Exhibit 10.144

 

THIRD AMENDED AND RESTATED MULTIPLE FACILITIES LEASE

 

GEORGIA LESSOR — BONTERRA/PARKVIEW, INC.

 

AND

 

ADK BONTERRA/PARKVIEW, LLC

 

DATED: OCTOBER 29, 2010

 

Facilities:

 

(Parkview Manor Nursing Home (Atlanta, Georgia))
(Bonterra Nursing Center (East Point, Georgia))

 

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THIRD AMENDED AND RESTATED MULTIPLE FACILITIES LEASE

(Parkview Manor Nursing Home (Atlanta, Georgia))
(Bonterra Nursing Center (East Point, Georgia))

 

THIS THIRD AMENDED AND RESTATED MULTIPLE FACILITIES LEASE (“Lease”) is executed
and delivered as of this 29th day of October, 2010, and is entered into by
GEORGIA LESSOR — BONTERRA/PARKVIEW, INC., a Maryland corporation (“Lessor”), and
ADK BONTERRA/PARKVIEW, LLC, a Georgia limited liability company (“Lessee”).

 

RECITALS

 

The circumstances underlying the execution and delivery of this Lease are as
follows:

 

A.                                   Capitalized terms used and not otherwise
defined herein have the respective meanings given them in Article II below.

 

B.                                     Lessor and TRIAD HEALTH MANAGEMENT OF
GEORGIA II, LLC, a Georgia limited liability company (“Prior Lessee”), are
parties to that certain Second Amended and Restated Multiple Facilities Lease
dated as of May 10, 2010 (the “Existing Lease”), pursuant to which Lessee leases
from Lessor the Leased Properties.

 

C.                                     Prior Lessee has assigned its interest in
the Existing Lease to Lessee pursuant to the Assumption Agreement.

 

D.                                    Pursuant to the Assumption Agreement,
Lessor and Lessee have agreed to amend and restate the Existing Lease effective
as of November 1, 2010 (the “Effective Date”) on the terms and conditions of
this Lease.

 

NOW, THEREFORE, in consideration of the sum of Ten Dollars ($10.00) in hand paid
by each party to the other, the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee agree to amend and restate the Existing Lease in
its entirety effective as of the Effective Date as follows:

 

ARTICLE I

 

1.1                                 Lease.  Upon and subject to the terms and
conditions set forth in this Lease, Lessor leases to Lessee, and Lessee leases
from Lessor, the Leased Properties. The Leased Properties is leased subject to
Permitted Encumbrances.

 

1.1.1                        Subleases.  As of the Effective Date, the Leased
Properties are not subleased.   In the event all or any portion of the Leased
Properties are subleased pursuant to Subleases, (i) Lessee will have as of such
date assigned the Subleases to Lessor, (ii) Lessee shall not amend or modify the
terms of any Sublease without the prior written consent of Lessor, which Lessor
may in its sole discretion grant, withhold or condition, and (iii) Lessee agrees
that a default by a Sublessee under an Sublease shall be deemed a default by
Lessee under this Lease which, if not cured within any applicable cure or grace
period shall constitute an Event of Default and entitle Lessor to exercise any
and all remedies provided by this Lease or by law.  Each Sublessee under an
Sublease

 

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will agree in the Sublease that it assumes and agrees to be bound by and perform
each and every obligation of the Lessee under this Lease; provided, however,
that obligations of a Sublessee related to the operation, maintenance and repair
of a Facility are assumed only with respect to the Facility being operated by
such Sublease.  Any Notice given by Lessor to Lessee shall be deemed a Notice
given to each Sublessee of a Leased Property.

 

1.1.2                        Single, Indivisible Lease.  This Lease constitutes
one indivisible lease of the Leased Properties and not separate leases governed
by similar terms. The Leased Properties constitute one economic unit, and the
Base Rent and all other provisions have been negotiated and agreed to based on a
demise of all of the Leased Properties to Lessee as a single, composite,
inseparable transaction and would have been substantially different had separate
leases or a divisible lease been intended. Except as expressly provided in this
Lease for specific, isolated purposes (and then only to the extent expressly
otherwise stated), all provisions of this Lease apply equally and uniformly to
all of the Leased Properties as one unit. An Event of Default with respect to
any Leased Property is an Event of Default as to all of the Leased Properties.
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 an indivisible lease of all of the Leased Properties and, in particular
but without limitation, that, for purposes of any assumption, rejection or
assignment of this Lease under 11 U.S.C. 365, this is one indivisible and
non-severable lease and executory contract dealing with one legal and economic
unit and that this Lease must be assumed, rejected or assigned as a whole with
respect to all (and only as to all) of the Leased Properties.

 

1.2                                 Term.  The initial term of this Lease
(“Initial Term”) shall be from March 1, 2003 thru April 30, 2010, subject to
extension or termination as set forth in Sections 1.3 and 1.4 below.

 

1.3                                 Option to Renew.  Lessee is hereby granted
three (3) successive options to renew this Lease (each a “Renewal Term”).  The
first option to renew has been exercised and is for the period of May 1, 2010
thru April 30, 2022.  Two additional options to renew shall be for a period of
ten (10) Lease Years each, for a maximum Term if such options are exercised of
approximately thirty-nine (39) Lease Years.  Lessee’s exercise of the second and
third options to renew this Lease are subject to the following terms and
conditions (which conditions may be waived by Lessor in its sole discretion):

 

(a)                                  An option to renew is exercisable only by
Notice to Lessor at least one hundred and eighty (180) days, and not more than
three hundred sixty (360) days, prior to the expiration of the Initial Term (or
prior to the expiration of the preceding Renewal Term, as the case may be);

 

(b)                                 No Event of Default or Unmatured Event of
Default shall have occurred and be continuing either at the time a renewal
option is exercised or at the commencement of a Renewal Term;

 

(c)                                  During a Renewal Term, all of the terms and
conditions of this Lease shall remain in full force and effect; and

 

(d)                                 Lessee may exercise its options to renew
with respect to all (and no fewer than all) of the Leased Properties.

 

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1.4                                 Limitation of Liability.  Lessee is the
“Assignee” as set forth in the Assumption Agreement.  Notwithstanding anything
in this Lease to the contrary, certain obligations of Lessee under this Lease
arising prior to the Effective Date are limited as set forth in the Assumption
Agreement.

 

ARTICLE II

 

2.1                                 Definitions. For all purposes of this Lease,
except as otherwise expressly provided or unless the context otherwise requires,
(a) the terms defined in this Article have the meanings assigned to them in this
Article and include the plural as well as the singular; (b) all accounting terms
not otherwise defined herein have the meanings assigned to them in accordance
with GAAP as at the time applicable; (c) all references in this Lease to
designated “Articles,” “Sections” and other subdivisions are to the designated
Articles, Sections and other subdivisions of this Lease; and (d) the words
“herein,” “hereof” and “hereunder” and other words of similar import refer to
this Lease as a whole and not to any particular Article, Section or other
subdivision.

 

AdCare: AdCare Health Systems Inc., an Ohio corporation.

 

Additional Charges:  All Impositions and other amounts, liabilities and
obligations that Lessee assumes or agrees to pay under this Lease.

 

Affiliate:  Any Person who, directly or indirectly, Controls or is Controlled by
or is under common Control with another Person.

 

Approval Threshold: One Hundred Thousand Dollars ($100,000).

 

Assessment:  Any governmental assessment on the Leased Properties or any part of
any of them for public or private improvements or benefits, whether or not
commenced or completed prior to the date hereof and whether or not to be
completed within the Term.

 

Assumed Indebtedness:  Any indebtedness or other obligations expressly assumed
in writing by Lessor and secured by a mortgage, deed of trust or other security
agreement to which Lessor’s title to the Leased Properties is subject.

