physical loss perils commonly covered
by fire and extended coverage, boiler and machinery, and difference in
conditions insurance in an amount not less than 90% of the then full replacement
cost thereof.  Tenant shall use the proceeds from any such policy for the repair
and replacement of Tenant’s Property.  The insurance shall meet the requirements
of §4.3.
 
(c) Tenant shall pay all taxes applicable to Tenant’s Property.
 
(d) If Tenant’s Property is damaged or destroyed by fire or any other cause,
Tenant shall have the right, but not the obligation, to repair or replace
Tenant’s Property (unless the same is required for the operation of the Leased
Property in compliance with applicable Legal Requirements, in which case Tenant
shall be required to promptly repair or replace the same) unless Landlord elects
to terminate this Lease pursuant to §9.2.2.
 
(e) Unless an Event of Default or any event which, with the giving of notice or
lapse of time, or both, would constitute an Event of Default has occurred,
Tenant may remove Tenant’s Property from the Leased Property from time to time
provided that [i] the items removed are not required to operate the Leased
Property for the Facility Uses (unless such items are being replaced by Tenant);
and [ii] Tenant repairs any damage to the Leased Property resulting from the
removal of Tenant’s Property.
 
(f) Tenant shall not, without the prior written consent of Landlord or as
otherwise provided in this Lease, remove any Tenant’s Property or Leased
Property.  Tenant shall, at Landlord’s option, remove Tenant’s Property upon the
termination or expiration of this Lease and shall repair any damage to the
Leased Property resulting from the removal of Tenant’s Property.  If Tenant
fails to remove Tenant’s Property within 30 days after request by Landlord, then
Tenant shall be deemed to have abandoned Tenant’s Property, Tenant’s Property
shall become the property of Landlord, and Landlord may remove, store and
dispose of Tenant’s Property.  In such event, Tenant shall have no claim or
right against Landlord for such property or the value thereof regardless of the
disposition thereof by Landlord.  Tenant shall pay
 

 
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Landlord, upon demand, all expenses incurred by Landlord in removing, storing,
and disposing of Tenant’s Property and repairing any damage caused by such
removal.  Tenant’s obligations hereunder shall survive the termination or
expiration of this Lease.
 
(g) Tenant shall perform its obligations under any equipment lease or security
agreement for Tenant’s Property.  For equipment loans or leases for critical
care equipment and for all other equipment having an original cost in excess of
$250,000.00 per Facility, Tenant shall cause such equipment lessor or lender to
enter into a nondisturbance agreement with Landlord upon terms and conditions
acceptable to Landlord, including, without limitation, the
following:  [i] Landlord shall have the right (but not the obligation) to assume
such equipment lease or security agreement upon the occurrence of an Event of
Default by Tenant hereunder; [ii] such equipment lessor or lender shall notify
Landlord of any default by Tenant under the equipment lease or security
agreement and give Landlord a reasonable opportunity to cure such default; and
[iii] Landlord shall have the right to assign its interest in the equipment
lease or security agreement and nondisturbance agreement.  Tenant shall, within
30 days after receipt of an invoice from Landlord, reimburse Landlord for all
costs and expenses incurred in reviewing and approving the equipment lease,
security agreement and nondisturbance agreement, including, without limitation,
reasonable attorneys’ fees and costs.
 
ARTICLE 12:  RENEWAL OPTIONS
 
12.1           Renewal Options.  Tenant has the option to renew (“Renewal
Option”) this Lease for one 15-year renewal term (“Renewal Term”).  Tenant can
exercise the Renewal Option only upon satisfaction of the following conditions:
 
(a) There shall be no uncured Event of Default, or any event which with the
passage of time or giving of notice would constitute an Event of Default, at the
time Tenant exercises its Renewal Option nor on the date the Renewal Term is to
commence.
 
(b) Tenant shall give Landlord irrevocable written notice of renewal no later
than the date which is [i] 90 days prior to the expiration date of the then
current Term; or [ii] 15 days after Landlord’s delivery of the Termination
Notice as set forth in §9.2.3.
 
12.2           Effect of Renewal.  The following terms and conditions will be
applicable if Tenant renews the Lease:
 
(a) Effective Date.  Except as otherwise provided in §9.2.3, the effective date
of any Renewal Term will be the first day after the expiration date of the then
current Term.  The first day of each Renewal Term is also referred to as the
Renewal Date.
 
(b) Investment Amount.  Effective as of the Renewal Date, a single Investment
Amount will be computed by summing all Investment Advance Amounts.
 
(c) Rent Adjustment.  Effective as of the Renewal Date, Landlord shall calculate
Base Rent for the Renewal Term in accordance with the Commitment and shall issue
a new Rent Schedule reflecting the Base Rent.  Until Tenant receives a revised
Rent Schedule from Landlord, Tenant shall for each month [i] continue to make
installments of Base Rent according to the Rent Schedule in effect on the day
before the Renewal Date; and [ii] within
 

 
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10 days following Landlord’s issuance of an invoice, pay the difference between
the installment of Base Rent paid to Landlord for such month and the installment
of Base Rent actually due for such month as a result of the renewal of the
Lease.
 
(d) Other Terms and Conditions.  Except for the modifications set forth in this
§12.2, all other terms and conditions of the Lease will remain the same for the
Renewal Term.
 
ARTICLE 13:  RIGHT OF FIRST OPPORTUNITY
 
13.1           Right of First Opportunity.  In the event at any time during the
Term either [i] Landlord elects to seek a purchaser of the Leased Property (the
“Right of First Opportunity Event”) or [ii] Landlord receives a bona fide offer
from a third party (the “Offer”) setting forth the terms and conditions upon
which it proposes to purchase the Leased Property which it is interested in
accepting, but in no event shall Landlord be obligated to accept (the “Right of
First Refusal Event”), the following provisions shall apply:
 
(a) In the event of the occurrence of the Right of First Opportunity Event,
Landlord shall provide Tenant with written notice of its intent to sell the
Leased Property and its proposed terms with respect thereto (the “Opportunity
Notice”).  Landlord and Tenant shall have a period of 30 days after Tenant’s
receipt of the Opportunity Notice (the “Protected Period”) to negotiate in good
faith with respect to the terms and conditions under which such transaction
shall occur provided that in no event shall the purchase price be less than the
Base Price and shall occur on the terms and conditions set forth in the
Transaction Documents (as defined below) (the “Opportunity Transaction”).  In
the event Landlord and Tenant are unable to reach agreement within the Protected
Period with respect to the terms of the Opportunity Transaction, then Landlord
shall be free to enter into negotiations with respect to the Opportunity
Transaction with any other person or entity; provided, however, that Landlord
shall not be permitted to consummate a transaction with any other person or
entity on terms which are less favorable to Landlord than those offered to
Tenant during the Protected Period without first offering Tenant the opportunity
on written notice setting forth such terms to consummate the Opportunity
Transaction on such alternative terms and conditions (the “Modified Opportunity
Notice”); provided, however, that Tenant shall be deemed to have waived its
right to proceed with such revised Opportunity Transaction in the event it does
not advise Landlord of its election to proceed within 10 days after its receipt
of the Modified Opportunity Notice.
 
(b) In the event of the occurrence of a Right of First Refusal Event, Landlord
shall provide Tenant with a true and correct copy of the Offer (the “Right of
First Refusal Notice”).  Tenant shall have 20 days from its receipt of the Right
of First Refusal Notice to advise Landlord in writing whether it is prepared to
purchase the Leased Property on the same terms and conditions as set forth in
the Offer.  Tenant’s failure to so advise Landlord within such 20 day period
shall be deemed to be a determination by Tenant not to exercise the right of
first refusal provided for herein, at which time Landlord shall be free to
consummate the transaction which was the subject of the Offer; provided,
however, that Landlord shall not be permitted to modify the terms specified in
the Offer in an manner more favorable to the third party than those reflected in
the original Offer (the “Modified Offer”) without first again offering Tenant
the opportunity to consummate a transaction on the terms set forth in the
Modified Offer; provided,
 

 
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however, that Tenant shall be deemed to have waived its right to proceed with
such a transaction in the event it does not advise Landlord of its election to
proceed within 10 days after its receipt of the Modified Offer.
 
(c) In the event Landlord does not consummate a transaction on the terms
provided for in the Offer or the Modified Offer, as applicable, within 90 days
after the date thereof, Landlord shall not be permitted to sell the Leased
Property to the Offeror or to any other party, whether on the terms set forth in
the Offer or the Modified Offer, as applicable, or pursuant to a new Offer
without again first offering Tenant an option to consummate a transaction on the
terms specified in the Offer, the Modified Offer or any new Offer, as
applicable; provided, however, that Tenant shall be deemed to have waived its
rights hereunder in the event it does not advise Landlord of its election to
proceed within 10 days after its receipt of another copy of the Offer or of the
Modified Offer or the new Offer, as applicable.
 
(d) In the event Tenant exercises its right of first refusal or right of first
opportunity provided for herein, Tenant and Landlord shall have a period of
30 days in which to enter into one or more written agreements outlining the
terms and conditions, in addition to those set forth in the Offer or Modified
Offer, if applicable, on which the sale will occur (the “Transaction
Documents”).  In the event Landlord and Tenant fail to execute the Transaction
Documents within said 30 day period, then Tenant shall be deemed to have
forfeited its rights hereunder with respect to such transaction; provided,
however, that Landlord shall not be permitted to sell the Leased Property to any
other person or entity on terms which are less favorable to Landlord than those
offered to Tenant during the Protected Period or beyond the expiration of the
90 day period provided for in clause (c), without first complying with the terms
of this §13.1 unless Landlord and Tenant failed to execute the Transaction
Documents as a result of Tenant’s bad faith in the negotiation of the terms of
such Transaction Documents, in which case Landlord shall be permitted to sell
the Leased Property to any other person or entity regardless of the terms of
such transaction.
 
(e) Any sale of the Leased Property by Landlord pursuant to this §13, other than
to Tenant, shall be subject to the rights of Tenant under this Lease, including,
but not limited to, its rights under this §13.
 
(f) Any closing pursuant to, and the consequences to Tenant of failing to close
after exercising its rights under §13.1 shall be in accordance with the terms
set forth in the Offer or Modified Offer and in the Transaction Documents
executed pursuant to the terms of this Article 13.
 
13.1.1           Fair Market Value.  The fair market value (the “Fair Market
Value”) of the Leased Property shall be determined as follows.
 
13.1.1.1                      The parties shall attempt to determine the Fair
Market Value by mutual agreement within 15 days after giving the purchase notice
(the “Negotiation Period”).  However, if the parties do not agree on the Fair
Market Value during the Negotiation Period, the following provisions shall
apply.
 

 
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13.1.1.2                      Landlord and Tenant shall each give the other
party notice of the name of an acceptable appraiser five Business Days after the
end of the Negotiation Period.  The two appraisers will then select a third
appraiser within an additional five days.  Each appraiser must demonstrate to
the reasonable satisfaction of both Landlord and Tenant that it has significant
experience in appraising properties similar to the Leased Property.  Within five
days after designation, each appraiser shall submit a resume to Landlord and
Tenant setting forth such appraiser’s qualifications, including education and
experience with similar properties.  A notice of objections to the
qualifications of any appraiser shall be given within 10 days after receipt of
such resume.  If a party fails to timely object to the qualifications of an
appraiser, then the appraiser shall be conclusively deemed satisfactory.  If a
party gives a timely notice of objection to the qualifications of an appraiser,
then the disqualified appraiser shall be replaced by an appraiser selected by
the qualified appraisers or, if all appraisers are disqualified, then by an
appraiser selected by a commercial arbitrator acceptable to Landlord and Tenant.
 
13.1.1.3                      The Fair Market Value shall be determined by the
appraisers within 60 days thereafter as follows.  Each of the appraisers shall
be instructed to prepare an appraisal of the Leased Property in accordance with
the following instructions:
 
The Leased Property is to be valued upon the three conventional approaches to
estimate value known as the Income, Sales Comparison and Cost Approaches.  Once
the approaches are completed, the appraiser correlates the individual approaches
into a final value conclusion.
 
The three approaches to estimate value are summarized as follows:
 
Income Approach:  This valuation approach recognizes that the value of the
operating tangible and intangible assets can be represented by the expected
economic viability of the business giving returns on and of the assets.
 
Sales Comparison Approach:  This valuation approach is based upon the principle
of substitution.  When a facility is replaceable in the market, the market
approach assumes that value tends to be set at the price of acquiring an equally
desirable substitute facility.  Since healthcare market conditions change and
frequently are subject to regulatory and financing environments, adjustments
need to be considered.  These adjustments also consider the operating
differences such as services and demographics.
 
Cost Approach:  This valuation approach estimates the value of the tangible
assets only.  Value is represented by the market value of the land plus the
depreciated reproduction cost of all improvements and equipment.
 
In general, the Income and Sales Comparison Approaches are considered the best
representation of value because they cover both tangible and intangible assets,
consider the operating
 

 
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characteristics of the business and have the most significant influence on
attracting potential investors.
 
The appraised values submitted by the three appraisers shall be ranked from
highest value to middle value to lowest value, the appraised value (highest or
lowest) which is furthest from the middle appraised value shall be discarded,
and the remaining two appraised values shall be averaged to arrive at the Fair
Market Value.
 
13.1.1.4                      Tenant shall pay, or reimburse Landlord for, all
costs and expenses in connection with the appraisals.
 
13.2           [RESERVED]
 
ARTICLE 14:  NEGATIVE COVENANTS
 
Until the Obligor Group Obligations shall have been performed in full, Tenant
and Subtenant covenant and agree that Tenant and Subtenant (and Guarantor where
applicable) shall not do any of the following without the prior written consent
of Landlord:
 
14.1           No Debt.  Tenant and Subtenant shall not create, incur, assume,
or permit to exist any indebtedness with respect to the Leased Property other
than [i] trade debt incurred in the ordinary course of business;
[ii] indebtedness for Facility working capital purposes; and [iii] indebtedness
that is secured by any Permitted Lien.
 
14.2           No Liens.  Tenant and Subtenant shall not create, incur, or
permit to exist any lien, charge, encumbrance, easement or restriction upon the
Leased Property or any lien upon or pledge of any interest in Subtenant, except
for Permitted Liens.
 
14.3           No Guaranties.  Tenant and Subtenant shall not create, incur,
assume, or permit to exist any guarantee of any loan or other indebtedness with
respect to the operation of the Leased Property except for the endorsement of
negotiable instruments for collection in the ordinary course of business.
 
14.4           No Transfer.  Tenant and Subtenant shall not sell, lease,
sublease, mortgage, convey, assign or otherwise transfer any legal or equitable
interest in the Leased Property or any part thereof, except for transfers made
in connection with any Permitted Lien or leases to the residents of the Leased
Property or commercial leases with respect to a portion of the Leased Property
comprising in the aggregate less than 2,500 square feet provided such commercial
leases shall be for services that are an integral part of the Facility.
 
14.5           No Dissolution.  Tenant or Subtenant shall not dissolve,
liquidate, merge, consolidate or terminate its existence or sell, other than in
a sale/leaseback or sale/manage back transaction, assign, lease, or otherwise
transfer (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired)
unless, in the case of a merger or consolidation by Tenant, the surviving entity
in such merger or consolidation has a net worth immediately after the merger or
consolidation at least equal to that of the Tenant immediately prior thereto;
provided, however, nothing herein shall preclude a merger or consolidation of
Subtenant into Tenant or dissolution of Subtenant in the event of the
 

 
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termination of the Sublease at such time as Tenant is licensed to operate the
Facilities subleased to Subtenant.
 
14.6           Subordination of Payments to Affiliates.
 
(a) Except as otherwise provided in §14.6(b) below, after the occurrence of an
Event of Default and until such Event of Default is cured or waived in writing,
Tenant and Subtenant shall not make any payments or distributions (including,
without limitation, salary, bonuses, fees, principal, interest, dividends,
liquidating distributions, management fees, cash flow distributions or lease
payments) to any Affiliate or any shareholder, member or partner of Tenant,
Subtenant or any Affiliate.
 
(b) Notwithstanding the provisions of §14.6(a) or any other provision to the
contrary contained in this Lease, [1] whether or not there is outstanding an
Event of Default, the following shall be expressly permitted:  [A] salaries paid
to employees of the Facilities or employees of Tenant and Subtenant in the
ordinary course of business; [B] equity contributions and inter-company loans
from Tenant to its direct and indirect subsidiaries made in the ordinary course
of business; and [C] with respect to Subtenant, (i) distributions, dividends and
repayments of inter-company loans to Tenant made in the ordinary course of
business and (ii) payments to Tenant under the Sublease covering the Facilities
and provided that any such payments will be held in trust by Tenant for the sole
purpose of paying Rent to Landlord; and [2] so long as there is no Event of
Default under §8.1(a) of this Lease, Tenant may pay cash dividends to any
preferred shareholder of Tenant who is not an Affiliate of Tenant.
 