 

Assumption Agreement: The Assignment and Assumption of Second Amended and
Restated Multiple Facilities Lease and Consent of Lessor dated as of the date of
this Lease by and among Lessor, Prior Lessee, Lessee and Guarantor.

 

Award:  All compensation, sums or anything of value awarded, paid or received in
connection with a Taking or Partial Taking.

 

Base Rent:  During the Term, the Base Rent shall be:

 

(1)                                  During the period of May 1, 2010 thru
April 30, 2011, One Million Five Hundred Thousand and 00/100 Dollars
($1,500,000);

 

(2)                                  For the Lease Year commencing on May 1,
2011, and for each succeeding Lease Year in the Term, the Base Rent for the
previous Lease Year, multiplied by (i) one hundred percent (100%) plus
(ii) three percent (3%).

 

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Business Day:  Each Monday, Tuesday, Wednesday, Thursday and Friday that is not
a day on which national banks in the City of New York, New York are authorized
or obligated, by law or executive order, to close.

 

Cash Flow:  For any period, the sum of (a) Net Income of Lessee arising solely
from the operation of the Facilities for the applicable period, and (b) the
amounts deducted in computing Lessee’s Net Income for the period for
(i) depreciation, (ii) amortization, (iii) Base Rent, (iv) interest (including
payments in the nature of interest under any leases that in accordance with GAAP
are required to be capitalized for financial reporting purposes and interest on
any Purchase Money Financing), (v) income taxes (or, if greater, income tax
actually paid during the period) and (vi) management fees.

 

Cash Flow to Rent Ratio: For any fiscal period, the ratio of Cash Flow to Base
Rent.

 

Citation: Any operational or physical plant deficiency set forth in writing with
respect to the Facilities by any governmental body or agency, or Medicare
intermediary, having regulatory oversight over the Facilities, Lessee, or any
Sublessee or Manager, with respect to which the scope and severity of the
potential penalty for such deficiency is one or more of the following: loss of
licensure, decertification of the Facilities from participation in the Medicare
and/or Medicaid programs, appointment of a temporary manager or denial of
payment for new admissions

 

Clean-Up:  The investigation, removal, restoration, remediation and/or
elimination of, or other response to, Contamination, in each case to the
satisfaction of all governmental agencies having jurisdiction, in compliance
with or as may be required by Environmental Laws.

 

Code:  The Internal Revenue Code of 1986, as amended.

 

Commencement Date:  March 1, 2003.

 

Condemnor:  Any public or quasi-public authority, or private corporation or
individual, having the power of condemnation.

 

Construction Funds:  The Net Proceeds and such additional funds as may be
deposited with Lessor by Lessee pursuant to Section 14.6 for restoration or
repair work pursuant to this Lease.

 

Contamination:  The presence, Release or threatened Release of any Hazardous
Substance at the Leased Properties in violation of any Environmental Law, or in
a quantity that would give rise to any affirmative Clean-Up obligations under an
Environmental Law, including, but not limited to, the existence of any injury or
potential injury to public health, safety, natural resources or the environment
associated therewith, or any other environmental condition at, in, about, under
or migrating from or to the Leased Properties.

 

Control (and its corollaries “Controlled by” and “under common Control with”): 
Possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, through the ownership or
control (such as a proxy or voting agreement) of voting securities, partnership
interests or other equity interests.

 

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CPI:  The United States Department of Labor, Bureau of Labor Statistics Revised
Consumer Price Index for All Urban Consumers (1982-84=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.

 

Date of Taking:  The date on which the Condemnor has the right to possession of
the Leased Properties that is the subject of the Taking or Partial Taking.

 

Distribution: Any payment, transfer or distribution of cash or any assets of any
Person to one or more equity holders of such Person or to any Affiliate of such
Person, or return any capital, redemption any of security, or making or
assumption of any loans, advances or extension of credit or capital contribution
to, or any other investment in, any Affiliate of such Person, including, but not
limited to, a fee for management, a payment for services rendered, a
reimbursement for expenditures or overhead incurred on behalf of such Person or
a payment on any debt.

 

Encumbrance:  Any mortgage, deed of trust, lien, encumbrance or other matter
affecting title to the Leased Properties, or any portion thereof or interest
therein, securing any borrowing or other means of financing or refinancing.

 

Environmental Audit: A written certificate that (a) is in form and substance
satisfactory to Lessor, (b) is from an environmental consulting or engineering
firm acceptable to Lessor and (c) states that there is no Contamination on the
Leased Properties and that the Leased Properties is otherwise in strict
compliance with Environmental Laws.

 

Environmental Documents:  Each and every (a) material document received by
Lessee or any Affiliate from, or submitted by Lessee or any Affiliate to, the
United States Environmental Protection Agency and/or any other federal, state,
county or municipal agency responsible for enforcing or implementing
Environmental Laws with respect to the condition of the Leased Properties, or
Lessee’s operations at the Leased Properties; and (b) review, audit, report, or
other analysis data pertaining to environmental conditions, including, but not
limited to, the presence or absence of Contamination, at, in, under or with
respect to the Leased Properties that have been prepared by, for or on behalf of
Lessee.

 

Environmental Laws: All federal, state and local laws (including, without
limitation, common law), statutes, codes, ordinances, regulations, rules,
orders, permits or decrees now or at any time in effect and relating to (a) the
introduction, emission, discharge or release of Hazardous Substances into the
indoor or outdoor environment (including without limitation, air, surface water,
groundwater, land or soil), (b) the manufacture, processing, distribution, use,
treatment, storage, transportation or disposal of Hazardous Substances or
(c) the Clean-Up of Contamination.

 

Event of Default:  The occurrence of any of the following:

 

(a)                                  Lessee fails to pay or cause to be paid the
Rent when due and payable;

 

(b)                                 Lessee, any Sublessee or any Guarantor, on a
petition in bankruptcy filed against it, is adjudicated as bankrupt or has an
order for relief thereunder entered against it, or a court of competent
jurisdiction enters an order or decree appointing a receiver of Lessee, any

 

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Sublessee or any Guarantor or of the whole or substantially all of its property,
or approving a petition filed against Lessee, any Sublessee or any Guarantor
seeking reorganization or arrangement of Lessee, any Sublessee or any Guarantor
under the federal bankruptcy laws or any other applicable law or statute of the
United States of America or any state thereof, and such judgment, order or
decree is not vacated or set aside or stayed within sixty (60) days from the
date of the entry thereof, subject to the applicable provisions of the
Bankruptcy Code (11 USC § 101 et. seq.) and to the provisions of Section 16.6
below;

 

(c)                                  Lessee, any Sublessee or any Guarantor: 
(i) admits in writing its inability to pay its debts generally as they become
due; (ii) files a petition in bankruptcy or a petition to take advantage of any
insolvency law; (iii) makes a general assignment for the benefit of its
creditors; (iv) consents to the appointment of a receiver of itself or of the
whole or any substantial part of its property; or (v) files a petition or answer
seeking reorganization or arrangement under the Federal bankruptcy laws or any
other applicable law or statute of the United States of America or any state
thereof, subject to the applicable provisions of the Bankruptcy Code (11 USC §
101 et. seq.) and to the provisions of Section 16.6 below;

 

(d)                                 Lessee, any Sublessee or any Guarantor is
liquidated or dissolved, or begins proceedings toward liquidation or
dissolution, or has filed against it a petition or other proceeding to cause it
to be liquidated or dissolved and the proceeding is not dismissed within thirty
(30) days thereafter, or Lessee, any Sublessee or any Guarantor in any manner
permits the sale or divestiture of all or substantially all of its assets;

 

(e)                                  The estate or interest of Lessee or any
Sublessee in the Leased Properties or any part thereof is levied upon or
attached in any proceeding and the same is not vacated or discharged within
sixty (60) days thereafter (unless Lessee is in the process of contesting such
lien or attachment in good faith in accordance with Article XII hereof);

 

(f)                                    Lessee ceases operation of any Facility
except upon prior Notice to, and with the express prior written consent of,
Lessor (which consent Lessor may withhold in its absolute discretion), or as the
unavoidable consequence of damage or destruction as a result of a casualty, or a
Partial or total Taking;

 

(g)                                 Any representation or warranty made by
Lessee in the Lease, any Sublessee or any Guarantor, in any Transaction Document
or in any certificates delivered in connection with this Lease or the
Transaction Documents proves to be untrue when made in any material respect,
Lessor is materially and adversely affected thereby and Lessee, any Sublessee or
any Guarantor or any Affiliate, as the case may be, fails within thirty (30)
days after Notice from Lessor or Omega, as the case may be, to cure such
condition by terminating such adverse effect and making Lessor or Omega, as the
case may be, whole for any damage suffered therefrom, or, if with due diligence
such cure cannot be effected within thirty (30) days, if Lessee, any Sublessee
or any Guarantor has failed to commence to cure the same within the thirty (30)
days or failed thereafter to proceed promptly and with due diligence to cure
such condition and complete such cure prior to the time that such condition
causes a default in any Facility Mortgage and prior to the time that the same
results in civil or criminal penalties to Lessor, Lessee, any Sublessee, a
Guarantor, any Affiliates of any of them or the Leased Properties;

 

(h)                                 Lessee (or, if applicable, any Sublessee or
Manager):

 

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(i)                                     has any license, permit, approval,
certificate of need, certificate of reimbursement or other authorization
necessary to operate any Facility as a provider of health care services in
accordance with its Primary Intended Use suspended or revoked, or its right to
so operate a Facility or to accept patients suspended, and Lessee fails to
remedy any condition causing such revocation or suspension within any cure
period allowed therefor by the applicable agency or authority or, if no such
cure period is allowed or specified by the applicable agency or authority,
Lessee fails to remedy the condition promptly and diligently following Lessee’s
receipt of notice of such condition and, in any event, prior to the final,
nonappealable revocation or suspension of any such license, permit, approval,
certificate of need, certificate of reimbursement , other authorization or right
to operate the Facilities in question or to accept patients at the Facilities in
question; or

 

(ii)                                  receives a Citation with respect to a
Facility and fails to cure the condition that is the subject of the Citation
within the period of time required for such cure by the issuer of the Citation
or, but in any event prior to the final, nonappealable revocation or suspension
of any license, permit, approval, certificate of need, certificate of
reimbursement or other authorization necessary to operate a Facility as a
provider of health care services in accordance with its Primary Intended Use or
to receive Medicare or Medicaid payments with respect to residents of any
Facility, or prior to the appointment of a temporary manager, as the case may
be; or

 

(iii)                               fails to give Lessor Notice that any event
set forth in clauses (i) and (ii) above has occurred, as required pursuant to
Section 23.1(h) below.

 

(i)                                     A Transfer occurs without the prior
written consent of Lessor;

 

(j)                                     A default occurs under any Transaction
Document and such default is not cured prior to the expiration of any applicable
grace or cure period provided therein;

 

(k)                                  A default occurs under any other contract
affecting any Facility, Lessee, or any Sublessee, and such default has, or could
reasonably expected to have, a Material Adverse Effect;

 

(l)                                     Lessee breaches any of the financial
covenants set forth in Article VIII hereof, the breach is capable of cure and
the breach is not cured within a period of thirty (30) days after the Notice
thereof from Lessor;

 

(m)                               Lessee fails to observe or perform any other
term, covenant or condition of this Lease or any of the other Transaction
Documents and the failure is not cured by Lessee within a period of thirty (30)
days after Notice thereof from Lessor, unless the failure cannot with due
diligence be cured within a period of thirty (30) days, in which case such
failure shall not be deemed an Event of Default if and for so long as Lessee
proceeds promptly and with due diligence

 

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to cure the failure and completes the cure prior to the time that the same
causes a Material Adverse Effect, a default in any Facility Mortgage, or in
civil or criminal penalties to Lessor, Lessee, or to the Leased Properties; or

 

(n)                                 A default under the Line of Credit
Documents.

 

Expiration Date: means April 30, 2022, or April 30, 2032, if the second renewal
option has been exercised, or April 30, 2042 if the second and third renewal
options have been exercised.

 

Facilit(y)(ies): Each health care facility on the Land, including the Leased
Property associated with such Facility, and together, all such facilities on the
Leased Properties.

 

Facility Mortgage: Any mortgage, deed of trust or other security agreement that
with the express, prior, written consent of Lessor is a lien upon any or all of
the Leased Properties, whether such lien secures an Assumed Indebtedness or
another obligation or obligations.

 

Facility Mortgagee: The secured party to a Facility Mortgage, its successors and
assigns, any servicer acting on behalf of a Facility Mortgagee with respect to a
Facility Mortgage and, if any Facility Mortgage is deposited with a trust, then
the trustee acting on behalf of the certificate holders of such trust.

 

Financial Statement:

 

(A)                                    For each quarter during Lessee’s fiscal
year, on a consolidated basis for Lessee, (i) a statement of earnings for the
current period and fiscal year to the end of such period, with a comparison to
the corresponding figures for the corresponding period in the preceding fiscal
year from the beginning of the fiscal year to the end of such period, and (ii) a
balance sheet as of the end of the period, with a comparison to the
corresponding figures for the corresponding period in the preceding fiscal year
from the beginning of the fiscal year to the end of such period.

 

(B)                                      For Lessee’s fiscal year, a financial
report for Lessee on a consolidated basis, prepared by a “big four” accounting
firm or any other firm of independent certified public accountants reasonably
acceptable to Lessor, containing Lessee’s balance sheet as of the end of that
year, its related profit and loss, a statement of shareholder’s equity for that
year, a statement of cash flows for that year, any management letter prepared by
the certified public accountants, such comments and financial details as
customarily are included in reports of like character and the unqualified
opinion of the certified public accountants as to the fairness of the statements
therein.  If any such financial report has been prepared, reviewed or audited by
a firm of independent certified public accountants, then such financial
statement shall be provided.  Lessor may, at its own expense, cause any
financial statement to be audited.

 

(C)                                      For AdCare’s fiscal year, a financial
report for AdCare on a consolidated basis, prepared by a “big four” accounting
firm or any other firm of independent certified public accountants reasonably
acceptable to Lessor, containing AdCare’s balance sheet as of the end of that
year, its related profit and loss, a statement of shareholder’s equity for that
year, a statement of cash flows for that year, any management letter prepared by
the certified

 

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public accountants, such comments and financial details as customarily are
included in reports of like character and the unqualified opinion of the
certified public accountants as to the fairness of the statements therein.  If
any such financial report has been prepared, reviewed or audited by a firm of
independent certified public accountants, then such financial statement shall be
provided.  Lessor may, at its own expense, cause any financial statement to be
audited.  So long as AdCare remains a reporting company under the Securities and
Exchange Act of 1934, AdCare may satisfy this requirement by delivering to
Lessor the audited financial statements contained in its Annual Report on
Form 10-K.

 

Fixtures: Collectively, all permanently affixed equipment, machinery, fixtures,
and other items of real and/or personal property (excluding Lessor’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
Leased 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 (other than individual
units), 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 hereby deemed by the parties hereto to constitute real
estate, together with all replacements, modifications, alterations and additions
thereto.