14.7           Change of Location or Name.  Tenant and Subtenant shall not,
without providing Landlord with 30 days prior notice thereof, change any of the
following:  [i] the location of the principal place of business or chief
executive office of Tenant or Subtenant, or any office where any of Tenant’s or
Subtenant’s books and records are maintained; [ii] the name under which Tenant
or Subtenant conducts any of its business or operations; or [iii] reorganize or
otherwise change its respective Organization State.
 
ARTICLE 15:  AFFIRMATIVE COVENANTS
 
15.1           Perform Obligations.  Tenant and Subtenant shall each perform all
of its obligations under this Lease, the Government Authorizations, the
Permitted Exceptions, and all Legal Requirements.  If applicable, Tenant and
each Subtenant shall take all necessary action to obtain all Government
Authorizations required for the operation of the Facility as soon as possible
after the Effective Date.
 
15.2           Proceedings to Enjoin or Prevent Construction.  If any
proceedings are filed seeking to enjoin or otherwise prevent or declare invalid
or unlawful Tenant’s construction, occupancy, maintenance, or operation of the
Facility or any portion thereof, Tenant will cause such proceedings to be
vigorously contested in good faith, and in the event of an adverse ruling or
decision, prosecute all allowable appeals therefrom, and will, without limiting
the generality of the foregoing, resist the entry or seek the stay of any
temporary or permanent injunction that may be entered, and use its best
commercially reasonable efforts to bring about a favorable and speedy
disposition of all such proceedings and any other proceedings.
 

 
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15.3           Documents and Information.
 
15.3.1           Furnish Documents.  Tenant and each Subtenant shall
periodically during the term of the Lease deliver to Landlord the Annual
Financial Statements, Periodic Financial Statements, Annual Facility Budget,
Annual Company Budget and all other documents, reports, schedules and copies
described on Exhibit E within the specified time periods.  With each delivery of
Annual Financial Statements and Periodic Financial Statements (other than the
monthly Facility Financial Statement) to Landlord, Tenant and each Subtenant
shall also deliver to Landlord a certificate signed by the Chief Financial
Officer, general partner or managing member (as applicable) of Tenant and each
Subtenant, an Annual Facility Financial Report or Quarterly Facility Financial
Report, as applicable, and a Quarterly Facility Accounts Receivable Aging Report
all in the form of Exhibit F.  In addition, Tenant and each Subtenant shall
deliver to Landlord the applicable Annual Facility Financial Report and the
applicable Quarterly Facility Accounts Receivable Aging Report (based upon
internal financial statements) within 60 days after the end of each fiscal
year.  After the occurrence of an Event of Default and receipt of Landlord’s
written request, Tenant shall deliver to Landlord an updated Annual Facility
Budget and Annual Company Budget (based on a 12-month rolling forward period)
within 10 Business Days after receipt of Landlord’s request.
 
15.3.2           Furnish Information.  Tenant and each Subtenant shall
[i] promptly supply Landlord with such information concerning its financial
condition, affairs and property, as Landlord may reasonably request from time to
time hereafter; [ii] promptly notify Landlord in writing of any condition or
event that constitutes a breach or event of default of any term, condition,
warranty, representation, or provisions of this Lease or any other agreement,
and of any material adverse change in its financial condition; [iii] maintain a
standard and modern system of accounting; [iv] permit Landlord or any of its
agent or representatives to have access to and to examine all of its books and
records regarding the financial condition of the Facility at any time or times
hereafter during business hours and after reasonable oral or written notice; and
[v] permit Landlord to copy and make abstracts from any and all of said books
and records subject to any limitations imposed by State or federal law with
respect to the confidentiality of patient and employee records.
 
15.3.3           Further Assurances and Information.  Tenant shall, on request
of Landlord from time to time, execute, deliver, and furnish documents as may be
necessary to fully consummate the transactions contemplated under this
Lease.  Within 15 days after a request from Landlord, Tenant and each Subtenant
shall provide to Landlord such additional information regarding Tenant, Tenant’s
financial condition, Subtenant, each Subtenant’s financial condition or the
Facility as Landlord, or any existing or proposed creditor of Landlord, or any
auditor or underwriter of Landlord, may reasonably require from time to time,
including, without limitation, a current Tenant’s Certificate and Facility
Financial Report in the form of Exhibit F.  From and after and during the
continuance of an Event of Default, Landlord shall have the right to require
Tenant to provide to Landlord, at Tenant’s expense, an appraisal prepared by an
MAI appraiser setting forth the current fair market value of the Leased
Property.
 
15.3.4           Material Communications.  Tenant and each Subtenant shall
transmit to Landlord, within five days after receipt thereof, any material
communication affecting a Facility, this Lease, the Legal Requirements or the
Government Authorizations, and Tenant and each
 

 
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Subtenant will promptly respond to Landlord’s inquiry with respect to such
information.  Tenant and each Subtenant shall notify Landlord in writing within
five days after Tenant or any Subtenant has knowledge of any potential,
threatened or existing litigation or proceeding against, or investigation of,
Tenant, Subtenant, Guarantor or the Facility that would reasonably be expected
to adversely affect the right to operate the Facility or Landlord’s title to the
Facility or Tenant’s interest therein.
 
15.3.5           Requirements for Financial Statements.  Tenant shall meet the
following requirements in connection with the preparation of the financial
statements:  [i] all audited financial statements shall be prepared in
accordance with generally accepted accounting principles consistently applied;
[ii] all unaudited financial statements shall be prepared in a manner
substantially consistent with prior audited and unaudited financial statements
submitted to Landlord; [iii] all financial statements shall fairly present the
financial condition and performance for the relevant period in all material
respects; [iv] the audited financial statements shall include all notes to the
financial statements and a complete schedule of contingent liabilities and
transactions with Affiliates; and [v] the audited financial statements shall
contain an unqualified opinion.
 
15.4           Compliance With Laws.  Tenant and each Subtenant shall comply
with all Legal Requirements and keep all Government Authorizations in full force
and effect.  Subject to Tenant’s right to contest the same in accordance with
the terms of this Lease, Tenant and each Subtenant shall pay when due all taxes
and governmental charges of every kind and nature that are assessed or imposed
upon Tenant and each Subtenant, respectively, at any time during the term of the
Lease, including, without limitation, all income, franchise, capital stock,
property, sales and use, business, intangible, employee withholding, and all
taxes and charges relating to Tenant’s and each Subtenant’s respective business
and operations at the Leased Property.  Tenant and each Subtenant shall be
solely responsible for compliance with all Legal Requirements, including the
ADA, and Landlord shall have no responsibility for such compliance.
 
15.5           Broker’s Commission.  Tenant shall indemnify Landlord from claims
of brokers arising by the execution hereof or the consummation of the
transactions contemplated hereby and from expenses incurred by Landlord in
connection with any such claims (including reasonable attorneys’ fees).
 
15.6           Existence and Change in Ownership.  Except as otherwise
specifically provided herein, Tenant, Subtenant and Guarantor shall maintain its
existence throughout the term of this Lease and any change in the ownership of
Tenant, Subtenant or Guarantor, directly or indirectly, shall require Landlord’s
prior written consent.
 

 
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15.7           Financial Covenants.  The defined terms used in this section are
defined in §15.7.1.  The method of valuing assets shall be consistent with the
Financial Statements.  The following financial covenants shall be met throughout
the term of this Lease:
 
15.7.1           Definitions.
 
(a) “Denominator Amount” means the Base Rent payments under this Lease and all
other debt service and equipment lease payments relating to the Facilities for
the applicable period.
 
(b) “Portfolio Cash Flow” means the aggregate net income arising from all
Facilities under this Lease as reflected on the Facility Financial Statement of
each Facility plus [i] the amount of the provision for depreciation and
amortization; plus [ii] the amount of the provision for management fees; plus
[iii] the amount of the provision for income taxes; plus [iv] the amount of the
provision for Base Rent payments and interest and equipment lease payments, if
any, relating to the Facilities; minus [v] an imputed management fee equal to 5%
of gross revenues of the Facilities (net of contractual allowances); and minus
[vi] an imputed replacement reserve of $250.00 per unit at the Facilities, per
year.
 
(c) “Portfolio Cash Flow Shortfall” means, as of the end of any fiscal quarter,
the amount by which the Denominator Amount for the trailing six-month period
exceeds the Portfolio Cash Flow for such period.
 
(d) “Portfolio Coverage Ratio” is the ratio of [i] Portfolio Cash Flow for each
applicable period; to [ii] the Denominator Amount for such applicable period.
 
15.7.2           Coverage Ratio.  Tenant shall maintain as at the end of each
fiscal quarter (on a trailing six-month basis) a Portfolio Coverage Ratio of not
less than 1.00 to 1.00.  Notwithstanding the foregoing, Tenant shall not be
deemed in violation of the terms of this §15.7.2 if the Portfolio Coverage Ratio
as at the end of any quarter on a trailing six-month basis is greater than .50
to 1.00 but less than 1.00 to 1.00, and Tenant provides to Landlord, within 30
days after the end of such quarter, additional cash collateral securing the
Obligor Group Obligations in an amount equal to the Portfolio Cash Flow
Shortfall for such period.  Thereafter, Tenant and Landlord shall adjust the
amount of such cash collateral so that it equals the Portfolio Cash Shortfall as
at the end of the then most recently ended fiscal quarter.  Tenant shall enter
into such Cash Collateral Security Agreement and other arrangements with respect
to such cash collateral as Landlord may reasonably require.  Landlord shall
promptly release such cash collateral back to Tenant if and when Tenant shall
next have maintained as at the end of any fiscal quarter on a trailing six-month
basis a Portfolio Coverage Ratio of not less than 1.00 to 1.00.
 
15.8           Facility Licensure and Certification.
 
15.8.1           Notice of Inspection.  Tenant and Subtenant, as applicable,
shall [i] give written notice to Landlord within five days after an inspection
of the Facility with respect to health care licensure or certification has
occurred; and [ii] deliver to Landlord copies of each of the reports, notices,
correspondence and all other items and documents listed under item no. 18
 

 
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of Exhibit E within five days after receipt thereof.  Tenant and Subtenant
acknowledge that each has reviewed Exhibit E and agrees to the foregoing
obligation.
 
15.8.2           Material Deficiencies.  If Tenant or Subtenant receives a
Facility survey or inspection report with material deficiencies that threatens a
loss of licensure or, if applicable, certification of the Facility or the
imposition of a ban on admissions to the Facility (the “Material Deficiencies”)
or notice of failure to comply with a previously submitted plan of correction or
an HIPDB adverse action report related to any Material Deficiencies, Tenant and
Subtenant shall cure all of the Material Deficiencies and implement all
corrective actions with respect thereto by the date required by the regulatory
authority and shall deliver evidence of same to Landlord.
 
15.9           Transfer of License and Facility Operations.  If this Lease is
terminated due to expiration of the Term, pursuant to an Event of Default or for
any reason other than Tenant’s purchase of the Leased Property, or if Tenant or
Subtenant vacates the Leased Property (or any part thereof) without termination
of this Lease (other than during periods of repair or reconstruction after
damage, destruction or a Taking, the following provisions shall be immediately
effective:
 
15.9.1           Licensure.  Tenant and each Subtenant shall execute, deliver
and file all documents and statements requested by Landlord to effect the
transfer of the Facility license and Government Authorizations to a replacement
operator designated by Landlord (“Replacement Operator”), subject to any
required approval of governmental regulatory authorities, and Tenant and each
Subtenant shall provide to Landlord all information and records required by
Landlord in connection with the transfer of the license and Government
Authorizations.
 
15.9.2           Facility Operations.  In order to facilitate a responsible and
efficient transfer of the operations of the Facility, Tenant and Subtenant
shall, if and to the extent requested by Landlord, [i] deliver to Landlord the
most recent updated reports, notices, schedules and documents listed under item
nos. 17, 18, 19, 20 and 21 of Exhibit E; [ii] assuming Tenant or Subtenant has
not already vacated the Leased Property, continue and maintain the operation of
the Facility in the ordinary course of business, including using its
commercially reasonable efforts to retain the residents at the Facility to the
fullest extent practicable and consistent with applicable laws and regulations,
until transfer of the Facility operations to the Replacement Operator is
completed; [iii] enter into such management agreements, operations transfer
agreements and other types of agreements that may be reasonably requested by
Landlord or the Replacement Operator; provided, however, in no event shall
Tenant or Subtenant be required to permit the Replacement Operator to operate
the Leased Property under their licenses unless they receive confirmation that
doing so will not violate applicable Legal Requirements and they get appropriate
indemnities from the Replacement Operator in form and substance reasonably
acceptable to Tenant and Subtenant; and [iv] provide reasonable access during
normal business hours and on reasonable advance notice for Landlord and its
agents to show the Facility to potential replacement operators.  Tenant and
Subtenant consent to the distribution by Landlord to potential replacement
operators of Facility financial statements, licensure reports, financial and
property due diligence materials and other documents, materials and information
relating to the Facility.  The provisions of this section do not create or
establish any rights in Tenant, Subtenant or any third party and Landlord
reserves all rights and remedies relating to termination of this Lease.
 

 
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15.10           Bed Operating Rights.  Tenant and Subtenant acknowledge and
agree that the rights to operate the beds located at the Facility as set forth
on Exhibit C under the law of the Facility State, to relocate such bed operating
rights to another location or locations, and to transfer such bed operating
rights to third parties, are property of the Landlord and are an integral part
of the real and personal property that constitutes the Leased Property.  Tenant
and Subtenant have only the right to use of such rights during the term of this
Lease and subject to its terms and conditions.  All operating rights shall
automatically revert to Landlord or Landlord’s designee upon the expiration or
termination of this Lease for any reason whatsoever (other than Tenant’s
purchase of the Leased Property) without any requirement of a transfer or the
payment of additional consideration.
 
15.11           Power of Attorney.  Effective upon [i] the occurrence and during
the continuance of an Event of Default, or [ii] termination of this Lease for
any reason other than Tenant’s purchase of the Leased Property, Tenant and
Subtenant hereby irrevocably and unconditionally appoint Landlord, or Landlord’s
authorized officer, agent, employee or designee, as Tenant’s and Subtenant’s
true and lawful attorney-in-fact, to act for Tenant and Subtenant in Tenant’s
and Subtenant’s respective name, place, and stead, to execute, deliver and file
all applications and any and all other necessary documents and statements to
effect the issuance, transfer, reinstatement, renewal and/or extension of the
Facility license and all Governmental Authorizations issued to Tenant and
Subtenant or applied for by Tenant and Subtenant in connection with Tenant’s and
Subtenant’s operation of the Facility, to permit any designee of Landlord or any
other transferee to operate the Facility under the Governmental Authorizations,
and to do any and all other acts incidental to any of the foregoing but only in
the event Tenant or Subtenant fail to take such actions or execute such
documents after a request from Landlord.  Tenant and Subtenant irrevocably and
unconditionally grant to Landlord as their respective attorney-in-fact full
power and authority to do and perform every act necessary and proper to be done
in the exercise of any of the foregoing powers as fully as Tenant and Subtenant
might or could do if personally present or acting, with full power of
substitution, hereby ratifying and confirming all that said attorney shall
lawfully do or cause to be done by virtue hereof.  This power of attorney is
coupled with an interest and is irrevocable prior to Tenant’s purchase of the
Leased Property.  Landlord shall provide Tenant and Subtenant with copies of any
documents filed and/or with a summary of any actions taken pursuant to this
power of attorney.
 
15.12           Information and Images.  Tenant grants to Landlord and
Landlord’s Affiliates the right and license during the Term to utilize as set
forth herein information describing, and photographic or other images depicting,
the exterior and/or interior of the Leased Property and Facilities (but not the
names of the Facilities or Tenant nor images that include any of the persons
residing in the Facilities unless Landlord has specifically obtained the written
consent of such persons to have their images included) (the “Information and
Images”).  Such Information and Images may be reproduced, used, published,
distributed, and displayed by Landlord and Landlord’s Affiliates solely in
connection with any promotional or marketing materials, advertisements, reports,
or web sites relating to the business of Landlord.  Provided Landlord’s use of
the Information and Images complies with the limitations set forth in this
§15.12, Tenant expressly waives and releases [i] any right to receive
compensation for such reproduction, use, publication, distribution, or display;
[ii] any right to inspect or approve such Information and Images prior to such
reproduction, use, publication, distribution, or display; or
 

 
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[iii] any rights under any copyright, patent, trademark, or similar statute or
regulation with respect to such use, publication, distribution or display.
 