 

Force Majeure: An event or condition beyond the control of a Person, including
without limitation a flood, earthquake, or other Act of God; a fire or other
casualty resulting in a complete or partial destruction of the Facility in
question; a war, revolution, riot, civil insurrection or commotion, terrorism,
or vandalism; unusual governmental action, delay, restriction or regulation not
reasonably to be expected; a contractor or supplier delay or failure in
performance (not arising from a failure to pay any undisputed amount due), or a
delay in the delivery of essential equipment or materials; bankruptcy or other
insolvency of a contractor, subcontractor or construction manager (not an
Affiliate of the party claiming Force Majeure); a strike, slowdown or other
similar labor action; or any other similar event or condition beyond the
reasonable control of the party claiming that Force Majeure is delaying or
preventing such party from timely and fully performing its obligations under
this Lease; provided that in any such event, the party claiming the existence of
Force Majeure shall have given the other party Notice of such claim within
fifteen (15) days after becoming aware thereof, and if the party claiming Force
Majeure shall fail to give such Notice, then the event or condition shall not be
considered Force Majeure for any period preceding the date such Notice shall be
given.  No lack of funds shall be construed as Force Majeure.

 

GAAP:  Generally accepted accounting principles in effect at the time in
question.

 

Guarantor: means each Person who has guaranteed or otherwise become liable for
the obligations of Lessee under this Lease.

 

Guaranties: means (i) the Guaranty dated as of the date of this Lease from
AdCare, (ii) the Guaranty dated as of the date of this Lease from HEARTH & HOME
OF OHIO, INC., an Ohio corporation, and (iii) any other guaranty of this Lease
delivered in the future.

 

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Hazardous Substance:  Dangerous, toxic or hazardous material, substance,
pollutant, contaminant, chemical, waste (including medical waste), including
petroleum products, asbestos and PCBs defined, listed or described as such under
any Environmental Law.

 

Initial Term: As defined in Section 1.2.

 

Impositions:  Collectively, all taxes (including, without limitation, all
capital stock and franchise taxes of Lessor and all ad valorem, sales and use,
single business, gross receipts, business privilege, transaction privilege, rent
or similar taxes to the extent the same are assessed against Lessor the value of
the Leased Properties, but excluding any tax based on the net income or net
profit of Lessor derived from any such rents), assessments (including
Assessments), ground rents, water, sewer or other rents and charges, excises,
tax levies, fees (including, without limitation, license, permit, inspection,
authorization and similar fees), and all other governmental charges, in each
case whether general or special, ordinary or extraordinary, or foreseen or
unforeseen, of every character that at any time prior to, during or in respect
of the Term are assessed or imposed on or in respect of, or constitute a lien
upon (a) Lessor or Lessor’s interest in the Leased Properties; (b) the Leased
Properties or any part thereof or any rent therefrom or any estate, right, title
or interest therein; (c) any occupancy, operation, use or possession of, or
sales from, or activity conducted on or in connection with the Leased Properties
or the leasing or use of the Leased Properties or any part thereof; or (d) Rent,
but excluding any transfer or other tax imposed with respect to the sale,
exchange or other disposition by Lessor of the Leased Properties or any part
thereof or the proceeds thereof. However, nothing contained in this Lease shall
be construed to require Lessee to pay (1) any tax based on net income (whether
denominated as a franchise or capital stock or other tax) imposed on Lessor or
any Affiliate of Lessor or (2) any transfer, or net revenue tax of Lessor or any
Affiliate of Lessor or (3) any tax imposed with respect to the sale, exchange or
other disposition by Lessor of the Leased Properties or the proceeds thereof.

 

Insurance Requirements:  All terms of any insurance policy required by this
Lease and all requirements of the issuer of any such policy.

 

Investments: of a Person means any loan, advance (other than commission, travel
and similar advances to officers and employees made in the ordinary course of
business), extension of credit (other than accounts receivable arising in the
ordinary course of business on terms customary in the trade) or contribution of
capital by such Person; stocks, bonds, mutual funds, partnership interests,
notes, debentures or other securities owned by such Person; and structured
notes, derivative financial instruments and other similar instruments or
contracts owned by such Person.

 

Investigation: Soil and chemical tests or any other environmental
investigations, examinations or analyses.

 

Judgment Date:  The date on which a judgment is entered against Lessee that
establishes, without the possibility of appeal, the amount of liquidated damages
to which Lessor is entitled under this Lease.

 

Land:               The real property described in attached Exhibit A.

 

Lease:  As defined in the Preamble.

 

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Lease Year:  Each twelve-month period from and including May 1 through April 30
during the Term of this Lease.

 

Leased Improvements: Collectively, all buildings, structures, Fixtures and other
improvements of every kind on the Land, including, but not limited to, alleyways
and connecting tunnels, sidewalks, utility pipes, conduits and lines (on-site
and off-site), parking areas and roadways appurtenant to such buildings and
structures.

 

Leased Property: The portion of the real property described in attached
Exhibit A on which a Facility is located, the Leased Improvements on such
portion of such real property, the Related Rights with respect to such portion
of the real property, and Lessor’s Personal Property with respect to such
Facility.

 

Leased Properties:  All of the Land, Leased Improvements, Related Rights and
Lessor’s Personal Property.

 

Legal Requirements:  All federal, state, county, municipal and other
governmental statutes, laws, rules, orders, waivers, regulations, ordinances,
judgments, decrees and injunctions affecting the Leased Properties or any
portion thereof, Lessee’s Personal Properties or the construction, use or
alteration of the Leased Properties (including but not limited to the Americans
with Disabilities Act), whether enacted and in force before, after or on the
Commencement Date, and including any that may (a) require repairs,
modifications, alterations or additions in or to any portion or all of the
Facilities, or (b) in any way adversely affect the use and enjoyment thereof,
and all permits, licenses and authorizations and regulations relating thereto,
including, but not limited to, (i) those relating to existing health care
licenses, (ii) those authorizing the current number of licensed beds for the
Leased Properties and (iii) all Permitted Encumbrances in force at any time
during the Term.

 

Lessee’s Certificate:  A statement in writing in substantially the form of
Exhibit B attached hereto (with such changes thereto as may reasonably be
requested by the person relying on such certificate).

 

Lessee’s Personal Property:  Personal Property owned or leased by Lessee that is
not included within the definition of the term “Lessor’s Personal Property” but
is used by Lessee in the operation of the Facilities, including Personal
Property provided by Lessee in compliance with Section 6.3 hereof.

 

Lessor’s Future Rent Loss:  An amount equal to the Rent that would have been
payable by Lessee from and after the Judgment Date through the Expiration Date
had the Lease not been terminated, plus such additional amount as may be
necessary in order to compensate Lessor for all other damages that are
proximately caused by, and in the ordinary course of things would be likely to
result from, Lessee’s failure to perform its obligations under this Lease.

 

Lessor’s Interim Rent Loss:  An amount equal to the Rent that would have been
payable by Lessee from the Termination Date through the Judgment Date had the
Lease not been terminated (including interest and late charges determined on the
basis of the date or dates on which Lessor’s Interim Rent Loss is actually paid
by Lessee), plus such additional amount as may be necessary in order to
compensate Lessor for all other damages that are proximately caused by, and

 

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in the ordinary course of things would be likely to result from, Lessee’s
failure to perform its obligations under this Lease.

 

Lessor’s Monthly Rent Loss:  For any month, an amount equal to the installment
of Rent that would have been due in such month under the Lease if it had not
been terminated, plus, if such amount is not paid on or before the day of the
month on which such installment of Rent would have been due, the amount of
interest and late charges thereon that also would have been due under the Lease,
plus such additional amount as may be necessary in order to compensate Lessor
for all other damages that are proximately caused by, and in the ordinary course
of things would be likely to result from, Lessee’s failure to perform its
obligations under this Lease.

 

Lessor’s Personal Property:  All Personal Property and intangibles, if any,
owned by Lessor and leased to Lessee on the Commencement Date, together with any
and all replacements thereof, and all Personal Property that pursuant to the
terms of the Lease becomes the property of Lessor during the Term.