ARTICLE 16:  ALTERATIONS, CAPITAL IMPROVEMENTS, AND SIGNS
 
16.1           Prohibition on Alterations and Improvements.  Except for
Permitted Alterations (as hereinafter defined), Tenant shall not make any
structural or nonstructural changes, alterations, additions and/or improvements
(hereinafter collectively referred to as “Alterations”) to the Leased Property.
 
16.2           Approval of Alterations.  If Tenant desires to perform any
Permitted Alterations, Tenant shall deliver to Landlord plans, specifications,
drawings, and such other information as may be reasonably requested by Landlord
(collectively the “Plans and Specifications”) showing in reasonable detail the
scope and nature of the Alterations that Tenant desires to perform.  It is the
intent of the parties hereto that the level of detail shall be comparable to
that which is referred to in the architectural profession as “design development
drawings” as opposed to working or biddable drawings.  Landlord agrees not to
unreasonably delay its review of the Plans and Specifications.  Within 30 days
after receipt of an invoice, Tenant shall reimburse Landlord for all costs and
expenses incurred by Landlord in reviewing and, if required, approving or
disapproving the Plans and Specifications, inspecting the Leased Property, and
otherwise monitoring compliance with the terms of this Article 16.  Tenant shall
comply with the requirements of §16.4 in making any Permitted Alterations.
 
16.3           Permitted Alterations.  Permitted Alterations means any one of
the following:  [i] Alterations approved by Landlord; [ii] Alterations required
under §7.2; [iii] Alterations affecting the structure of the Leased Property and
having a total cost of less than $250,000.00 individually or in the aggregate;
[iv] repairs, rebuilding and restoration required or undertaken pursuant to
§9.4; or [v] non-structural Alterations such as painting, landscaping,
wallpapering, installing new floor coverings, etc. without regard to the cost
thereof.
 
16.4           Requirements for Permitted Alterations.  Tenant shall comply with
all of the following requirements in connection with any Permitted Alterations:
 
(a) The Permitted Alterations shall be made in accordance with the approved
Plans and Specifications.
 
(b) The Permitted Alterations and the installation thereof shall comply with all
applicable legal requirements and insurance requirements.
 
(c) The Permitted Alterations shall be done in a good and workmanlike manner,
shall not impair the value or the structural integrity of the Leased Property,
and shall be free and clear of all mechanic’s liens.
 
(d) For any Permitted Alterations having a total cost of $100,000.00 or more,
Tenant shall deliver to Landlord a payment and performance bond, with a surety
acceptable to Landlord, in an amount equal to the estimated cost of the
Permitted Alterations, guaranteeing the completion of the work free and clear of
liens and in accordance with the
 

 
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approved Plans and Specifications, and naming Landlord and any mortgagee of
Landlord as joint obligees on such bond.
 
(e) Tenant shall, at Tenant’s expense, obtain a builder’s completed value risk
policy of insurance insuring against all risks of physical loss, including
collapse and transit coverage, in a nonreporting form, covering the total value
of the work performed, and equipment, supplies, and materials, and insuring
initial occupancy.  Landlord and any mortgagee of Landlord shall be additional
insureds of such policy.  Landlord shall have the right to approve the form and
substance of such policy.
 
(f) Tenant shall pay the premiums required to increase the amount of the
insurance coverages required by Article 4 to reflect the increased value of the
Improvements resulting from installation of the Permitted Alterations, and shall
deliver to Landlord a certificate evidencing the increase in coverage.
 
(g) Tenant shall, not later than 60 days after completion of the Permitted
Alterations, deliver to Landlord a revised “as-built” survey of the respective
Facility if the Permitted Alterations altered the Land or “footprint” of the
Improvements and an “as-built” set of Plans and Specifications for the Permitted
Alterations in form and substance satisfactory to Landlord.
 
(h) Tenant shall, not later than 30 days after Landlord sends an invoice,
reimburse Landlord for any reasonable costs and expenses, including attorneys’
fees and architects’ and engineers’ fees, incurred in connection with reviewing
and approving the Permitted Alterations and ensuring Tenant’s compliance with
the requirements of this section.  The daily fee for Landlord’s consulting
engineer is $750.00.
 
16.5           Ownership and Removal of Permitted Alterations.  The Permitted
Alterations shall become a part of the Leased Property, owned by Landlord, and
leased to Tenant subject to the terms and conditions of this Lease.  Tenant
shall not be required or permitted to remove any Permitted Alterations.
 
16.6           Minimum Qualified Capital Expenditures.  During each calendar
year of the Term, Tenant shall expend at least $380.00 per unit for Qualified
Capital Expenditures to improve the Facilities (provided that as to any Facility
with respect to which a certificate of occupancy was not issued prior to the end
of the first calendar year, the minimum qualified capital expenditures required
by this section shall be waived until the calendar year immediately following
the year in which such certificate of occupancy is issued).  Thereafter
throughout the Term, Tenant shall expend such amount each calendar year,
increased annually in proportion to increases in the CPI.  At least annually, at
the request of Landlord, Landlord and Tenant shall review capital expenditures
budgets and agree on modifications, if any, required by changed circumstances
and the changed conditions of the Leased Property.
 
16.7           Signs.  Tenant may, at its own expense, erect and maintain
identification signs at the Leased Property, provided such signs comply with all
laws, ordinances, and regulations.  Upon the termination or expiration of this
Lease (other than as a result of the
 

 
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exercise by Tenant of its purchase option), Tenant shall, within 30 days after
notice from Landlord, remove the signs and restore the Leased Property to its
original condition.
 
ARTICLE 17:  CONTINGENT PAYMENT
 
17.1           Contingent Payment.  Landlord has no current commitment to make a
Contingent Payment Advance.
 
ARTICLE 18:  ASSIGNMENT AND SALE OF LEASED PROPERTY
 
18.1           Prohibition on Assignment and Subletting.  Tenant acknowledges
that Landlord has entered into this Lease in reliance on the personal services
and business expertise of Tenant.  Tenant may not assign, sublet, mortgage,
hypothecate, pledge, grant a right of first refusal or transfer any interest in
this Lease, or in the Leased Property, in whole or in part, without the prior
written consent of Landlord, which Landlord may withhold in its sole and
absolute discretion.  The following transactions will be deemed an assignment or
sublease requiring Landlord’s prior written consent:  [i] an assignment by
operation of law; [ii] an imposition (whether or not consensual) of a lien,
mortgage, or encumbrance upon Tenant’s interest in the Lease; [iii] except as
otherwise permitted by §§14.4 and 18.3, an arrangement (including, but not
limited to, management agreements, concessions, licenses, and easements) which
allows the use or occupancy of all or part of the Leased Property by anyone
other than Tenant; and [iv] a material change of ownership of Tenant other than
changes resulting from the trading of Tenant’s stock on a national stock
exchange.  Landlord’s consent to any assignment, right of first refusal or
sublease will not release Tenant (or any guarantor) from its payment and
performance obligations under this Lease, but rather Tenant, any guarantor, and
Tenant’s assignee or sublessee will be jointly and severally liable for such
payment and performance.  An assignment, right of first refusal or sublease
without the prior written consent of Landlord will be void at Landlord’s
option.  Landlord’s consent to one assignment, right of first refusal or
sublease will not waive the requirement of its consent to any subsequent
assignment or sublease.  Notwithstanding the foregoing, Tenant may enter into a
Sublease with each Subtenant for each Facility provided that each Sublease
complies with §18.2 and Tenant may enter into any interim sublease and
management agreement required to comply with licensure requirements until such
time as the license to operate the Facility is issued in Tenant’s name.
 
18.2           Requests for Landlord’s Consent to Assignment, Sublease or
Management Agreement.  If Tenant is required to obtain Landlord’s consent to a
specific assignment, sublease, or management agreement, Tenant shall give
Landlord [i] the name and address of the proposed assignee, subtenant or
manager; [ii] a copy of the proposed assignment, sublease or management
agreement; [iii] reasonably satisfactory information about the nature, business
and business history of the proposed assignee, subtenant, or manager and its
proposed use of the Leased Property; and [iv] banking, financial, and other
credit information, and references about the proposed assignee, subtenant or
manager sufficient to enable Landlord to determine the financial responsibility
and character of the proposed assignee, subtenant or manager.  Any assignment,
sublease or management agreement shall contain provisions to the effect that
[a] such assignment, sublease or management agreement is subject and subordinate
to all of the terms and provisions of this Lease and to the rights of Landlord
and that the assignee, subtenant or manager shall comply with all applicable
provisions of this Lease; [b] such assignment,
 

 
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sublease or management agreement may not be modified without the prior written
consent of Landlord not to be unreasonably withheld or delayed; [c] if this
Lease shall terminate before the expiration of such assignment, sublease or
management agreement, the assignee, subtenant or manager thereunder will, solely
at Landlord’s option and only upon the express written notice of attornment from
Landlord, attorn to Landlord and waive any right the assignee, subtenant or
manager may have to terminate the assignment, sublease or management agreement
or surrender possession thereunder as a result of the termination of this Lease;
and [d] if the assignee, subtenant or manager receives a written notice from
Landlord stating that Tenant is in default under this Lease, the assignee,
subtenant or manager shall thereafter pay all rentals or payments under the
assignment, sublease or management agreement directly to Landlord until such
default has been cured.  Any attempt or offer by an assignee, subtenant or
manager to attorn to Landlord shall not be binding or effective without the
express written consent of Landlord.  Tenant hereby collaterally assigns to
Landlord, as security for the performance of its obligations hereunder, all of
Tenant’s right, title, and interest in and to any assignment, sublease or
management agreement now or hereafter existing for all or part of the Leased
Property.  Tenant shall, at the request of Landlord, execute such other
instruments or documents as Landlord may request to evidence this collateral
assignment.  If Landlord, in its sole and absolute discretion, consents to such
assignment, sublease, or management agreement, such consent shall not be
effective until [i] a fully executed copy of the instrument of assignment,
sublease or management agreement has been delivered to Landlord; [ii] in the
case of an assignment, Landlord has received a written instrument in which the
assignee has assumed and agreed to perform all of Tenant’s obligations under the
Lease; and [iii] Tenant has paid to Landlord a fee in the amount equal to the
lesser of Landlord’s actual out-of-pocket costs and expenses and $2,500.00
(applies only to consent requests after the Closing); and [iv] Landlord has
received reimbursement from Tenant or the assignee for all attorneys’ fees and
expenses and all other reasonable out-of-pocket expenses incurred in connection
with determining whether to give its consent, giving its consent and all matters
relating to the assignment (applies only to consent requests after the Closing).
 
18.3           Agreements with Residents.  Notwithstanding §18.1, Tenant and
Subtenant may enter into an occupancy agreement with residents of the Leased
Property without the prior written consent of Landlord provided that [i] the
agreement does not provide for lifecare services; [ii] the agreement does not
contain any type of rate lock provision or rate guaranty for more than one
calendar year; [iii] the agreement does not provide for any rent reduction or
waiver other than for an introductory period not to exceed six months;
[iv] Tenant and Subtenant may not collect rent for more than one month in
advance, other than one month of rent collected to be held as security for the
performance of the resident’s obligation to Tenant and Subtenant; and [v] all
residents of the Leased Property are accurately shown in accounting records for
the Facility.  Without the prior written consent of Landlord, Tenant and
Subtenant shall not materially change the form of resident occupancy agreement
that was submitted to Landlord prior to the Effective Date.
 
18.4           Sale of Leased Property.  If Landlord or any subsequent owner of
the Leased Property sells the Leased Property, its liability for the performance
of its agreements in this Lease will end on the date of the sale of the Leased
Property, and Tenant will look solely to the purchaser for the performance of
those agreements.  For purposes of this section, any holder of a mortgage or
security agreement which affects the Leased Property at any time, and any
landlord under any lease to which this Lease is subordinate at any time, will be
a subsequent
 

 
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owner of the Leased Property when it succeeds to the interest of Landlord or any
subsequent owner of the Leased Property.
 
18.5           Assignment by Landlord.  Landlord may transfer, assign, mortgage,
collaterally assign, or otherwise dispose of Landlord’s interest in this Lease
or the Leased Property.
 
ARTICLE 19:  HOLDOVER AND SURRENDER
 
19.1           Holding Over.  If Tenant, with or without the express or implied
consent of Landlord, continues to hold and occupy the Leased Property (or any
part thereof) after the expiration of the Term or earlier termination of this
Lease (other than pursuant to Tenant’s purchase of the Leased Property), such
holding over beyond the Term and the acceptance or collection of Rent in the
amount specified below by Landlord shall operate and be construed as creating a
tenancy from month to month and not for any other term whatsoever.  Said
month-to-month tenancy may be terminated by Landlord by giving Tenant five days
written notice, and at any time thereafter Landlord may re-enter and take
possession of the Leased Property.  If, without Landlord’s consent or at
Landlord’s request, Tenant continues after the expiration of the Term or earlier
termination of this Lease to hold and occupy the Leased Property whether as a
month-to-month tenant or a tenant at sufferance or otherwise, Tenant shall pay
Rent for each month in an amount equal to the sum of [i] one and one-half
(1-1/2) times the Base Rent payable during the month in which such expiration or
termination occurs, plus [ii] all General Additional Rent accruing during the
month, plus [iii] any and all other sums payable by Tenant pursuant to this
Lease.  During any continued tenancy after the expiration of the Term or earlier
termination of this Lease, 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 given by applicable law, to
continue its occupancy and use of the Leased Property until the tenancy is
terminated.  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.
 
19.2           Surrender.  Except for [i] Permitted Alterations; [ii] normal and
reasonable wear and tear (subject to the obligation of Tenant to maintain the
Leased Property in good order and repair during the Term); and [iii] damage and
destruction not required to be repaired by Tenant, Tenant shall surrender and
deliver up each Facility which is then subject to this Lease at the expiration
or termination of the Term in as good order and condition as of the date that
Facility was added to the Lease.  The provisions of this §19.2 shall not apply
in the event of the termination of the Lease upon the exercise by Tenant of the
rights set forth in Article 13.
 
19.3           Indemnity.  If Tenant fails to surrender the entire Leased
Property or any part thereof upon the expiration or termination of this Lease in
a timely manner and in accordance with the provisions of this Lease, in addition
to any other liabilities to Landlord accruing therefrom, Tenant shall defend,
indemnify and hold Landlord, its principals, officers, directors, agents, and
employees harmless from loss or liability resulting from such failure,
including, without limiting the generality of the foregoing, loss of rental with
respect to any new lease in which the rental payable thereunder exceeds the Rent
collected by Landlord pursuant to this Lease during Tenant’s hold-over and any
claims by any proposed new tenant founded on
 

 
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Tenant’s failure to surrender the Leased Property.  The provisions of this
Article 19 shall survive the expiration or termination of this Lease.  The
provisions of this §19.3 shall not apply in the event of the termination of this
Lease upon the exercise by Tenant of the rights set forth in Article 13.
 
ARTICLE 20:  [RESERVED]
 
ARTICLE 21:  QUIET ENJOYMENT, SUBORDINATION, ATTORNMENT AND ESTOPPEL
CERTIFICATES
 
21.1           Quiet Enjoyment.  So long as Tenant performs all of its
obligations under this Lease, Tenant’s possession of the Leased Property will
not be disturbed by Landlord or any party claiming by, through or under
Landlord.
 