 

Line of Credit: As defined in Section 6.4.

 

Line of Credit Documents: As defined in Section 6.4.

 

Management Agreement:  Any agreement pursuant to which management of a Facility
is delegated by Lessee to an Affiliate of Lessee or to any unrelated party.  As
of the Effective Date, there is no Management Agreement.

 

Manager:  The Person to whom management of the operation of a Facility is
delegated pursuant to a Management Agreement.  As of the Effective Date, there
is no Manager.

 

Material Adverse Effect: means any material adverse effect whatsoever upon
(a) the validity, performance or enforceability of any Transaction Document,
(b) the properties, contracts, business operations, profits or condition
(financial or otherwise) of Lessee, a Sublessee or any Guarantor, or (c) the
ability of Lessee, a Sublessee, any Guarantor or any of their Affiliates to
fulfill its obligations under the Transaction Documents.

 

Maximum Principal Amount: An amount equal to eighty-five percent (85%) of
“eligible receivables” (as customarily defined in the working capital loan
agreements for skilled nursing facilities) as determined at the time of entry
into the Line of Credit Documents; provided, however, that “eligible
receivables” shall not include any account receivable which:

 

(i)                                     has been outstanding more than one
hundred fifty (150) days since the date the underlying services were provided or
goods were delivered;

 

(ii)                                  is a liability of an account debtor which
is not (a) a commercial insurance company, organized under the laws of any
jurisdiction in the United States, having its principal office in the United
States, (b) a Blue Cross/Blue Shield Plan, (c) CHAMPUS, Medicare or Medicaid, or
(d) an HMO, PPO, or an institutional account debtor, or any other type of
obligor, not included in the categories of obligors listed in the foregoing
clauses (a) - (c), organized under the laws of any jurisdiction in the United
States, having its principal office in the United States;

 

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(iii)                               was not generated from the sale of goods or
the delivery of services in the ordinary course of business in the operation of
the Facilities in the name of the Lessee or a Sublessee; or

 

(iv)                              has not been billed.

 

Net Income:  For any period, Lessee’s net income (or loss) for such period
attributable to the operation of the Facilities, determined in accordance with
GAAP; provided, however, that Lessee’s Net Income shall not include any
extraordinary gains (or losses) or nonrecurring gains (or losses).

 

Net Proceeds:  All proceeds, net of any reasonable costs incurred by Lessor in
obtaining such proceeds, payable under any policy of insurance required by
Article XIII of this Lease (including any proceeds with respect to Lessee’s
Personal Property that Lessee is required or elects to restore or replace
pursuant to Section 14.3) or paid by a Condemnor for a Taking or Partial Taking
of the Leased Properties.

 

Net Reletting Proceeds: Proceeds of the reletting of any portion of the Leased
Properties received by Lessor, net of Reletting Costs.

 

Notice:  A notice given in accordance with Article XXXI hereof.

 

Notice of Termination:  A Notice from Lessor that it is terminating this Lease
by reason of an Event of Default.

 

Officer:  Any of the Chairman of the Board of Directors, the President, the
Chief Executive Officer, the Chief Operating Officer, the Chief Financial
Officer, and the Secretary of any corporation, a general partner of any
partnership and a managing member of any limited liability company upon which
service of a Notice is to be made.

 

Officer’s Certificate: A certificate signed by an Officer.

 

Omega:  Omega Healthcare Investors, Inc., a Maryland corporation.

 

Overdue Rate:  On any date, the interest rate that is equal to the greater of
(i) thirteen percent (13%) and (ii) three percent (3%) (three hundred (300) 
basis points) above the Prime Rate, but in no event greater than the maximum
rate then permitted under applicable law.

 

Partial Taking:  A taking of less than the entire fee of a Leased Property that
either (a) does not render such Leased Property Unsuitable for its Primary Use,
or (b) renders such Leased Property Unsuitable for its Primary Intended Use, but
neither Lessor nor Lessee elects pursuant to Section 15.1 hereof to terminate
this Lease.

 

Payment Date:  Any due date for the payment of the installments of Base Rent or
for the payment of Additional Charges or any other amount required to be paid by
Lessee hereunder.

 

Permitted Encumbrances: means all covenants, conditions, restrictions, easements
and other matters affecting any Leased Property of record as of the date of this
Lease, all other

 

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matters which would be disclosed by an inspection or accurate survey of such
Leased Property, and the matters listed on attached Exhibit C.

 

Person:  Any natural person, trust, partnership, corporation, joint venture,
limited liability company or other legal entity.

 

Personal Property:  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 Lessee) used in connection with a Leased Property, together with all
replacements and alterations thereof and additions thereto, except items, if
any, included within the definition of Fixtures or Leased Improvements.

 

Pledge Agreement:  The Pledge Agreement dated as of the date of this Lease from
Hearth & Home of Ohio, Inc., an Ohio corporation, in favor of Lessor.

 

Pre-Existing Hazardous Substances: means Hazardous Substances located on, under
about or with respect to a Leased Property prior to the Commencement Date.

 

Pre-Existing Environmental Conditions: means any Contamination or other
environmental condition on, under, about or with respect to a Leased Property
existing prior to Commencement Date.

 

Present Value: The value of future payments, determined by discounting each such
payment at a rate equal to the yield on the specified date on securities issued
by the United States Treasury (bills, notes and bonds) maturing on the date
closest to December 31 in the year in which such future payment would have been
due.

 

Primary Intended Use: Licensed skilled nursing facility.

 

Prime Rate:  On any date, an interest rate equal to the prime rate published by
the Wall Street Journal, but in no event greater than the maximum rate then
permitted under applicable law. If the Wall Street Journal ceases to be in
existence, or for any reason no longer publishes such prime rate, the Prime Rate
shall be the rate announced by a national bank selected by Lessor and Lessee.

 

Proceeding: Any action, proposal or investigation by any agency or entity, or
any complaint to such agency or entity.

 

Purchase Money Financing:  Any financing provided by a Person to Lessee or a
Sublessee in connection with the acquisition of Personal Property used in
connection with the operation of the Facilities, whether by way of installment
sale or otherwise.

 

Qualified Capital Expenditures:  upgrades or improvements to each Facility that
have the effect of maintaining or improving its competitive position in its
respective marketplace, including new or replacement wallpaper, tiles, window
coverings, lighting fixtures, painting, upgraded landscaping, carpeting,
architectural adornments, common area amenities and the like, and including
capital improvements or repairs, such as repairs or replacements of the roof,
structural elements of the walls, parking area or the electrical, plumbing, HVAC
or other mechanical or structural systems.

 

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Regulatory Actions:  Any claim, demand, notice, action or proceeding brought,
threatened or initiated by any governmental authority in connection with any
Environmental Law, including, without limitation, civil, criminal and
administrative proceedings, whether or not the remedy sought is costs, damages,
equitable remedies, penalties or expenses.

 

Related Rights:  All easements, rights and appurtenances relating to the Land
and the Leased Improvements.

 

Release:  The intentional or unintentional spilling, leaking, dumping, pouring,
emptying, seeping, disposing, discharging, emitting, depositing, injecting,
leaching, escaping, abandoning, or any other release or threatened release,
however defined, of any Hazardous Substance.

 

Reletting Costs: Expenses incurred by Lessor in connection with the reletting of
a Leased Property in whole or in part after an Event of Default, including
without limitation reasonable attorneys’ fees and expenses, reasonable brokerage
fees and expenses, reasonable marketing expenses and the cost of repairs and
renovations reasonably required for such reletting.

 

Rent:  Collectively, Base Rent and Additional Charges.

 

Replacement Cost:  The actual replacement cost of a Leased Property, including
an increased cost of construction endorsement, less exclusions provided in the
standard form of fire insurance policy.  In all events Replacement Cost shall be
an amount sufficient that neither Lessor nor Lessee is deemed to be a co-insurer
of such Leased Property.

 

SEC:  Securities and Exchange Commission.

 

Security Agreements: The Security Agreement dated as of the date of this
Agreement, between Lessor, as secured party, and Lessee, as debtor, and the
Security Agreement dated as of the date of this Agreement, between Lessor, as
secured party, and AdCare, as debtor.

 

Special Risk Insurance:  The insurance that Lessee is required to maintain
pursuant to Section 13.2.1 of this Lease.

 

State:                Georgia.

 

Sublease:                                            Subleases expressly
approved in writing by Lessor prior to execution by Lessee.  As of the Effective
Date, there are no Subleases.

 

Sublessee:                                        A Sublessee under a Sublease.

 

Subordination Agreement: The Subordination Agreement dated as of the date of
this Lease from Lessee, the Sublessees and Pledgors in favor of Lessor.

 

Subsidiary: of a Person means (i) any corporation more than 10% of the
outstanding securities having ordinary voting power of which shall at the time
be owned or controlled, directly or indirectly, by such Person or by one or more
of its Subsidiaries or by such Person and one or more of its Subsidiaries, or
(ii) any partnership, limited liability company, association, joint venture or
similar business organization more than 10% of the ownership interests having
ordinary voting

 

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power of which shall at the time be so owned or controlled.  Unless otherwise
expressly provided, all references herein to a “Subsidiary” shall mean a
Subsidiary of Lessee or any Sublessee.

 

Taken: Conveyed pursuant to a Taking or Partial Taking.

 

Taking:  A taking or voluntary conveyance during the Term of all of a Leased
Property, or any interest therein or right accruing thereto or use thereof, as
the result of, or in settlement of any condemnation or other eminent domain
proceeding affecting such Leased Property, whether or not the proceeding
actually has been commenced.

 

Term:  The Initial Term and any Renewal Term

 

Termination Date:  The date specified in the Termination Notice as set forth in
Section 16.1.

 

Termination Notice:  A notice given pursuant to Section 16.1.

 

Third Party Claims:  Any claims, actions, demands or proceedings (other than
Regulatory Actions) howsoever based (including without limitation those based on
negligence, trespass, strict liability, nuisance, toxic tort or detriment to
health welfare or property) due to Contamination, whether or not the remedy
sought is costs, damages, penalties or expenses, brought by any person or entity
other than a governmental agency.

 

Transaction Documents:  means the following documents: this Lease, the
Guaranties, the Letter of Credit Agreement, the Security Agreement, the Pledge
Agreement, the Subordination Agreements, and any security agreements, pledge
agreements, letter of credit agreements, guarantees, notes or other documents
which evidence, secure or otherwise relate to this Lease, or the transactions
contemplated by this Lease; and any and all amendments, modifications,
extensions and renewals of any of the foregoing documents.

 

Transfer:  The (a) assignment, mortgaging or other encumbering of all or any
part of Lessee’s or any Sublessee’s interest in this Lease or in the Leased
Properties; (b) subletting of the whole or any part of any Leased Property;
(c) entering into of any Management Agreement or other arrangement under which
any Facility is operated by or licensed to be operated by an entity other than
Lessee or a Sublessee; (d) merger, consolidation or reorganization of a
corporate Lessee, corporate Guarantor, corporate Sublessee or corporate Manager,
or the sale, issuance, transfer and/or redemption, cumulatively or in one
transaction, of any voting stock by Lessee, any Guarantor, any Sublessee or
Manager or by Persons who are stockholders (whether beneficially or of record)
of Lessee, any Guarantor, any Sublessee or Manager, if such event or events
result(s) in a change of Control of Lessee, any Guarantor, any Sublessee or
Manager; or (e) sale, issuance, transfer or redemption, cumulatively or in one
transaction, of any interest, or the termination of any interest (in each case,
whether held directly or indirectly), in Lessee, any Guarantor, any Sublessee or
Manager, if Lessee, such Guarantor, such Sublessee or such Manager is a joint
venture, partnership, limited liability company or other association and such
sale, issuance, transfer, redemption or termination of interest results in a
change of Control of such joint venture, partnership, limited liability company
or other association.

 

Transferee: An assignee, subtenant or other occupant of a Leased Property
pursuant to a Transfer.

 

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Unmatured Event of Default: means the occurrence of an event which upon its
occurrence, or with the giving of notice, the passage of time, or both, would
constitute an Event of Default.

 

Unsuitable for Its Primary Intended Use:  A state or condition of a Facility
such that by reason of a Partial Taking, the Facility cannot be operated on a
commercially practicable basis for its Primary Intended Use, taking into
account, among other relevant factors, the number of usable beds permitted by
applicable law and regulation in such Facility after the Partial Taking, the
square footage Taken and the estimated revenue impact of such Partial Taking.

 

ARTICLE III

 

3.1                               Base Rent; Monthly Installments. In addition
to all other payments to be made by Lessee under this Lease, Lessee shall pay
Lessor the Base Rent in lawful money of the United States of America which is
legal tender for the payment of public and private debts, Lessee shall pay the
Base Rent in advance, in equal, consecutive monthly installments, each of which
shall be in an amount equal to monthly Base Rent payable for the Lease Year in
which such installment is payable. The first installment of Base Rent shall be
payable on the Commencement Date, together with a prorated amount of Base Rent
for the period from the Commencement Date until the last day of the first full
calendar month of the Term.  Thereafter, installments of Base Rent shall be
payable on the first (1st) day of each calendar month.  Base Rent shall be paid
to Lessor, or to such other Person as Lessor from time to time may designate by
Notice to Lessee, by wire transfer of immediately available federal funds to the
bank account designated in writing by Lessor. If Lessor directs Lessee to pay
any Base Rent or Additional Charges to any Person other than Lessor, Lessee
shall send to Lessor, simultaneously with payment of the Base Rent or Additional
Charges, a copy of the transmittal letter or invoice and check evidencing such,
or such other evidence of payment as Lessor requires.

 

3.2                               Additional Charges.   In addition to the Base
Rent, Lessee also will pay as and when due all Additional Charges.

 

3.3                               Late Charge; Interest.  If any Rent payable to
Lessor is not paid when due, Lessee shall pay Lessor on demand, as an Additional
Charge, a late charge equal to the greater of (a) five percent (5%) of the
amount not paid when due and (b) any and all charges, expenses, fees or
penalties imposed on Lessor by a Facility Mortgagee for late payment, and, in
addition, if such Rent (including the late charge) is not paid within thirty
(30) days of the date on which such Rent was due, interest thereon at the
Overdue Rate from the date when due until such Rent (including the late charge
and interest) is paid in full.

 

3.4                               Net Lease.

 

3.4.1                     The Rent shall be paid absolutely net to Lessor, so
that this Lease shall yield to Lessor the full amount of the Rent payable to
Lessor under this Lease throughout the Term.

 

3.4.2                     If Lessor commences any proceedings for non-payment of
Rent, Lessee will not interpose any counterclaim or cross complaint or similar
pleading of any nature or description in such proceedings unless Lessee would
lose or waive such claim by the failure

 

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to assert it, but Lessee does not waive any rights to assert such claim in a
separate action brought by Lessee.  The covenants to pay Rent are independent
covenants, and Lessee shall have no right to hold back, offset or fail to pay
any Rent because of any alleged default by Lessor or for any other reason.

 

3.5                               Payments In The Event of a Rent Adjustment. 
Upon the adjustment, pursuant to the definition of the term “Base Rent,” in the
Base Rent payable pursuant to this Lease with respect to any Lease Year, the
adjustment shall be effective as of the first payment of Base Rent due in the
Lease Year as to which such adjustment pertains.