21.2           Subordination.  Subject to the terms and conditions of this
section, this Lease and Tenant’s rights under this Lease are subordinate to any
ground lease or underlying lease, first mortgage, first deed of trust, or other
first lien against the Leased Property, together with any renewal,
consolidation, extension, modification or replacement thereof, which now or at
any subsequent time affects the Leased Property or any interest of Landlord in
the Leased Property, except to the extent that any such instrument expressly
provides that this Lease is superior.  The foregoing subordination provision is
expressly conditioned upon any lessor or mortgagee being obligated and bound to
recognize Tenant as the tenant under this Lease, and such lessor or mortgagee
shall have no right to disturb Tenant’s possession, use and occupancy of the
Leased Property or Tenant’s enjoyment of its rights under this Lease unless and
until an Event of Default occurs hereunder.  Any foreclosure action or
proceeding by any mortgagee with respect to the Leased Property shall not affect
Tenant’s rights under this Lease and shall not terminate this Lease unless and
until an Event of Default occurs hereunder.  The foregoing provisions will be
self-operative, and no further instrument will be required in order to effect
them.  However, Tenant shall execute, acknowledge and deliver to Landlord, at
any time and from time to time upon demand by Landlord, such documents as may be
requested by Landlord or any mortgagee or any holder of any mortgage or other
instrument described in this section, to confirm or effect any such
subordination, provided that any such document shall include a nondisturbance
provision as set forth in this section satisfactory to Tenant.  Any mortgagee of
the Leased Property shall be deemed to be bound by the nondisturbance provision
set forth in this section.  If Tenant fails or refuses to execute, acknowledge,
and deliver any such document within 20 days after written demand, Landlord may
execute acknowledge and deliver any such document on behalf of Tenant as
Tenant’s attorney-in-fact.  Tenant hereby constitutes and irrevocably appoints
Landlord, its successors and assigns, as Tenant’s attorney-in-fact to execute,
acknowledge, and deliver on behalf of Tenant any documents described in this
section.  This power of attorney is coupled with an interest and is irrevocable.
 
21.3           Attornment.  If any holder of any mortgage, indenture, deed of
trust, or other similar instrument described in §21.2 succeeds to Landlord’s
interest in the Leased Property, Tenant will pay to such holder all Rent
subsequently payable under this Lease.  Tenant shall, upon request of anyone
succeeding to the interest of Landlord, automatically become the tenant of, and
attorn to, such successor in interest without changing this Lease.  The
successor in interest will not be bound by [i] any payment of Rent for more than
one month in advance unless
 

 
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actually received by such successor; [ii] any amendment or modification of this
Lease thereafter made without its consent as provided in this Lease; [iii] any
claim against Landlord arising prior to the date on which the successor
succeeded to Landlord’s interest; or [iv] any claim or offset of Rent against
Landlord.  Upon request by Landlord or such successor in interest and without
cost to Landlord or such successor in interest, Tenant will execute, acknowledge
and deliver an instrument or instruments confirming the attornment.  If Tenant
fails or refuses to execute, acknowledge, and deliver any such instrument within
20 days after written demand, then Landlord or such successor in interest will
be entitled to execute, acknowledge, and deliver any document on behalf of
Tenant as Tenant’s attorney-in-fact.  Tenant hereby constitutes and irrevocably
appoints Landlord, its successors and assigns, as Tenant’s attorney-in-fact to
execute, acknowledge, and deliver on behalf of Tenant any such document.  This
power of attorney is coupled with an interest and is irrevocable.
 
21.4           Estoppel Certificates.  At the request of Landlord or any
mortgagee or purchaser of the Leased Property, Tenant shall execute,
acknowledge, and deliver an estoppel certificate, in recordable form, in favor
of Landlord or any mortgagee or purchaser of the Leased Property certifying the
following:  [i] that the Lease is unmodified and in full force and effect, or if
there have been modifications that the same is in full force and effect as
modified and stating the modifications; [ii] the date to which Rent and other
charges have been paid; [iii] whether Tenant or Landlord is in default or
whether there is any fact or condition known to Landlord or Tenant which, with
notice or lapse of time, or both, would constitute a default, and specifying any
existing default, if any; [iv] that Tenant has accepted and occupies the Leased
Property; [v] that Tenant has no defenses, set-offs, deductions, credits, or
counterclaims against Landlord, if that be the case, or specifying such that
exist; and [vi] such other information as may reasonably be requested by
Landlord or any mortgagee or purchaser.  Any purchaser or mortgagee may rely on
this estoppel certificate.  If Tenant fails to deliver the estoppel certificates
to Landlord within 10 days after the request of Landlord, then Tenant shall be
deemed to have certified that [a] the Lease is in full force and effect and has
not been modified, or that the Lease has been modified as set forth in the
certificate delivered to Tenant; [b] Tenant has not prepaid any Rent or other
charges except for the current month; [c] Tenant has accepted and occupies the
Leased Property; [d] neither Tenant nor Landlord is in default nor is there any
fact or condition which, with notice or lapse of time, or both, would constitute
a default; and [e] Tenant has no defenses, set-offs, deductions, credits, or
counterclaims against Landlord.  Tenant hereby irrevocably appoints Landlord as
Tenant’s attorney-in-fact to execute, acknowledge, and deliver on Tenant’s
behalf any estoppel certificate to which Tenant does not object within 10 days
after Landlord sends the certificate to Tenant.  This power of attorney is
coupled with an interest and is irrevocable.
 

 
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ARTICLE 22:  REPRESENTATIONS AND WARRANTIES
 
Tenant and Subtenant hereby make the following representations and warranties,
as of the Effective Date, to Landlord and acknowledge that Landlord is granting
the Lease in reliance upon such representations and warranties.  Tenant’s and
Subtenant’s representations and warranties shall survive the Closing and, except
to the extent made as of a specific date, shall continue in full force and
effect until the Obligor Group Obligations have been performed in full.
 
22.1           Organization and Good Standing.  Tenant is a corporation, duly
organized, validly existing and in good standing under the laws of its
Organization State. Subtenant is a limited liability company, duly organized,
validly existing and in good standing under the laws of its Organization
State.  Tenant is qualified to do business in and is in good standing under the
laws of the Facility States.  Subtenant is qualified to do business and is in
good standing under the laws of its Facility State.
 
22.2           Power and Authority.  Tenant and Subtenant have the power and
authority to execute, deliver and perform this Lease.  Tenant and Subtenant have
taken all requisite action necessary to authorize the execution, delivery and
performance of their respective obligations under this Lease.
 
22.3           Enforceability.  This Lease constitutes a legal, valid, and
binding obligation of Tenant and Subtenant, as applicable, enforceable in
accordance with its terms except as such enforceability may be limited by
creditors rights laws and general principles of equity.
 
22.4           Government Authorizations.  The Facility is in compliance with
all Legal Requirements.  All Government Authorizations are in full force and
effect.  Except as otherwise noted in Exhibit G, Tenant or the respective
Subtenant holds all Government Authorizations necessary for the operation of the
Facility in accordance with the Facility Uses.  No prior notice to or approval
from any licensure authority is required in connection with the execution of
this Lease by Landlord or Tenant other than those notices which have been given
or approvals which have been obtained prior to the Effective Date.
 
22.5           [RESERVED]
 
22.6           Condition of Facility.  To the best of Tenant’s and Subtenant’s
knowledge and except as otherwise disclosed in writing by Tenant to Landlord
prior to the Effective Date, all of the mechanical and electrical systems,
heating and air-conditioning systems, plumbing, water and sewer systems, and all
other items of mechanical equipment or appliances are in good working order,
condition and repair, are of sufficient size and capacity to service the
Facility for the Facility Uses and conform with all applicable ordinances and
regulations, and with all building, zoning, fire, safety, and other codes, laws
and orders.  The Improvements, including the roof and foundation, are
structurally sound and free from leaks and other defects.
 
22.7           Compliance with Laws.  To the best of Tenant’s and Subtenant’s
knowledge, there is no violation of, or noncompliance with, [i] any laws,
orders, rules or regulations, ordinances or codes of any kind or nature
whatsoever relating to the Facility or the ownership or operation thereof
(including, without limitation, building, fire, health, occupational
 

 
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safety and health, zoning and land use, planning and environmental laws, orders,
rules and regulations); [ii] any covenants, conditions, restrictions or
agreements affecting or relating to the ownership, use or occupancy of the
Facility; or [iii] any order, writ, regulation or decree relating to any matter
referred to in [i] or [ii] above.
 
22.8           No Litigation.  As of the Effective Date and except as disclosed
on Exhibit H, [i] there are no actions or suits, or any proceedings or
investigations by any governmental agency or regulatory body pending against
Tenant or Subtenant with respect to its operation at the Facility or against the
Facility; [ii] no HIPDB adverse action reports have been issued to Tenant or
Subtenant with respect to its operations at the Facility or against the
Facility; [iii] neither Tenant nor Subtenant has received notice of any
threatened actions, suits, proceedings or investigations against Tenant or
Subtenant with respect to its operations at the Facility or against the Facility
at law or in equity, or before any governmental board, agency or authority
which, if determined adversely to Tenant or Subtenant, would materially and
adversely affect the Facility or title to the Facility (or any part thereof),
the right to operate the Facility as presently operated, or the financial
condition of Tenant or Subtenant; [iv] there are no unsatisfied or outstanding
judgments against Tenant or Subtenant with respect to its operations at the
Facility or against the Facility; [v] there is no labor dispute materially and
adversely affecting the operation or business conducted by Tenant or Subtenant
at the Facility; and [vi] Tenant does not have knowledge of any facts or
circumstances which might reasonably form the basis for any such action, suit,
or proceeding.
 
22.9           Consents.  The execution, delivery and performance of this Lease
will not require any consent, approval, authorization, order, or declaration of,
or any filing or registration with, any court, any federal, state, or local
governmental or regulatory authority, or any other person or entity, the absence
of which would materially impair the ability of Tenant or Subtenant to operate
the Facility for the Facility Uses except for the post-acquisition filing for
licensure of the Facility.
 
22.10           No Violation.  The execution, delivery and performance of this
Lease [i] do not and will not conflict with, and do not and will not result in a
breach of Tenant’s or Subtenant’s Organizational Documents; [ii] do not and will
not conflict with, and do not and will not result in a breach of, and do not and
will not constitute a default under (or an event which, with or without notice
or lapse of time, or both, would constitute a default under), any of the terms,
conditions or provisions of any agreement or other instrument or obligation to
which Tenant or Subtenant is a party or by which its assets are bound; and
[iii] do not and will not violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Tenant, Subtenant or the Facility.
 
22.11           Reports and Statements.  All reports, statements, certificates
and other data furnished by or on behalf of Tenant or Guarantor to Landlord in
connection with this Lease, and all representations and warranties made herein
or in any certificate or other instrument delivered in connection herewith and
therewith, are true and correct in all material respects and do not omit to
state any material fact or circumstance necessary to make the statements
contained herein or therein, in light of the circumstances under which they are
made, not misleading as of the date of such report, statement, certificate or
other data.  The copies of all agreements and instruments submitted to Landlord,
including, without limitation, all agreements relating to
 

 
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management of the Facility and Tenant’s working capital are true, correct and
complete copies in all material respects and include all material amendments and
modifications of such agreements.
 
22.12           ERISA.  All plans (as defined in §4021(a) of the Employee
Retirement Income Security Act of 1974, as amended or supplemented from time to
time (“ERISA”)) for which Tenant or Subtenant is an “employer” or a “substantial
employer” (as defined in §§3(5) and 4001(a)(2) of ERISA, respectively) are in
compliance with ERISA and the regulations and published interpretations
thereunder.  To the extent Tenant or Subtenant maintains a qualified defined
benefit pension plan:  [i] there exists no accumulated funding deficiency;
[ii] no reportable event and no prohibited transaction has occurred; [iii] no
lien has been filed or threatened to be filed by the Pension Benefit Guaranty
Corporation established pursuant to Subtitle A of Title IV of ERISA; and
[iv] Tenant and Subtenant have not been deemed to be a substantial employer.
 
22.13           Chief Executive Office.  Tenant and Subtenant each maintain its
respective chief executive office and its books and records at Tenant’s address
set forth in the introductory paragraph of this Lease.  Tenant and Subtenant do
not conduct any business or operations other than at Tenant’s chief executive
office and at the Facility.
 
22.14           Other Name or Entities.  Except as disclosed herein, none of
Tenant’s or Subtenant’s business at the Leased Property is conducted through any
subsidiary, unincorporated association or other entity and neither Tenant nor
Subtenant have in connection with its operations at the Leased Property, within
the six years preceding the date of this Lease [i] changed its name, [ii] used
any name other than the name stated at the beginning of this agreement, or
[iii] merged or consolidated with, or acquired any of the assets of, any
corporation or other business.
 
22.15           Parties in Possession.  Except as disclosed on Exhibit B and
except for each Subtenant, there are no parties in possession of any Leased
Property or any portion thereof as managers, lessees, tenants at sufferance, or
trespassers.
 
22.16           Access.  Except as otherwise disclosed in writing by Tenant to
Landlord prior to the Effective Date, access to the Land is directly from a
dedicated public right-of-way without any easement.  To the knowledge of Tenant
and Subtenant, there is no fact or condition which would result in the
termination or reduction of the current access to and from the Land to such
right-of-way.
 
22.17           Utilities.  There are available at the Land gas, municipal
water, and sanitary sewer lines, storm sewers, electrical and telephone services
in operating condition which are adequate for the operation of the Facility at a
reasonable cost.  Except as otherwise disclosed in writing by Tenant to Landlord
prior to the Effective Date, the Land has direct access to utility lines located
in a dedicated public right-of-way without any easement.  As of the Effective
Date, there is no pending or, to the knowledge of Tenant or Subtenant,
threatened governmental or third party proceeding which would impair or result
in the termination of such utility availability.
 
22.18           Condemnation and Assessments.  As of the Effective Date, neither
Tenant nor Subtenant has received notice of, and there are no pending or, to the
best of Tenant’s and
 

 
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Subtenant’s knowledge, threatened, condemnation, assessment (other than as
disclosed in writing by Tenant to Landlord prior to the Effective Date) or
similar proceedings affecting or relating to the Facility, or any portion
thereof, or any utilities, sewers, roadways or other public improvements serving
the Facility.
 
22.19           Zoning.  As of the Effective Date, [i] the use and operation of
the Facility for the Facility Uses is a permitted use under the applicable
zoning code; [ii] except as disclosed on Exhibit G hereto, no special use
permits, conditional use permits, variances, or exceptions have been granted or
are needed for such use of the Facility; [iii] the Land is not located in any
special districts such as historical districts or overlay districts; and
[iv] the Facility has been constructed in accordance with and complies with all
zoning laws in effect at the time of its construction, including, but not
limited to, dimensional, parking, setback, screening, landscaping, sign and curb
cut requirements or the Facility obtained required waivers or variances from
such requirements.
 
22.20           [RESERVED]
 
22.21           Environmental Matters.  During the period of Tenant’s or
Subtenant’s ownership or possession of the Leased Property and, to the best of
Tenant’s and Subtenant’s knowledge after diligent inquiry, for the period prior
to Tenant’s and Subtenant’s ownership or possession of the Leased Property,
[i] the Leased Property is in compliance with all Environmental Laws; [ii] there
were no releases or threatened releases of Hazardous Materials on, from, or
under the Leased Property, except in compliance with all Environmental Laws;
[iii] no Hazardous Materials have been, are or will be used, generated, stored,
or disposed of at the Leased Property, except in compliance with all
Environmental Laws; [iv] asbestos has not been and will not be used in the
construction of any Improvements; [v] no permit is or has been required from the
Environmental Protection Agency or any similar agency or department of any state
or local government for the use or maintenance of any Improvements;
[vi] underground storage tanks on or under the Land, if any, have been and
currently are being operated in compliance with all applicable Environmental
Laws; [vii] any closure, abandonment in place or removal of an underground
storage tank on or from the Land was performed in compliance with applicable
Environmental Laws and any such tank had no release contaminating the Leased
Property or, if there had been a release, the release was remediated in
compliance with applicable Environmental Laws to the satisfaction of regulatory
authorities; [viii] no summons, citation or inquiry has been made by any such
environmental unit, body or agency or a third party demanding any right of
recovery for payment or reimbursement for costs incurred under CERCLA or any
other Environmental Laws and the Land is not subject to the lien of any such
agency; and [ix] to the best of Tenant’s and Subtenant’s knowledge, the
environmental assessments of the Facility (and all follow-up reports,
supplements and amendments) that were delivered to Landlord by Tenant in
connection with the closing of the Existing Leases were true, complete and
accurate.  “Disposal” and “release” shall have the meanings set forth in CERCLA.
 
22.22           Leases and Contracts.  As of the Effective Date and except as
disclosed on Exhibit I, there are no leases or contracts (including, but not
limited to, insurance contracts, maintenance contracts, construction contracts,
employee benefit plans, employment contracts, equipment leases, security
agreements, architect agreements, and management contracts) to which Tenant,
Subtenant or Guarantor is a party relating to any part of the ownership,
operation,
 

 
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possession, construction, management or administration of the Land or the
Facility which individually or in the aggregate with respect to any Facility
require payments in excess of $20,000 per year.
 
22.23           No Default.  As of the Effective Date, [i] there is no existing
Event of Default under this Lease; and [ii] no event has occurred which, with
the giving of notice or the passage of time, or both, would constitute or result
in such an Event of Default.
 
22.24           Tax Status.  If Tenant or Subtenant is a partnership or limited
liability company, it is taxable as a partnership under the Internal Revenue
Code and all applicable facility state tax laws.
 
ARTICLE 23:  [RESERVED]
 
ARTICLE 24:  SECURITY INTEREST
 
24.1           Collateral.  Tenant, Subtenant and Guarantor hereby grant to each
Landlord and HCRI (if not a Landlord) (individually and collectively called
“Secured Party”) a security interest in the following described property located
at a Leased Property, whether now owned or hereafter acquired by Tenant,
Subtenant and Guarantor (the “Collateral”), to secure the payment and
performance of the Obligor Group Obligations:
 
(a) All machinery, furniture, equipment, trade fixtures, appliances, inventory
and all other goods (as “equipment”, “inventory” and “goods” are defined for
purposes of Article 9 (“Article 9”) of the Uniform Commercial Code as adopted in
Ohio) and any leasehold interest of Tenant or any Subtenant in any of the
foregoing, including, without limitation, those items which are to become
fixtures or which are building supplies and materials to be incorporated into
any improvement or fixture.
 
(b) All accounts, contract rights, general intangibles, instruments, documents,
and chattel paper [as “accounts”, “contract rights”, “general intangibles”,
“instruments”, “documents”, and “chattel paper”, are defined for purposes of
Article 9] now or hereafter arising.
 
(c) All franchises, permits, licenses, operating rights, certifications,
approvals, consents, authorizations and other general intangibles, including,
without limitation, certificates of need, state health care facility licenses,
and Medicare and Medicaid provider agreements, to the extent permitted by law.
 
(d) Unless expressly prohibited by the terms thereof, all contracts, agreements,
contract rights and materials relating to the design, construction, operation or
management of any improvements, including, but not limited to, plans,
specifications, drawings, blueprints, models, mock-ups, brochures, flyers,
advertising and promotional materials and mailing lists.
 
(e) All subleases, occupancy agreements, license agreements and concession
agreements, written or unwritten, of any nature, now or hereafter entered into,
and all right, title and interest of Tenant thereunder, including, without
limitation, those certain
 

 
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Subleases dated as of the Effective Date, by and between Tenant, as Sublandlord,
and each Subtenant, as Subtenant; and including, without limitation, Tenant’s
right, if any, to cash or securities deposited thereunder whether or not the
same was deposited to secure performance by the subtenants, occupants, licensees
and concessionaires of their obligations thereunder, including the right to
receive and collect the rents, revenues, and other charges thereunder.
 
(f) All ledger sheets, files, records, computer programs, tapes, other
electronic data processing materials, and other documentation.
 
(g) The products and proceeds of the preceding listed property, including,
without limitation, cash and non-cash proceeds, proceeds of proceeds, and
insurance proceeds.
 
24.2           Additional Documents.  At the request of Landlord, Tenant and
each Subtenant shall execute additional security agreements, financing
statements, and such other documents as may be requested by Landlord to maintain
and perfect such security interest.  Tenant and each Subtenant hereby
irrevocably appoint Landlord, its successors and assigns, as Tenant’s or
Subtenant’s attorney-in-fact to execute, acknowledge, deliver and file such
documents on behalf of Tenant or such Subtenant.  This power of attorney is
coupled with an interest and is irrevocable.
 
24.3           Notice of Sale.  With respect to any sale or other disposition of
any of the Collateral after the occurrence of an Event of Default, Landlord,
Tenant and each Subtenant agree that the giving of five days’ notice by
Landlord, sent by overnight delivery, postage prepaid, to Tenant’s or
Subtenant’s notice address designating the time and place of any public sale or
the time after which any private sale or other intended disposition of such
Collateral is to be made, shall be deemed to be reasonable notice thereof and
Tenant and each Subtenant waive any other notice with respect thereto.
 
24.4           Recharacterization.  Landlord and Tenant intend this Lease to be
a true lease.  However, if despite the parties’ intent, it is determined or
adjudged by a court for any reason that this Lease is not a true lease or if
this Lease is recharacterized as a financing arrangement, then this Lease shall
be considered a secured financing agreement and Landlord’s title to the Leased
Property shall constitute a perfected first priority lien in Landlord’s favor on
the Leased Property to secure the payment and performance of all the Obligor
Group Obligations.
 
ARTICLE 25:  MISCELLANEOUS
 
25.1           Notices.  Landlord, Tenant and Subtenant hereby agree that all
notices, demands, requests, and consents (hereinafter “notices”) required to be
given pursuant to the terms of this Lease shall be in writing, shall be
addressed to the addresses set forth in the introductory paragraph of this
Lease, and shall be served by [i] personal delivery; [ii] certified mail, return
receipt requested, postage prepaid; or [iii] nationally recognized overnight
courier.  Notices to any Subtenant should be sent c/o Tenant at Tenant’s address
set forth in the introductory paragraph.  All notices shall be deemed to be
given upon the earlier of actual receipt or three Business Days after mailing,
or one Business Day after deposit with the overnight courier.  Any notices
meeting the requirements of this section shall be effective, regardless of
 

 
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whether or not actually received.  Landlord or Tenant may change its notice
address at any time by giving the other party notice of such change.
 
25.2           Advertisement of Leased Property.  In the event the Tenant fails
to exercise its option to renew within the time period set forth in §12.1, then
Landlord or its agent shall have the right to enter the Leased Property at all
reasonable times for the purpose of exhibiting the Leased Property to others and
to place upon the Leased Property for and during the period commencing 120 days
prior to the expiration of this Lease, “for sale” or “for rent” notices or
signs.
 
25.3           Entire Agreement.  This Lease contains the entire agreement
between Landlord and Tenant with respect to the subject matter hereof.  No
representations, warranties, and agreements have been made by Landlord except as
set forth in this Lease.  No oral agreements or understandings between Landlord
and Tenant shall survive execution of this Lease.
 
25.4           Severability.  If any term or provision of this Lease is held or
deemed by Landlord to be invalid or unenforceable, such holding shall not affect
the remainder of this Lease and the same shall remain in full force and effect,
unless such holding substantially deprives Tenant of the use of the Leased
Property or Landlord of the rents herein reserved, in which event this Lease
shall forthwith terminate as if by expiration of the Term.
 
25.5           Captions and Headings.  The captions and headings are inserted
only as a matter of convenience and for reference and in no way define, limit or
describe the scope of this Lease or the intent of any provision hereof.
 
25.6           Governing Law.  This Lease shall be governed by and construed in
accordance with the laws of the State of Ohio, except as to matters under which
the laws of a State in which a respective Facility is located, or under
applicable procedural conflicts of laws rules, require the application of laws
of such other State, in which case the laws or conflicts of laws rules, as the
case may be, of such State shall govern to the extent required.
 
25.7           Memorandum of Lease.  Tenant shall not record this Lease.  Tenant
shall, however, record a memorandum of lease approved by Landlord upon
Landlord’s request.
 
25.8           Waiver.  No waiver by Landlord of any condition or covenant
herein contained, or of any breach of any such condition or covenant, shall be
held or taken to be a waiver of any subsequent breach of such covenant or
condition, or to permit or excuse its continuance or any future breach thereof
or of any condition or covenant, nor shall the acceptance of Rent by Landlord at
any time when Tenant or Subtenant is in default in the performance or observance
of any condition or covenant herein be construed as a waiver of such default, or
of Landlord’s right to terminate this Lease or exercise any other remedy granted
herein on account of such existing default.
 
25.9           Binding Effect.  This Lease will be binding upon and inure to the
benefit of the heirs, successors, personal representatives, and permitted
assigns of Landlord, Tenant and Subtenant.
 

 
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25.10           No Offer.  Landlord’s submission of this Lease to Tenant is not
an offer to lease the Leased Property, or an agreement by Landlord to reserve
the Leased Property for Tenant.  Landlord will not be bound to Tenant until
Tenant has duly executed and delivered duplicate original leases to Landlord,
and Landlord has duly executed and delivered one of these duplicate original
leases to Tenant.
 
25.11           Modification.  This Lease may only be modified by a writing
signed by both Landlord and Tenant.  All references to this Lease, whether in
this Lease or in any other document or instrument, shall be deemed to
incorporate all amendments, modifications and renewals of this Lease, made after
the date hereof.  If Tenant requests Landlord’s consent to any change in
ownership, merger or consolidation of Tenant or Guarantor, any assumption of the
Lease, or any modification of the Lease, Tenant shall provide Landlord all
relevant information and documents sufficient to enable Landlord to evaluate the
request.  In connection with any such request, Tenant shall pay to Landlord a
fee in an amount equal to the lesser of $2,500.00 and Landlord’s actual
reasonable attorney’s fees and expenses and other reasonable out-of-pocket
expenses incurred in connection with Landlord’s evaluation of Tenant’s request,
the preparation of any documents and amendments, the subsequent amendment of any
documents between Landlord and its collateral pool lenders (if applicable), and
all related matters.
 
25.12           Landlord’s Modification.  Tenant acknowledges that Landlord may
mortgage the Leased Property or use the Leased Property as collateral for a
collateralized mortgage obligations or Real Estate Mortgage Investment Companies
(REMICS).  If any mortgage lender of Landlord desires any modification of this
Lease, Tenant agrees to consider such modification in good faith and to execute
an amendment of this Lease if Tenant finds such modification
acceptable.  Landlord shall not do anything in connection with its financing of
the Leased Property which would limit the rights granted to Tenant or Subtenant
hereunder.
 
25.13           No Merger.  The surrender of this Lease by Tenant or the
cancellation of this Lease by agreement of Tenant and Landlord or the
termination of this Lease on account of Tenant’s default will not work a merger,
and will, at Landlord’s option, terminate any subleases or operate as an
assignment to Landlord of any subleases.  Landlord’s option under this paragraph
will be exercised by notice to Tenant and all known subtenants of the Leased
Property.
 
25.14           Laches.  No delay or omission by either party hereto to exercise
any right or power accruing upon any noncompliance or default by the other party
with respect to any of the terms hereof shall impair any such right or power or
be construed to be a waiver thereof.
 
25.15           Limitation on Tenant’s Recourse.  Tenant’s sole recourse against
Landlord, and any successor to the interest of Landlord in the Leased Property,
is to the interest of Landlord, and any such successor, in the Leased
Property.  Tenant will not have any right to satisfy any judgment which it may
have against Landlord, or any such successor, from any other assets of Landlord,
or any such successor.  In this section, the terms “Landlord” and “successor”
include the shareholders, venturers, and partners of “Landlord” and “successor”
and the officers, directors, and employees of the same.  The provisions of this
section are not intended to limit Tenant’s right to seek injunctive relief or
specific performance.
 

 
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25.16           Construction of Lease.  This Lease has been prepared by Landlord
and its professional advisors and reviewed by Tenant and its professional
advisors.  Landlord, Tenant, and their advisors believe that this Lease is the
product of all their efforts, that it expresses their agreement, and agree that
it shall not be interpreted in favor of either Landlord or Tenant or against
either Landlord or Tenant merely because of their efforts in preparing it.
 
25.17           Counterparts.  This Lease may be executed in multiple
counterparts, each of which shall be deemed an original hereof.
 
25.18           Custody of Escrow Funds.  Any funds paid to Landlord in escrow
hereunder may be held by Landlord or, at Landlord’s election, by a financial
institution, the deposits or accounts of which are insured or guaranteed by a
federal or state agency.  The funds shall not be deemed to be held in trust, may
be commingled with the general funds of Landlord or such other institution, and
shall not bear interest.
 
25.19           Landlord’s Status as a REIT.  Tenant acknowledges that Landlord
(or a Landlord Affiliate) has elected and may hereafter elect to be taxed as a
real estate investment trust (“REIT”) under the Internal Revenue Code.
 
25.20           Exhibits.  All of the exhibits referenced in this Lease are
attached hereto and incorporated herein.
 
25.21           WAIVER OF JURY TRIAL.  LANDLORD, TENANT AND SUBTENANT WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM
AGAINST THE OTHER ON ALL MATTERS ARISING OUT OF THIS LEASE OR THE USE AND
OCCUPANCY OF THE LEASED PROPERTY (EXCEPT CLAIMS FOR PERSONAL INJURY OR PROPERTY
DAMAGE).  IF LANDLORD COMMENCES ANY SUMMARY PROCEEDING FOR NONPAYMENT OF RENT,
TENANT AND SUBTENANT WILL NOT INTERPOSE, AND WAIVES THE RIGHT TO INTERPOSE, ANY
COUNTERCLAIM IN ANY SUCH PROCEEDING.
 
25.22           CONSENT TO JURISDICTION.  TENANT AND SUBTENANT HEREBY
IRREVOCABLY SUBMIT AND CONSENT TO THE NONEXCLUSIVE JURISDICTION AND VENUE OF ANY
STATE OR FEDERAL COURT HAVING JURISDICTION OVER LUCAS COUNTY, OHIO OR ANY COUNTY
IN WHICH A FACILITY IS LOCATED FOR ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND
ANY MATTER ARISING FROM OR RELATED TO [I] THE COMMITMENT; [II] THIS LEASE; OR
[III] ANY DOCUMENT EXECUTED BY TENANT OR SUBTENANT IN CONNECTION WITH THIS
LEASE.  TENANT AND SUBTENANT HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT
TENANT AND SUBTENANT MAY EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM
TO THE MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING.  TENANT AND SUBTENANT AGREE
THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND
MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW.
 

 
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TENANT AND SUBTENANT AGREE NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING
AGAINST LANDLORD OR ANY DIRECTOR, OFFICER, EMPLOYEE, AGENT OR PROPERTY OF
LANDLORD, CONCERNING ANY MATTER ARISING OUT OF OR RELATING TO THE COMMITMENT,
THIS LEASE OR ANY RELATED DOCUMENT IN ANY COURT OTHER THAN A STATE OR FEDERAL
COURT HAVING JURISDICTION OVER LUCAS COUNTY, OHIO UNLESS SUCH COURT LACKS IN
PERSONAM OR SUBJECT MATTER JURISDICTION IN WHICH CASE TENANT AND SUBTENANT SHALL
HAVE THE RIGHT TO INSTITUTE SUCH ACTION OR PROCEEDING BEFORE ANY COURT HAVING
SUCH JURISDICTION.
 
TENANT AND SUBTENANT HEREBY CONSENT TO SERVICE OF PROCESS BY LANDLORD IN ANY
MANNER AND IN ANY JURISDICTION PERMITTED BY LAW.  NOTHING HEREIN SHALL AFFECT OR
IMPAIR LANDLORD’S RIGHT TO SERVE LEGAL PROCESS IN ANY MANNER PERMITTED BY LAW,
OR LANDLORD’S RIGHT TO BRING ANY ACTION OR PROCEEDING AGAINST TENANT, SUBTENANT
OR THE PROPERTY OF TENANT OR SUBTENANT IN THE COURTS OF ANY OTHER JURISDICTION.
 
25.23           Attorney’s Fees and Expenses.  Tenant shall pay to Landlord all
reasonable costs and expenses incurred by Landlord in administering this Lease
and the security for this Lease, enforcing or preserving Landlord’s rights under
this Lease and the security for this Lease, and in all matters of collection,
whether or not an Event of Default has actually occurred or has been declared
and thereafter cured, including, but not limited to, [a] reasonable attorney’s
and paralegal’s fees and disbursements; [b] the fees and expenses of any
litigation, administrative, bankruptcy, insolvency, receivership and any other
similar proceeding; [c] court costs; [d] the expenses of Landlord, its
employees, agents, attorneys and witnesses in preparing for litigation,
administrative, bankruptcy, insolvency and other proceedings and for lodging,
travel, and attendance at meetings, hearings, depositions, and trials; and
[e] consulting and witness fees and expenses incurred by Landlord in connection
with any litigation or other proceeding; provided, however, Landlord’s internal
bookkeeping and routine lease servicing costs are not payable by Tenant.
 
25.24           Survival.  The following provisions shall survive termination of
the Lease:  Article 8 (Defaults and Remedies); Article 9 (Damage and
Destruction); Article 10 (Condemnation); §15.3.6 (Confidentiality); §15.9
(Transfer of License and Facility Operations); §15.10 (Bed Operating Rights);
§18.2 (Assignment or Sublease); Article 19 (Holdover and Surrender); Article 24
(Security Interest) and §25.24 (Survival).
 