 

ARTICLE IV

 

4.1                               Payment of Impositions.  Subject to
Section 12.1, Lessee will pay all Impositions before any fine, penalty, interest
or cost is added for non-payment, and will promptly, upon request, furnish to
Lessor copies of official receipts or other satisfactory proof evidencing such
payments. If at the option of the taxpayer any Imposition may be paid in
installments, Lessee may pay the same in the required installments provided it
also pays any and all interest due thereon as and when due.

 

Lessee shall prepare and file as and when required all tax returns and reports
required by governmental authorities with respect to all Impositions.  Lessor
and Lessee shall each, upon request, provide the other with such data, including
without limitation cost and depreciation records, as is maintained by the party
to whom the request is made as is necessary to prepare any required returns and
reports.

 

Lessee shall be entitled to receive and retain any refund from a taxing
authority in respect of an Imposition paid by Lessee if at the time of the
refund no Event of Default has occurred, but if an Event of Default has occurred
at the time of the refund, Lessee shall not be entitled to receive or retain
such refund, and if and when received by Lessor such refund shall be applied as
provided in Article XVI.

 

Lessee may, upon Notice to and with the consent of Lessor (which consent shall
not be withheld unreasonably), at Lessee’s sole cost and expense, protest,
appeal or institute such other proceedings as Lessee deems appropriate to effect
a reduction of real estate or personal property assessments and Lessor, at
Lessee’s expense as aforesaid, shall cooperate with Lessee in such protest,
appeal or other action.

 

4.2                               Adjustment of Impositions.  Impositions
imposed in respect of the tax fiscal period during which the Term ends shall be
adjusted and prorated between Lessor and Lessee, whether or not imposed before
or after the expiration or earlier termination of the Term, and Lessee’s
obligation to pay its prorated share thereof shall survive the expiration or
earlier termination of the Term.

 

4.3                               Utility Charges.  Lessee will pay or cause to
be paid when due all charges for electricity, power, gas, oil, water and other
utilities imposed upon a Leased Property or upon Lessor or Lessee with respect
to such Leased Property.

 

4.4                               Insurance Premiums. Lessee shall pay or cause
to be paid when due all premiums for the insurance coverage required to be
maintained pursuant to Article XIII during the Term.

 

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ARTICLE V

 

5.1                               No Termination, Abatement, etc.  Lessee shall
not take any action without the consent of Lessor and any Facility Mortgagee to
modify, surrender or terminate this Lease, and shall not seek or be entitled to
any abatement, deduction, deferment or reduction of Rent, or setoff against
Rent.  Except as may be otherwise specifically provided for in this Lease, the
respective obligations of Lessor and Lessee shall not be affected by reason of
(a) any damage to, or destruction of, a Leased Property or any portion thereof
from whatever cause or any Taking or Partial Taking of a Leased Property, except
as expressly set forth herein; (b) the lawful or unlawful prohibition of, or
restriction upon, Lessee’s use of a Leased Property, or any portion thereof, or
the interference with such use by any Person or by reason of eviction by
paramount title; (c) any claim that Lessee has or might have against Lessor or
by reason of any default or breach of any warranty by Lessor under this Lease or
any other agreement between Lessor and Lessee, or to which Lessor and Lessee are
parties; (d) any bankruptcy, insolvency, reorganization, composition,
readjustment, liquidation, dissolution, winding up or other proceedings
affecting Lessor or any assignee or transferee of Lessor; or (e) any other
cause, whether similar or dissimilar to any of the foregoing, other than a
discharge of Lessee from any such obligations as a matter of law.  Lessee hereby
specifically waives all rights, arising from any occurrence whatsoever, that now
or hereafter may be conferred upon it by law to (a) modify, surrender or
terminate this Lease or quit or surrender any Leased Property or any portion
thereof, or (b) entitle Lessee to any abatement, reduction, suspension or
deferment of the Rent or other sums payable by Lessee hereunder.

 

ARTICLE VI

 

6.1                               Ownership of the Leased Properties.  Lessee
acknowledges that the Leased Properties are the property of Lessor and that
Lessee has only the right to the possession and use of the Leased Properties
upon the terms and conditions of this Lease.  Lessee will not (a) file any
income tax return or other associated documents, (b) file any other document
with or submit any document to any governmental body or authority, (c) enter
into any written contractual arrangement with any Person or (d) release any
financial statements of Lessee, in any case that take any position other than
that throughout the Term Lessor is the owner of the Leased Properties for
federal, state and local income tax purposes and this Lease is a “true lease,”
and an “operating lease” and not a “capital lease.”

 

6.2                               Lessor’s Personal Property.  Lessee shall,
during the entire Term, maintain all of Lessor’s Personal Property in good
order, condition and repair as shall be necessary in order to operate the
Facilities for the Primary Intended Use in compliance with all applicable
licensure and certification requirements, all applicable Legal Requirements and
Insurance Requirements, and customary industry practice for the Primary Intended
Use.  If any of Lessor’s Personal Property requires replacement in order to
comply with the foregoing, Lessee shall replace it with similar property of the
same or better quality at Lessee’s sole cost and expense, and when such
replacement property is placed in service with respect to the Leased Properties
it shall become Lessor’s Personal Property.  Lessee shall not permit or suffer
Lessor’s Personal Property to be subject to any lien, charge, encumbrance,
financing statement, contract of sale or the like, except for any purchase money
security interest.  At the expiration or earlier termination of this Lease, all
of Lessor’s Personal Property shall be surrendered to Lessor with the Leased
Properties at or before the time of the surrender of the Leased Properties in at
least as good a condition as at the Commencement Date except for ordinary wear
and tear.

 

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6.3          Lessee’s Personal Property.  Lessee shall provide and maintain
during the Term such Personal Property, in addition to Lessor’s Personal
Property, as shall be necessary and appropriate in order to operate the
Facilities for the Primary Intended Use in compliance with all licensure and
certification requirements, in compliance with all applicable Legal Requirements
and Insurance Requirements and otherwise in accordance with customary practice
in the industry for the Primary Intended Use. Upon the expiration of the Term or
the earlier termination of this Lease, without the payment of any additional
consideration by Lessor, Lessee shall be deemed to have sold, assigned,
transferred and conveyed to Lessor all of Lessee’s right, title and interest in
and to any and all of Lessee’s Personal Property whether or not integral to the
Primary Intended Use of the Facilities and wherever located.  Lessee shall not
remove any of Lessee’s Personal Property that is in use at the expiration or
earlier termination of the Lease from the Leased Properties.

 

6.4          Grant of Security Interest in Lessee’s Personal Property and
Accounts.  Lessee has concurrently granted to Lessor a security interest in the
Collateral as defined in the Security Agreement, which includes, without
limitation, the Personal Property as defined herein and Lessee’s Accounts as
defined in the Security Agreement.  If Lessee and/or the Sublessees obtain,
concurrently with or after the Effective Date, a working capital line of credit
(the “Line of Credit”) from a third-party working capital lender that requires
that, in order to secure the Line of Credit, Lessee and/or the Sublessees must
grant to the working capital lender a first priority security interest in the
accounts receivable from the Facilities accruing during the Term, then Lessor
will subordinate its security interest in the accounts receivable from the
Facilities accruing during the Term, provided that:

 

(a)           The working capital lender executes and delivers to Lessor an
intercreditor agreement in form and substance reasonably satisfactory to Lessor;

 

(b)           The lien of Lessor in accounts receivable from the Facilities
shall be subordinated to the lien of the working capital lender therein only to
the extent of amounts advanced from time to time by the working capital lender
to Lessee and/or the Sublessees with respect to the Facilities and only in the
Maximum Principal Amount, plus interest, penalties and other charges under the
loan documents evidencing the Line of Credit (the “Line of Credit Documents”)
with respect to principal amounts advanced; and

 

(c)           As of the date of entry by Lessor into the intercreditor
agreement, no Event of Default or Unmatured Event of Default has occurred and is
continuing.