25.25           Time.  Time is of the essence in the performance of this Lease.
 
25.26           Subtenant.  Each Subtenant has joined in the execution of this
Lease to acknowledge that it is subject to and bound by the terms of the Lease
applicable to such Subtenant, including, without limitation, the grant of a
security interest under Article 24.
 
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
 

 
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IN WITNESS WHEREOF, the parties hereto have executed this Lease or caused the
same to be executed by their respective duly authorized officers as of the date
first set forth above.
 
Signed and acknowledged in the presence of:
 
Signature /s/ Rita Rogge
Print Name Rita Rogge
 
Signature /s/ Donna J. Lunsford
Print Name Donna J. Lunsford
HEALTH CARE REIT, INC.
 
By: /s/ Erin C. Ibele
      Erin C. Ibele
Title: Senior Vice President –
     Administration and Corporate Secretary
   
 
 
 
 
Signature /s/ Rita Rogge
Print Name Rita Rogge
 
Signature /s/ Donna J. Lunsford
Print Name Donna J. Lunsford
HCRI DRUM HILL PROPERTIES, LLC
 
By:Health Care REIT, Inc., its Sole Member
 
By: /s/ Erin C. Ibele
      Erin C. Ibele
Title: Senior Vice President –
     Administration and Corporate Secretary
   
 
 
 
 
Signature /s/ Rita Rogge
Print Name Rita Rogge
 
Signature /s/ Donna J. Lunsford
Print Name Donna J. Lunsford
HCRI FAIRMONT PROPERTIES, LLC
 
By:Health Care REIT, Inc., its Sole Member
 
By: /s/ Erin C. Ibele
      Erin C. Ibele
Title: Senior Vice President –
     Administration and Corporate Secretary
   
 
 
 
 
Signature /s/ Rita Rogge
Print Name Rita Rogge
 
Signature /s/ Donna J. Lunsford
Print Name Donna J. Lunsford
HCRI KIRKLAND PROPERTIES, LLC
 
By:Health Care REIT, Inc., its Sole Member
 
By: /s/ Erin C. Ibele
      Erin C. Ibele
Title: Senior Vice President –
     Administration and Corporate Secretary
   

 
S - 1

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Signature /s/ Marrji Padden
Print Name Marrji Padden
 
Signature /s/ Charlie Hyde
Print Name Charlie Hyde
EMERITUS CORPORATION
 
By: /s/ Eric Mendelsohn
      Eric Mendelsohn
Title: SVP Corporate Development
 
Tax I.D. No.:  91-1605454
   
 
 
Signature /s/ Marrji Padden
Print Name Marrji Padden
 
Signature /s/ Charlie Hyde
Print Name Charlie Hyde
EMERITUS PROPERTIES IX, LLC
 
By:       Emeritus Corporation
Its:       Sole Member
 
By: /s/ Eric Mendelsohn
      Eric Mendelsohn
Title: SVP Corporate Development
 
Tax I.D. No.: 91-1934975
   
 
 
Signature /s/ Marrji Padden
Print Name Marrji Padden
 
Signature /s/ Charlie Hyde
Print Name Charlie Hyde
EMERITUS PROPERTIES X, LLC
 
By:       Emeritus Corporation
Its:       Sole Member
 
By: /s/ Eric Mendelsohn
      Eric Mendelsohn
      Title: SVP Corporate Development
 
Tax I.D. No.: 91-1935103
   
 
 
 
Signature /s/ Marrji Padden
Print Name Marrji Padden
 
Signature /s/ Charlie Hyde
Print Name Charlie Hyde
EMERITUS PROPERTIES XII, LLC
 
By:       Emeritus Corporation
Its:       Sole Member
 
By: /s/ Eric Mendelsohn
      Eric Mendelsohn
      Title: SVP Corporate Development
 
Tax I.D. No.: 91-1994665

 
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STATE OF OHIO                                      )
) SS:
COUNTY OF LUCAS                                      )
 
The foregoing instrument was acknowledged before me this 3 day of August, 2009
by Erin C. Ibele, the Senior Vice President of Adminstration and Corporate
Secretary of Health Care REIT, Inc., a Delaware corporation, on behalf of the
corporation.
 
/s/ Rita J. Rogge
Notary Public
 
My Commission
Expires:08-26-2010                                                                [SEAL]
 
STATE OF OHIO                                      )
) SS:
COUNTY OF LUCAS                                      )
 
The foregoing instrument was acknowledged before me this 3 day of August, 2009
by Erin C. Ibele, the Senior Vice President Adminstration and Corporate
Secretary of Health Care REIT, Inc., a Delaware corporation and the sole member
of HCRI Drum Hill Properties, LLC, a limited liability company organized under
the laws of the State of Delaware, on behalf of the limited liability company.
 
/s/ Rita J. Rogge
Notary Public
 
My Commission Expires:
08-26-2010                                                                [SEAL]
 
STATE OF OHIO                                      )
) SS:
COUNTY OF LUCAS                                      )
 
The foregoing instrument was acknowledged before me this 3 day of August, 2009
by Erin C. Ibele, the Senior Vice President Adminstration and Corporate
Secretary of Health Care REIT, Inc., a Delaware corporation and the sole member
of HCRI Fairmont Properties, LLC, a limited liability company organized under
the laws of the State of Delaware, on behalf of the limited liability company.
 
s/ Rita J. Rogge
Notary Public
 
My Commission Expires:
08-26-2010                                                                [SEAL]
 

 
S - 3

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STATE OF OHIO                                      )
) SS:
COUNTY OF LUCAS                                      )
 
The foregoing instrument was acknowledged before me this 3 day of August, 2009
by Erin C. Ibele, the Senior Vice President Adminstration and Corporate
Secretary of Health Care REIT, Inc., a Delaware corporation and the sole member
of HCRI Kirkland Properties, LLC, a limited liability company organized under
the laws of the State of Delaware, on behalf of the limited liability company.
 
s/ Rita J. Rogge
Notary Public
 
My Commission
Expires:                                           08-26-2010                                                                  
[SEAL]
 
STATE OF WASHINGTON                                                )
) SS:
COUNTY OF KING                                                )
 
The foregoing instrument was acknowledged before me this 31st day of July, 2009
by Eric Mendelsohn, the SVP Corporate Development of Emeritus Corporation, a
Washington corporation, on behalf of the corporation.
 
/s/ Melanie Jule Pennington
Notary Public
 
My Commission
Expires:07/09/2011                                                                [SEAL]
 
STATE OF WASHINGTON                                                      )
) SS:
COUNTY OF KING                                           )
 
The foregoing instrument was acknowledged before me this 31st day of July, 2009
by Eric Mendelsohn, the SVP Corporate Development of Emeritus Corporation, a
Washington corporation, the sole member of Emeritus Properties IX, LLC, a
Washington limited liability company, on behalf of the limited liability
company.
 
/s/ Melanie Jule Pennington
Notary Public
 
My Commission Expires:
07/09/2011                                                                [SEAL]
 

 
S - 4

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STATE OF WASHINGTON                                                      )
) SS:
COUNTY OF KING                                           )
 
The foregoing instrument was acknowledged before me this 31st day of July, 2009
by Eric Mendelsohn, the SVP Corporate Development of Emeritus Corporation, a
Washington corporation, the sole member of Emeritus Properties X, LLC, a
Washington limited liability company, on behalf of the limited liability
company.
 
/s/ Melanie Jule Pennington
Notary Public
 
My Commission Expires:
07/09/2011                                                                [SEAL]
 
STATE OF WASHINGTON                                                      )
) SS:
COUNTY OF KING                                           )
The foregoing instrument was acknowledged before me this 31st day of July, 2009
by Eric Mendelsohn, the SVP Corporate Development of Emeritus Corporation, a
Washington corporation, the sole member of Emeritus Properties XII, LLC, a
Washington limited liability company, on behalf of the limited liability
company.
/s/ Melanie Jule Pennington
Notary Public
My Commission Expires:
07/09/2011                                                                [SEAL]

THIS INSTRUMENT PREPARED BY:

Kathleen A. Kress, Esq.
Shumaker, Loop & Kendrick, LLP
1000 Jackson Street
Toledo, Ohio  43604-5573

 
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SCHEDULE 1:  RENT SCHEDULE
 

 
 

 
 

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EXHIBIT A:  LEGAL DESCRIPTIONS
 
CONSISTING OF EXHIBIT A-1 THROUGH EXHIBIT A-3
 

 

 
 

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EXHIBIT A-1:  LEGAL DESCRIPTION
 
Facility:  Chelmsford Facility
 
A tract of land, with all improvements thereon, if any there be, situated in
Chelmsford, Middlesex County, Massachusetts, shown as Lot 2 on a plan entitled
“Plan of Land in Chelmsford, Massachusetts Assessor’s Plat 20 Lots 27 & 28 and
Assessor’s Plan 21 Lot 6,” prepared by: Vanasse Hangen Brustlin, Inc., dated
May 22, 1996 (the “Plan”), which Plan is recorded in Book 191, Plan 90 and more
particularly bounded and described as follows:
 
Beginning at a point in the Northwesterly line of Technology Drive in
Chelmsford, Massachusetts at the Southerly corner of the herein described
parcel:
 
Thence N 39° 41’ 46” W Four Hundred Seventy Seven and 72/100 feet (477.72’)
bounded Northeasterly by land now or formerly of Wang Laboratories, Inc. to a
point;
 
Thence N 55° 52’ 37” E Seventy Four and 69/100 (74.69’) bounded Northwesterly by
land now or formerly of Joseph and Bertha E. Sadowski to a point marked by a
drill hole;
 
Thence N 31° 27’ 43” W Twenty and 02/100 feet (20.02’) bounded Southwesterly by
land now or formerly of Joseph and Bertha E. Sadowski to a point;
 
Thence N 55° 53’ 48” E Three Hundred Fifty Six and 34/100 feet (356.34’) bounded
Northwesterly by land now or formerly of Wang Laboratories, Inc. to a point;
 
Thence S 34° 06’ 12” E Forty and 20/100 (40.20’) bounded Northeasterly by land
now or formerly of Wang Laboratories, Inc. a Forty Food Wide Utility Easement to
a Point;
 
Thence N 89° 02’ 55” E Five Hundred Sixty One and 61/100 feet (561.61’) bounded
Northwesterly by land now or formerly of Wang Laboratories, Inc. and Forty Foot
Wide Utility Easement to a Point;
 
Thence S 13° 00’ 17” E One Hundred Sixty and 40/100 feet (160.04’) bounded
Easterly by land now or formerly of Wang Laboratories, Inc. and a Thirty Foot
Wide Utility Easement to a Point;
 
Thence S 52° 47’ 37” W One Hundred Thirty Six and 01/100 feet (136.01’) bounded
Southeasterly by land now or formerly of Wang Laboratories, Inc. and a Thirty
Foot Wide Utility Easement to a Point;
 
Thence S 03° 37’ 30” W Three Hundred Eleven and 46/100 feet (311.46’) bounded
Easterly by land now or formerly of Wang Laboratories, Inc. and a Thirty Foot
Wide Utility Easement to a Point;
 
Thence N 79° 31’ 00” W One Hundred Fifty and 20/100 feet (150.20’) bounded
Southerly by Technology Drive to a point of curvature marked by a granite bound.
 

 
 

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Thence a curve to the left having a radius of Three Hundred Eighty and
00/100 feet (380.00’) a length of Three Hundred One and 35/100 feet (301.35’)
bounded Southerly by Technology Drive to a point of tangency.
 
Thence S 55° 02’ 47” W Thirty Two and 57/100 feet (32.57’) bounded Southerly by
Technology Drive to the point of beginning.
 
Together with the benefit of those certain covenants, conditions and
restrictions contained in that certain Deed from Wang Laboratories, Inc. to the
University of Lowell dated October 22, 1984 and recorded with Middlesex North
District Registry of Deeds in Book 2875, page 31.
 
Together with the benefit of that certain Utility and Driveway Easement dated
January 8, 1985 and recorded with Middlesex North District Registry of Deeds in
Book 2932, page 216, as affected by Amendment to Utility and Driveway Easement
dated December 30, 1987 and recorded with said Deeds in Book 4392, page 48.
 
Together with the benefit of, and in common with others legally entitled to,
those certain rights and easements more particularly set forth in an instrument
entitled “Driveway Easement” between Drum Hill Chelmsford Limited Liability,
Chelmsford Land LLC and Chelmsford Assisted Living dated June 28, 1996 and
recorded in Book 8101, page 173, as affected by Certificate of Satisfaction
dated June 27, 1996 recorded in Book 8273, page 257, subject, however, to the
condition set forth in Paragraph 8 of said Driveway Easement.
 
Together with Easement Agreement dated August 28, 1997 recorded in Book 8750,
page 139, as affected by Assent to Easement and Subordination by Enterprise Bank
and Trust Company recorded in Book 8750, page 135.
 
Together with Technology Drive Easement as set forth in an instrument entitled
“Grant of Easements” dated August 31, 1984 and recorded with said Deeds in
Book 2846, page 181.
 
Together with Technology Drive Utility Easement as set forth in an instrument
entitled “Grant of Easements” dated June 28, 1984 and recorded with said Deeds
in Book 2800, page 214.
 
Together with Water and Sewer Easements as set forth in an instrument entitled
“Declaration of Easements” dated May 24, 1983 and recorded with said Deeds in
Book 2615, page 426.
 
Together with Reciprocal Easement Agreement by and between TGE of Chelmsford,
LLC, and LM Chelmsford Assisted Living LLC, dated March 31, 1998 and recorded in
Book 9222, page 140.
 

 
2

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EXHIBIT A-2:  LEGAL DESCRIPTION
 
Facility:  Kirkland Facility
 
THAT PORTION OF GOVERNMENT LOTS 3 AND 4, SECTION 8, TOWNSHIP 25 NORTH, RANGE 5
EAST, W.M., DESCRIBED AS FOLLOWS:
 
BEGINNING AT THE SOUTHWEST MEANDER CORNER OF GOVERNMENT LOT 4, SAID SECTION 8;
 
THENCE ALONG THE GOVERNMENT MEANDER LINE, NORTH 8°30’ WEST 990 FEET;
THENCE NORTH 339 FEET TO THE SOUTHWEST MEANDER CORNER OF GOVERNMENT LOT 3;
THENCE EASTERLY ALONG THE SOUTH LINE OF SAID GOVERNMENT LOT 3, SAID LINE BEING
ALSO THE NORTH LINE OF GOVERNMENT LOT 4, TO A POINT WHICH LIES 300 FEET EASTERLY
OF THE EASTERLY MARGIN OF LAKE WASHINGTON BOULEVARD AND THE TRUE POINT OF
BEGINNING;
THENCE NORTH 82.5 FEET;
THENCE EAST TO THE NORTHERLY EXTENSION OF THE WEST LINE OF SECOND STREET (NOW
102ND AVENUE NORTHEAST EXTENSION) AS SHOWN ON THE PLAT OF FRENCH’S HOMESTEAD
VILLA, AS PER PLAT RECORDED IN VOLUME 20 OF PLATS, PAGE 24, RECORDS OF KING
COUNTY, WASHINGTON;
THENCE SOUTHERLY ALONG SAID EXTENSION LINE, 82.5 FEET, MORE OR LESS, TO THE
SOUTHERLY LINE OF GOVERNMENT LOT 3;
THENCE CONTINUING SOUTHERLY ALONG SAID EXTENSION LINE, 121 FEET, MORE OR LESS,
TO A POINT 92 FEET NORTH OF THE NORTH LINE OF SAID FRENCH’S HOMESTEAD VILLA;
THENCE WEST TO A POINT WHICH IS SOUTH OF THE TRUE POINT OF BEGINNING;
THENCE NORTH TO THE TRUE POINT OF BEGINNING;
 
SAID PARCEL ALSO BEING DESCRIBED AS SET FORTH IN SURVEY BY SADLER/BARNARD &
ASSOC. INC., DATED APRIL 22, 1997, DESIGNATED AS JOB NO. 97082, DESCRIBED AS
FOLLOWS:
 
THAT PORTION OF GOVERNMENT LOTS 3 AND 4, SECTION 8, TOWNSHIP 25 NORTH, RANGE 5
EAST, W.M., IN KING COUNTY, WASHINGTON, DESCRIBED AS FOLLOWS:
 
BEGINNING AT A POINT ON THE SOUTH LINE OF SAID GOVERNMENT LOT 3 AND THE NORTH
LINE OF SAID GOVERNMENT LOT 4, WHICH LIES 300.00 FEET EASTERLY OF THE EASTERLY
MARGIN OF LAKE WASHINGTON BOULEVARD;
THENCE NORTH 01°37’22” EAST 82.50 FEET;
THENCE SOUTH 88°22’38” EAST, 241.07 FEET TO THE NORTHERLY EXTENSION OF THE WEST
LINE OF SECOND STREET (NOW 102ND AVENUE NORTHEAST EXTENSION), AS SHOWN ON THE
PLAT OF FRENCH’S HOMESTEAD VILLA, ACCORDING TO THE PLAT THEREOF, RECORDED IN
VOLUME 20 OF PLATS, PAGE 24, IN KING COUNTY, WASHINGTON;

 
 

--------------------------------------------------------------------------------

 

THENCE SOUTH 01°34’36” WEST, ALONG SAID EXTENSION LINE, 203.50 FEET TO A POINT
WHICH IS 92.00 FEET NORTH OF THE NORTH LINE OF SAID FRENCH’S HOMESTEAD VILLA;
THENCE NORTH 88°22’38” WEST, ALONG A LINE WHICH IS PARALLEL TO THE NORTH LINE OF
SAID FRENCH’S HOMESTEAD VILLA, 241.24 FEET;
THENCE NORTH 01°37’22” EAST, 121.00 FEET TO THE POINT OF BEGINNING;
 
TOGETHER WITH AN EASEMENT FOR SANITARY SEWER AND SURFACE WATER DRAIN SYSTEM,
RECORDED UNDER RECORDING NO. 4979611, RECORDS OF KING COUNTY, WASHINGTON;
SITUATE IN THE CITY OF KIRKLAND, COUNTY OF KING, STATE OF WASHINGTON.
 

 
2

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EXHIBIT A-3:  LEGAL DESCRIPTION
 
Facility:  Manassas Facility
 
Parcel 3K-4, comprising 3.000 acres, more or less, more particularly described
by metes and bounds on Plat Showing Subdivision of the Property of Potomac
Conference Corporation, dated June 2, 1988, and recorded in Deed Book 1702 at
page 1423, among the land records of Prince William County, Virginia, and being
more particularly described by metes and bounds as follows:
 
All of that certain tract or Parcel of land situate in the Gainesville
Magisterial District of Prince William County, Virginia, at 8341 Barrett Drive,
Manassas, Virginia and being more particularly described as follows:
 
Beginning at an iron pipe set on the Easterly right of way line of Barrett
Drive, Route 732, a public roadway of variable width, said pipe being a corner
to the Potomac Conference Corporation of Seventh Day Adventists and said pipe
being the Southwest corner of the herein described parcel.  Thence with said
right of way line, North 16 degrees 31 minutes 51 seconds East for 358.73 feet
to an iron pipe found, corner to president, Potomac Church of Jesus Christ of
Latter Day Saints.  Thence departing said right of way line and with president,
Potomac Church of Jesus Christ of Latter Day Saints, South 73 degrees 28 minutes
09 seconds East for 364.28 feet to an iron pipe found, a corner to Manassas
Retirement Residence Limited Partnership. Thence with Manassas Retirement
Residence Limited Partnership, South 16 degrees 31 minutes 51 seconds West for
358.73 feet to an iron pipe found, a corner to the aforementioned Potomac
Conference Corporation of Seventh Day Adventists.  Thence with Potomac
Conference Corporation of Seventh Day Adventists, North 73 degrees 28 minutes
09 seconds West for 364.29 feet to the point of beginning and containing
130.680 S.F., more or less.
 

 
 

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EXHIBIT B:  PERMITTED EXCEPTIONS
 

 
CONSISTING OF EXHIBIT B-1 THROUGH EXHIBIT B-3
 

 

 
 

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EXHIBIT B-1:  PERMITTED EXCEPTIONS
 
Facility:  Chelmsford Facility
 
1.  
Taxes and assessments not yet due and payable.

 
2.  
Plan entitled “ALTA/ACSM Land Title Plan 4 Technology Drive, Chelmsford, MA
Prepared for:  The Nathanson Group, PLLC, dated May 10, 2003, by Howe Surveying
Associates, Inc. (the “Survey”), reveals the following:

 
Existence and location of Rip Rap and utilities that crosses the premises.
 
3.  
Terms and provisions of Technology Drive Easement for Building 9A Land,
Technology Drive Utility Easement for Building 9A Land, Water Line System and
Sewer Line Easement for Building 9A Land and Water Line System for Building 9A
Land as set forth in an instrument entitled “Grant of Easements” dated
August 31, 1984, recorded in Book 2846, page 181 as shown on the Survey.

 
4.  
Terms and provisions of Technology Drive Utility Connection Easement for
Building 8 Land, Sewer Line Easement for Building 8 Land and Water Line System
Easement for Building 8 Land as set forth in an instrument entitled “Grant of
Easements” dated June 28, 1984 recorded in Book 2800, page 214, as shown on the
Survey.

 
5.  
Terms and provisions of Water and Sewer Easements as set forth in an instrument
entitled “Declaration of Easements” dated May 24, 1983 recorded in Book 2615,
page 426, as shown on the Survey and that only affect the appurtenant easement
rights in Technology Drive.

 
6.  
Terms and provisions of a Driveway Easement dated June 27, 1996 recorded in
Book 8101, page 173, as affected by Certificate of Satisfaction dated June 27,
1996 recorded in Book 8273, page 257, as shown on the Survey.

 
7.  
Easement to New England Telephone and Telegraph Company dated June 7, 1997
recorded in Book 8649, page 75, as shown on the Survey and that only affect the
appurtenant easement rights in Technology Drive.

 
8.  
Easement Agreement for the sole purposes of the installation, construction,
inspection, maintenance, repair and operation of a water line as set forth in an
instrument dated August 28, 1997 recorded in Book 8750, page 139, as assented to
Easement and Subordination by Enterprise Bank and Trust Company recorded in
Book 8750, page 135, as shown on the Survey.

 
9.  
Easement Agreement for the sole purposes of the installation, construction,
inspection, maintenance, repair and operation of a sewer line as set forth in an
instrument dated August 28, 1997 recorded in Book 8750, page 147, as assented by
MSCPF Assisted Living, Inc. by Assent dated August 29, 1997 recorded in
Book 8750, page 143, as shown on the Survey.

 

 
 

--------------------------------------------------------------------------------

 

10.  
Grant of Easement for Water Main to North Chelmsford Water District dated
August 27, 1997 recorded in Book 8819, page 276, as shown on the Survey.

 
11.  
Terms and provisions of Reciprocal Easement Agreement dated March 31, 1998
recorded in Book 9222, page 140, as shown on the Survey.

 
12.  
The following items a-d affect the appurtenant Easement Agreement recorded in
Book 8750, page 139:

 
 
a.
Mortgage and Security Agreement to Enterprise Bank and Trust Company dated
April 29, 1997 recorded in Book 8555, page 071.

 
b.
UCC-1 Financing Statement naming Enterprise Bank and Trust Company, Secured
Party recorded in Book 8555, page 085.

 
c.
Mortgage and Security Agreement to Enterprise Bank and Trust Company dated
April 29, 1997 recorded in Book 8555, page 086.

 
d.
UCC-1 Financing Statement naming Enterprise Bank and Trust Company, Secured
Party recorded in Book 8555, page 100.

 
13.  
Certificate of Decision on Special Permit Application dated January 12, 1996
recorded in Book 8096, page 159, as affected by Modification of Certificate of
Decision on Special Permit Application dated February 14, 1996 recorded in
Book 8096, page 211.

 
14.  
Certificate of Decision on Special Permit Application dated January 12, 1996
recorded in Book 8096, page 172, as affected by Modification of Permit
Application dated February 14, 1996 recorded in Book 8096, page 212.

 
15.  
Certificate of Decision on Special Permit Application dated January 12, 1996
recorded in Book 8096, page 198, as affected by Modification of Certificate of
Decision on Special Permit Application dated February 14, 1996 recorded in
Book 8096, page 213.

 
16.  
Certificate of Grant of Variance or Special Permit by the Town of Chelmsford
dated September 20, 1995 recorded in Book 8101, page 157.

 
17.  
Certificate of Granting of Variance or Special Permit by the Board of Appeals of
the Town of Chelmsford dated September 20, 1995 recorded in Book 8101, page 162.

 
18.  
Order of Conditions (DEP File No. 129-0411) dated December 24, 1995 recorded in
Book 8255, page 192.

 
19.  
Order of Conditions (DEP File No. 129-0411) dated December 24, 1995 recorded in
Book 8255, page 198.

 
20.  
Certificate of Decision on Special Permit Application dated March 13, 1997
recorded in Book 8902, page 144.

 
21.  
Certificate of Decision on Special Permit Application dated March 13, 1997
recorded in Book 8902, page 162.

 

 
2

--------------------------------------------------------------------------------

 

22.  
Certificate of Decision on Special Permit Application dated March 13, 1997
recorded in Book 8902, page 180.

 
23.  
Certificate of Decision on Special Permit Application dated March 13, 1997
recorded in Book 8902, page 198.

 
24.  
Terms and conditions of a Memorandum of Lease between Landlord and Tenant.

 

 
3

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EXHIBIT B-2:  PERMITTED EXCEPTIONS
 
Facility:  Kirkland Facility
 
(a)  
Taxes and assessments not yet due and payable.  Tax ID No.: 0825059030

 
(b)  
EASEMENT AND THE TERMS AND CONDITIONS THEREOF:

 
Grantee:                              King County
Purpose:                              Constructing and Maintaining slopes and
embankment
Area Affected:                              A 5 foot strip being a portion of
said premises
Recorded:                              April 27, 1944
Recording No.:                              3383049
 
(c)  
EASEMENT AND THE TERMS AND CONDITIONS THEREOF:

 
Grantee:                              Puget Sound Power and Light Company
Purpose:                              Electric Transmission and/or Distribution
Line System
Area Affected:                              The South 10 feet of the East
120 feet of said premises
Recorded:                              March 4, 1991
Recording No.:                              9103040485
 
(d)  
EASEMENT AND THE TERMS AND CONDITIONS THEREOF, as disclosed by King County
Commissioner’s Records under Volume 42, page 58:

 
Purpose:                              Slopes and embankment
Area Affected:                              Portion adjoining 102nd Avenue
Northeast extension
 
(e)  
EASEMENT AND THE TERMS AND CONDITIONS THEREOF:

 
Grantee:                              Televue Systems, Inc., d/b/a Viacom Cable
Purpose:                              Cable distribution system
Area Affected:                              A portion of said premises
Recorded:                              September 1, 1995
Recording No.:                              9509010092
 
(f)  
LICENSE TO ENTER THE TERMS AND CONDITIONS THEREOF:

 
Grantee:                              City of Kirkland
 
Purpose:
Inspection and maintenance of storm, sanitary sewer and water utilities

Area Affected:                              A portion of said premises
Recorded:                              February 12, 1996
Recording No.:                              9602120584
 

 
 

--------------------------------------------------------------------------------

 

(g)  
EASEMENT AND THE TERMS AND CONDITIONS THEREOF:

 
Grantee:                              City of Kirkland
 
Purpose:
Landscape greenbelt

 
Area Affected:
The North 5 feet, East 15 feet, the South 5 feet, the West 5 feet and the East
10 feet of the West 15 of the South 121 feet of said premises

Recorded:                              April 8, 1996
Recording No.:                              9604080152
 
(h)  
AGREEMENT AND THE TERMS AND CONDITIONS THEREOF:

 
Recorded:                              December 24, 1958
Recording No.:                              4979611
 
Regarding:
Conditions and agreements for beneficial side sewer and drain easement

 
(i)  
AGREEMENT AND THE TERMS AND CONDITIONS THEREOF:

 
Recorded:                              February 6, 1995
Recording No.:                              9502060550
 
Regarding:
Operation of Kirkland Pointe Assisted Living and Congregate Residence

 
(j)  
AGREEMENT AND THE TERMS AND CONDITIONS THEREOF:

 
Recorded:                              April 8, 1996
Recording No.:                              9604080155
 
Regarding:
Construction or installation of public improvements

 
(k)  
ALTA Survey prepared by Hebrank, Steadman & Associates, Inc., P.S. on July 16,
2003 under Job No. 2003-045.00 discloses the following:

 
1)      Encroachments as follows:
 
a)      Building corner is 0.1 feet North of building setback line.
 
b)      South edge of Rock Wall (pond) is 1.8 feet South of property line.
 
c)      South Edge of brick pillar is 0.6 feet South of property line.
 
 
d)
West edge of overhead power line is 2.2 feet plus or minus West of property
line.

 
 
e)
East edge of sign is 2.9 feet East of property line.

 
 
f)
Guy Anchor is 0.3 feet South and 1.9 feet West of property corner and the west
edge of overhead power line is 0.3 feet West of property corner.

 
 
g)
East end of fence is 0.9 feet North and 4.6 feet West of property corner.

 
 
h)
Fence corner is 0.8 feet North of property line.

 

 
2

--------------------------------------------------------------------------------

 

 
i)
Fence corner is 0.4 feet North of property line.

 
 
j)
Fence corner is 0.1 feet North and 0.1 feet West of property corner.

 
 
k)
Wood deck is 4.0 feet in to the rear building setback.

 
 
l)
Fence corner is 0.3 feet West of property line.

 
 
m)
Encroachment of fence along the South line of property.

 
 
n)
Encroachment of deck into landscape easement recorded under King County
Recording No. 9604080152 along the Southwest corner of property.

 
 
2)
Possible unrecorded easement for water lines located in the Westerly, Easterly
and Northeasterly portion of the property.

 
 
3)
Possible unrecorded easement for gas lines located on the property.

 
 
4)
Possible unrecorded easement for underground power and telecommunication lines
located in the Northeast corner of the property.

 
 
5)
Possible unrecorded easement for sewer line located in Easterly portion of the
property.

 
(l)  
EASEMENT AND THE TERMS AND CONDITIONS THEREOF:

 
Grantee:                              Comcast of California, Texas, Washington
 
Purpose:
Cable Television Distribution System

Area affected:                              A portion of said premises
Recorded:                              September 17, 2003
Recording No.:                              20030917000156
 
(m)                       TERMS AND CONDITIONS OF A MEMORANDUM OF LEASE BETWEEN
LANDLORD AND TENANT.
 

 
3

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EXHIBIT B-3:  PERMITTED EXCEPTIONS
 
Facility:  Manassas Facility
 
1.  
Taxes, Storm Water Management fees, Solid Waste User fees and any other
assessments not yet due and payable.

 
2.  
Terms, conditions and all matters as set forth in and as shown on plat attached
to instrument recorded in Deed Book 1702 at page 1423, among the land records of
Prince William County, Virginia.

 
3.  
Easement(s) granted to the American Telephone and Telegraph Company of Virginia,
recorded in Deed Book 71 at page 161, among the aforesaid land records.

 
4.  
Easement(s) granted to Prince William Electric Cooperative, recorded in Deed
Book 546 at page 564 among the aforesaid land records.

 
5.  
Easement(s) granted to the Board of Supervisors of Prince William County,
Virginia, and the Prince William County Service Authority, recorded in Deed
Book 1887 at page 928 among the aforesaid land records.

 
6.  
Easement(s) granted to the Board of County Supervisors of Prince William County,
Virginia, recorded in Deed Book 2282 at page 437, and in Deed Book 2356 at
page 491, among the aforesaid land records.

 
7.  
Easements and all matters as set forth in and as shown on plat attached to Grant
of Easement recorded in Deed Book 2356 at page 502, among the aforesaid land
records.

 
8.  
Terms, provisions, obligations and all matters as set forth in Agreement to
Grant Easement recorded in Deed Book 2515 at page 997, among the aforesaid land
records.

 
9.  
Easement(s) granted to Northern Virginia Electric Cooperative recorded in Deed
Book 2349 at page 1969, among the aforesaid land records.

 
10.  
Easement(s) granted to GTE South Incorporated, recorded in Deed Book 2374 at
page 707, among the aforesaid land records.

 
11.  
Waterline Easements granted to the Prince William County Service Authority,
recorded in Deed Book 2282 at page 454; and in Deed Book 2803 at page 1853,
among the aforesaid land records.

 
12.  
Term, provisions and all matters set forth in Stormwater Management/BMP
Facilities Maintenance Agreements recorded in Deed Book 2282 at page 450; and in
Deed Book 2803 at page 1858, among the aforesaid land records.

 
13.  
Reservation of a 15’ buffer as set forth in instrument recorded in Deed
Book 2282 at page 437, among the aforesaid land records.

 

 
 

--------------------------------------------------------------------------------

 

14.  
Waterline Easement as the same is set forth on plat attached to instrument
recorded in Deed Book 2356 at page 491, among the aforesaid land records.

 
15.  
Twenty foot (20’); thirty-five foot (35’); and twenty-five foot (25’) building
restriction lines as shown on survey by R.S. Thomas, CLS, dated May 14, 2003.

 
16.  
Terms and conditions of a Memorandum of Lease between Landlord and Tenant.

 

 
2

--------------------------------------------------------------------------------

 

EXHIBIT C:  FACILITY INFORMATION
 
Facility Name
Subtenant and/or Licensed Operator
 
Street Address
County
 
Facility Type (per license)
Beds/Units
 
Investment Amount
 
Meadow Lodge at Drum Hill
 
(“Chelmsford Facility”)
 
Emeritus Properties IX, LLC
4 Technology Drive
Chelmsford, MA  01863
County:  Middlesex
Assisted Living Residence
 
The License provides that the Facility is certified to operate a maximum of 80
units.
 
$12,000,000
Kirkland Lodge at Lakeside (formerly known as Kirkland Lodge)
 
(“Kirkland Facility”)
 
Emeritus Properties X, LLC
6505 Lakeview Drive NE
Kirkland, WA  98033
County:  King
Boarding Home
 
There is no reference to the number of units at the Kirkland Facility on the
face of the license.  It does refer to the Kirkland Facility being licensed for
the care of 85 adults. According to the Tenant there are 75 units at the
Kirkland Facility.
 
$6,200,000
Emeritus at Manassas (formerly known as Cobblestones at Fairmont)
 
(“Manassas Facility”)
 
Emeritus Properties XII, LLC
8341 Barrett Drive
Manassas, VA  20109
County:  Prince William
Assisted Living/Residential Living Care and Assisted Living Care
 
There is no reference to the number of units at the Manassas Facility on the
face of the license.  It does refer to the Manassas Facility having a maximum
capacity of 125. According to the Tenant there are 75 units at the Manassas
Facility.
$8,200,000

 
 

--------------------------------------------------------------------------------

 

EXHIBIT D:  LANDLORD’S PERSONAL PROPERTY
 
CONSISTING OF EXHIBIT D-1 THROUGH EXHIBIT D-3
 

 

 
 

--------------------------------------------------------------------------------

 

EXHIBIT D-1:  LANDLORD’S PERSONAL PROPERTY
 
Facility:  Chelmsford Facility
 
1.  
Any and all furniture, fixtures and equipment located at the Facility, but
excluding inventory and Tenant’s Property.

 

 

 
 

--------------------------------------------------------------------------------

 

EXHIBIT D-2:  LANDLORD’S PERSONAL PROPERTY
 
Facility:  Kirkland Facility
 
1.  
Any and all furniture, fixtures and equipment located at the Facility, but
excluding inventory and Tenant’s Property.

 

 

 
 

--------------------------------------------------------------------------------

 

EXHIBIT D-3:  LANDLORD’S PERSONAL PROPERTY
 
Facility:  Manassas Facility
 
1.  
Any and all furniture, fixtures and equipment located at the Facility, but
excluding inventory and Tenant’s Property.

 

 

 

 
 

--------------------------------------------------------------------------------

 

EXHIBIT E:  DOCUMENTS TO BE DELIVERED
 
Tenant shall deliver each of the following documents to Landlord, to the extent
applicable, no later than the date specified for each document:
 
1. Annual Financial Statement of Tenant (audited) and Facility Financial
Statement (unaudited) – within 90 days after the end of each fiscal year.
 
2. Annual Facility Budget and Annual Company Budget not later than 45 days after
the beginning of the next fiscal year.
 
3. Quarterly Variance Report for each Facility, including occupancy, census,
capital expenditures and operating revenues and expenses by line item with a
detailed explanation of the cause of all material variances from the Annual
Facility Budget (i.e., more than 10% for that line item) and a description of
Tenant’s plans for eliminating all material variances – within 45 days after the
end of each quarter.
 
4. Quarterly Update to Annual Company Budget (on a 12-month rolling forward
period) – within 45 days after the end of each quarter.
 
5. Quarterly Healthcare Integrity and Protection Data Bank (HIPDB) Report (dated
not earlier than the end of the quarter) – within 45 days after the end of each
quarter.
 
6. Quarterly Updates to Operator Profile of Tenant, including a review of the
Profile prepared by Landlord and identification of all changes to the Profile to
reflect the current situation – within 45 days after the end of each quarter.
 
7. Periodic Financial Statement of Tenant and Facility Financial Statement
(unaudited) – within 45 days after the end of each quarter.
 
8. Monthly Facility Financial Statement – within 30 days after the end of each
month.
 
9. Tenant’s Certificate and Annual or Quarterly Facility Financial Report
(Exhibit F) – with each delivery of Tenant’s financial statements.
 
10. Annual Facility Financial Report (based upon internal financial records) –
within 60 days after the end of each fiscal year.
 
11. Federal tax return of Tenant – within 15 days after the filing of the
return.  If the filing date is extended, also provide a copy of the extension
application within 15 days after filing.
 
12. If applicable, Medicaid cost reports for each Facility – within 15 days
after filing of the report with the State agency.
 
13. State and federal health care survey and inspection reports, inspector exit
interview notes and report (if delivered to Tenant or Subtenant), plans of
correction, re-survey
 

 
 

--------------------------------------------------------------------------------

 

reports, evidence of annual license renewal – within 30 days after receipt by
Tenant or Subtenant, HIPDB adverse action report, notice of licensure
deficiencies or commencement of licensure revocation or decertification
proceeding, notice of admissions ban, issuance of a provisional or temporary
license and all correspondence regarding any of the foregoing for each
Facility – within five days after receipt by Tenant or Subtenant.
 
14. Real estate taxes
 
(a) Copy of invoice and check – within five days after the due date; and
 
(b) Copy of official receipt or other satisfactory evidence of payment – within
30 days after the due date.
 
15. Certificate of insurance renewal, current Certificate of Compliance from
insurance agent and evidence of payment of premium – at least 30 days prior to
the expiration of each policy.
 
16. Facility information:  [i] a security deposit report, including resident
name, date of move-in, security deposit, and corresponding security deposit bank
account balance, with a monthly update of any changes; [ii] a report accounting
for all resident trust funds, including corresponding trust fund deposit bank
accounts; [iii] a schedule and copies of any equipment leases and financings,
including vendor, equipment descriptions, monthly payment, rate and maturity,
with a monthly update of any changes and the required nondisturbance agreement
if the original cost of the equipment exceeds $50,000.00; [iv] a schedule of all
utility providers and utility deposits; [v] a list of all rent concessions,
including, but not limited to, free rent, rent reduction, community fee waivers,
rate locks, rate guaranties and waivers of security deposits; [vi] a copy of
each private pay resident’s occupancy agreement and each Facility’s form of
agreement; [vii] a schedule of all employee vacation and sick days; and
[viii] employee policies and procedures handbook, including employee benefits –
current and annually updated reports, schedules and copies to be delivered upon
request.
 

 
2

--------------------------------------------------------------------------------

 

EXHIBIT F:  TENANT’S CERTIFICATE
AND FACILITY FINANCIAL REPORTS

Report Period:
Commencing _______________ and ending _______________

Lease:
Lease made by Health Care REIT, Inc. and certain of its affiliates (collectively
called “Landlord”) to Emeritus Corporation (“Tenant”)

Tenant hereby certifies to Landlord to the best of Tenant’s knowledge as
follows:
 
1. The attached [specify audited or unaudited and annual or quarterly, and if
consolidated, so state] financial statements of Tenant [i] have been prepared in
accordance with generally accepted accounting principles consistently applied;
[ii] have been prepared in a manner substantially consistent with prior
financial statements submitted to Landlord; and [iii] fairly present the
financial condition and performance of Tenant in all material respects.
 
2. The attached [Annual or Quarterly] Facility Financial Report and Facility
Accounts Receivable Aging Report for the Report Period is complete, true and
accurate and has been prepared in a manner substantially consistent with prior
schedules submitted to Landlord.  As set forth in the [Annual or Quarterly]
Facility Financial Report, Tenant has maintained the Portfolio Coverage Ratio
for the Report Period as required under the Lease between Tenant and Landlord.
 
3. To the best of my knowledge, Tenant was in compliance with all of the
provisions of the Lease and all other documents executed by Tenant in connection
with the Lease at all times during the Report Period, and no default, or any
event which with the passage of time or the giving of notice or both would
constitute a default, has occurred under the Lease.
 
Executed this ___ day of _______________, _____.

Name:                                                                

Title:                                                                

 
 

--------------------------------------------------------------------------------

 

ANNUAL FACILITY FINANCIAL REPORT

Facility Name:                                
Facility Address:                                

Report Period:
Twelve (12) months beginning _______________ and ending _______________.  All
information reported should be for this period only.

Occupancy Data
 
Census Data
% Resident
Days
% Revenues
Total Beds/Units:
_______
Medicaid:
_______%
_______%
Total Available Days:
_______
Medicare:
_______%
_______%
Total Occupied Days:
_______
Private & Other:
_______%
_______%
Occupancy Percentage:
_______%
Total:
_______%
_______%
         

OPERATING DATA

1.           Gross
Revenues                                                                                            $                                

2.           Contractual
Allowances                                                                             
$                                

3.           Net
Revenues                                                                                                $                                

4.  
Operating Expenses(before interest, lease/rent, depreciation,

amortization and management fees)
$
 

5.           Net Operating
Income                                                                                 $                                

6.           Interest
Expense                                                                                           $                                

7.           Lease/Rent
Expense                                                                                     $                                

8.           Depreciation
Expense                                                                                   $                                

9.           Amortization
Expense                                                                                   $                                

10.           Management
Fees                                                                                       $                                

11.           Management Fees (as a percent of Gross
Revenues)                           %

12.           Overhead Allocation (if
applicable)                                                          $                                

13.           Other
(identify)                                                                                             $                                

14.           Income
Taxes                                                                                                $                                

15.           Net Income (amount should agree with the facility’s financial
statements) $ 

 
 

--------------------------------------------------------------------------------

 

FINANCING DATA
(Note:  This data breaks out Items 6 and 7 above.)

 
Related to HCRI
All Other Leases and/or Debt
Total
Lease Payments
_________
_________
________
Interest Payments
_________
_________
________
Principal Payments (if any)
_________
_________
________
 
$                
$              
$                

 
COVERAGE RATIO

1.           Net Operating Income $______________
 
2.           Less Imputed Management Fee
  ( _____% of gross revenues) (______________)
 
3.           Less Imputed Replacement Reserve for period
  ($_________ per bed [or unit] per year) (______________)
 
4.           Adjusted Net Operating Income $______________
 
5.           Loan/Lease Payments to HCRI $______________
 
6.           Actual Coverage Ratio (Line 4 ¸ Line 5) ______________
 
7.           Minimum Coverage Ratio (per Lease Agreement) ______________
 

CURRENT RATIO
[*DELETE IF NOT APPLICABLE]

1.           Current Assets $______________
 
2.           Current Liabilities $______________
 
3.           Actual Current Ratio (Line 1 ¸ Line 2) ______________
 
4.           Minimum Current Ratio (per Lease Agreement) ______________
 

Tenant/Subtenant hereby certifies that the foregoing is true and accurate.

Date:                                                                

Name:                                                                Phone
Number:                                                                
Title:                                                        

 
 

--------------------------------------------------------------------------------

 

QUARTERLY FACILITY FINANCIAL REPORT

Facility Name:                                
Facility Address:                                

Report Period:
Three (3) months beginning _______________ and ending _______________.  All
information reported should be for this period only.

Occupancy Data
 
Census Data
% Resident
Days
% Revenues
Total Beds/Units:
_______
Medicaid:
_______%
_______%
Total Available Days:
_______
Medicare:
_______%
_______%
Total Occupied Days:
_______
Private & Other:
_______%
_______%
Occupancy Percentage:
_______%
Total:
_______%
_______%
 
 
     

OPERATING DATA

1.           Gross
Revenues                                                                                             $                                

2.           Contractual
Allowances                                                                               $                                

3.           Net
Revenues                                                                                                $                                

4.  
Operating Expenses (before interest, lease/rent, depreciation,

 amortization and management fees)
$
 

5.           Net Operating
Income                                                                                  $                                

6.           Interest
Expense                                                                                            $                                

7.           Lease/Rent
Expense                                                                                      $                                

8.           Depreciation
Expense                                                                                   $                                

9.           Amortization
Expense                                                                                   $                                

10.           Management
Fees                                                                                       $                                

11.           Management Fees (as a percent of Gross
Revenues)                            %

12.           Overhead Allocation (if
applicable)                                                          $                                

13.           Other
(identify)                                                                                             $                                

14.           Income
Taxes                                                                                                $                                
15.           Net Income (amount should agree with the facility’s financial
statements) $ 

 
 

--------------------------------------------------------------------------------

 

FINANCING DATA
(Note:  This data breaks out Items 6 and 7 above.)

 
Related to HCRI
All Other Leases and/or Debt
Total
Lease Payments
_________
_________
________
Interest Payments
_________
_________
________
Principal Payments (if any)
_________
_________
________
 
$                
$                
$               

 
COVERAGE RATIO

1.           Net Operating Income $______________
 
2.           Less Imputed Management Fee
  ( _____% of gross revenues) (______________)
 
3.           Less Imputed Replacement Reserve for period
  ($_________ per bed [or unit] per year) (______________)
 
4.           Adjusted Net Operating Income $______________
 
5.           Loan/Lease Payments to HCRI $______________
 
6.           Actual Coverage Ratio (Line 4 ¸ Line 5) ______________
 
7.           Minimum Coverage Ratio (per Lease Agreement) ______________
 

CURRENT RATIO
[*DELETE IF NOT APPLICABLE]

1.           Current Assets $______________
 
2.           Current Liabilities $______________
 
3.           Actual Current Ratio (Line 1 ¸ Line 2) ______________
 
4.           Minimum Current Ratio (per Lease Agreement) ______________
 

Tenant/Subtenant hereby certifies that the foregoing is true and accurate.

Date:                                                                

Name:                                                                Phone
Number:                                                                
Title:                                                        

 
 

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QUARTERLY FACILITY ACCOUNTS RECEIVABLE AGING REPORT
 
Facility Name:                           
 
Facility Address:                                
 

Accounts Receivable Aging as of ____________ (most recent quarter ended)

PAYOR
0-30 DAYS %
31-60 DAYS %
61-90 DAYS %
OVER 90 DAYS %
TOTALS %
Medicaid
$______________%
$______________%
$______________%
$______________%
$______________%
Medicare
$______________%
$______________%
$______________%
$______________%
$______________%
Commercial Insurance
$______________%
$______________%
$______________%
$______________%
$______________%
Other -_____________
$______________%
$______________%
$______________%
$______________%
$______________%
TOTALS
$__________100%
$__________100%
$__________100%
$__________100%
$__________100%
           
% OF TOTALS $
___________%
___________%
___________%
___________%
100%

Accounts Receivable Aging as of ____________ (2nd recent quarter ended)

PAYOR
0-30 DAYS %
31-60 DAYS %
61-90 DAYS %
OVER 90 DAYS %
TOTALS %
Medicaid
$______________%
$______________%
$______________%
$______________%
$______________%
Medicare
$______________%
$______________%
$______________%
$______________%
$______________%
Commercial Insurance
$______________%
$______________%
$______________%
$______________%
$______________%
Other -_____________
$______________%
$______________%
$______________%
$______________%
$______________%
TOTALS
$__________100%
$__________100%
$__________100%
$__________100%
$__________100%
           
% OF TOTALS $
___________%
___________%
___________%
___________%
100%

 
 

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EXHIBIT G:  GOVERNMENT AUTHORIZATIONS
TO BE OBTAINED; ZONING PERMITS
 
[*TENANT TO SUPPLY*]
 

 

 
 

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EXHIBIT H:  PENDING LITIGATION
 
[*TENANT TO CONFIRM*]
 
NONE
 

 

 
 

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EXHIBIT I:  LIST OF LEASES AND CONTRACTS
 
None
 

 

 
 

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EXHIBIT J:  WIRE TRANSFER INSTRUCTIONS
 
HEALTH CARE REIT, INC.
 
WIRE TRANSFER INSTRUCTIONS
 
 

 

 
 

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