 

ARTICLE VII

 

7.1          Condition of the Leased Properties.  Lessee acknowledges that it
has inspected and otherwise has knowledge of the condition of the Leased
Properties prior to the execution and delivery of this Lease.  Lessee is leasing
the Leased Properties “as is” in their condition on the Effective Date.  Lessee
waives any claim or action against Lessor in respect of the condition of the
Leased Properties.  LESSOR MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, IN RESPECT OF THE LEASED PROPERTIES OR ANY PART THEREOF, EITHER AS TO
ITS FITNESS FOR USE, DESIGN OR CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR
OTHERWISE AS TO THE QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR
PATENT, IT BEING AGREED THAT ALL SUCH

 

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RISKS ARE TO BE BORNE BY LESSEE.  Lessee further acknowledges that throughout
the Term Lessee is responsible for the condition of the Leased Properties as set
forth in this Lease.

 

7.2          Use of the Leased Properties.  Throughout the Term Lessee shall use
the Leased Properties continuously for the Primary Intended Use and uses
incidental thereto. Lessee shall not use the Leased Properties or any portion
thereof for any other use without the prior written consent of Lessor.  No use
shall be made or permitted to be made of, or allowed in, the Leased Properties,
and no acts shall be done, which will cause the cancellation of, or be
prohibited by, any insurance policy covering the Leased Properties or any part
thereof, nor shall the Leased Properties or Lessee’s Personal Property be used
for any unlawful purpose. Lessee shall not commit or suffer to be committed any
waste on the Leased Properties, or cause or permit any nuisance thereon, or
suffer or permit the Leased Properties or any portion thereof, or Lessee’s
Personal Property, to be used in such a manner as (a) might reasonably tend to
impair Lessor’s (or Lessee’s, as the case may be) title thereto or to any
portion thereof, or (b) may reasonably make possible a claim or claims of
adverse usage or adverse possession by the public, as such, or of implied
dedication of the Leased Properties or any portion thereof.

 

7.3          Certain Environmental Matters.

 

(a)           Prohibition Against Use of Hazardous Substances.  Lessee shall not
permit, conduct or allow the generation, introduction, presence, maintenance,
use, receipt, acceptance, treatment, manufacture, production, installation,
management, storage, disposal or release of any Hazardous Substance on the
Leased Properties, except for (i) those types and quantities of Hazardous
Substances necessary for and ordinarily associated with the conduct of Lessee’s
business and used in full compliance with all Environmental Laws and (ii) any
Pre-Existing Hazardous Substances.

 

(b)           Notice of Environmental Claims, Actions or Contaminations.  Lessee
shall notify Lessor, in writing, immediately upon learning of any existing,
pending or threatened: (i) investigation, inquiry, claim or action by any
governmental authority in connection with any Environmental Laws, (ii) Third
Party Claims, (iii) Regulatory Actions, and/or (iv) Contamination of any portion
of the Leased Properties.

 

(c)           Costs of Remedial Actions with Respect to Environmental Matters.
If any investigation and/or Clean-Up of any Hazardous Substance or other
environmental condition on, under, about or with respect to a Leased Property
(other than Pre-Existing Hazardous Substances or Pre-Existing Environmental
Conditions) is required by any Environmental Law, Lessee shall complete, at its
own expense, such investigation and/or Clean-Up or cause any other Person who
may be legally responsible to complete such investigation and/or Clean-Up.

 

(d)           Delivery of Environmental Documents. Lessee shall deliver to
Lessor complete copies of any and all material Environmental Documents that may
now be in, or at any time hereafter come into, the possession of Lessee.

 

(e)           Environmental Audit.  At Lessee’s expense, Lessee shall, upon and
within thirty (30) days of a written request therefor from Lessor or any
Facility Mortgagee, deliver an Environmental Audit to Lessor and the Facility
Mortgagee, if any.  All tests and

 

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samplings shall be conducted using generally accepted and scientifically valid
technology and methodologies.  Lessee shall give the engineer or environmental
consultant conducting the Environmental Audit reasonable and complete access to
the Leased Properties and to all records in the possession of Lessee that may
indicate the presence (whether current or past) of a Release or threatened
Release of any Hazardous Substances on, in, under, about and adjacent to any
Leased Property.  Lessee also shall provide the engineer or environmental
consultant full access to and the opportunity to interview such persons as may
be employed in connection with the Leased Properties as the engineer or
consultant deems appropriate.  However, neither Lessor nor any Facility
Mortgagee shall be entitled to request an Environmental Audit from Lessee unless
(i) after the Commencement Date there have been changes, modifications or
additions to Environmental Laws as applied to or affecting any of the Leased
Properties and Lessor has a reasonable basis for requesting an Environmental
Audit; (ii) a significant change in the environmental condition of any of the
Leased Properties has occurred; (iii) there are fewer than six (6) months
remaining in the Term; or (iv)  Lessor or a Facility Mortgagee has another
reasonable basis requesting such certificate or certificates.  If the
Environmental Audit discloses the presence of Contamination or any noncompliance
with Environmental Laws, Lessee shall immediately perform all of Lessee’s
obligations under this Lease with respect to such Hazardous Substances or
noncompliance.

 

(f)            Entry onto Leased Properties for Environmental Matters.  Upon the
prior reasonable request of Lessor, Lessee shall permit Lessor and any Facility
Mortgagee from time to time, by its employees, agents, contractors or
representatives, to enter upon the Leased Properties for the purpose of
conducting such Investigations as Lessor may desire, the expense of which shall
be paid by Lessor.  Lessor, any Facility Mortgagee exercising such right of
entry and the employees, agents, contractors, consultants and/or representatives
thereof, shall conduct any such Investigation in a manner that does not
unreasonably interfere with Lessee’s use of and operations on the Leased
Properties (however, reasonable temporary interference with such use and
operations is permissible if the investigation cannot otherwise be reasonably
and inexpensively conducted).  Other than in an emergency, Lessor and any
Facility Mortgagee exercising such right of entry shall provide Lessee prior
notice before entering any of the Leased Properties to conduct such
Investigation, and shall provide copies of any reports or results to Lessee, and
Lessee shall cooperate fully in such Investigation.

 

(g)           Environmental Matters Upon Termination of the Lease or Expiration
of Term.  Upon the expiration or earlier termination of the Term, Lessee shall
cause the Leased Properties to be delivered free of any and all Regulatory
Actions and Third Party Claims and otherwise in compliance with all
Environmental Laws with respect thereto; provided, that Lessee shall not be
required to take any of the foregoing actions with respect to Pre-Existing
Hazardous Substances or Pre-Existing Environmental Conditions.

 

(h)           Compliance with Environmental Laws.  Lessee shall comply with, and
cause its agents, servants and employees to comply with, and shall use
reasonable efforts to cause each occupant and user of the Leased Properties, and
the agents, servants and employees of such occupants and users to comply with,
each and every Environmental Law applicable to Lessee, the Leased Properties and
each such occupant or user with respect to the Leased Properties.  Specifically,
but without limitation:

 

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(i)            Maintenance of Licenses and Permits.  Lessee shall obtain and
maintain (and Lessee shall use reasonable efforts to cause each tenant, occupant
and user to obtain and maintain) all permits, certificates, licenses and other
consents and approvals required by any applicable Environmental Law from time to
time with respect to Lessee, each and every part of the Leased Properties and/or
the conduct of any business at a Facility or related thereto;

 

(ii)           Contamination.  Lessee shall not cause, suffer or permit any
Contamination (other than with respect to or resulting from Pre-Existing
Hazardous Substances or Pre-Existing Environmental Conditions);

 

(iii)          Clean-Up.  If a Contamination occurs as a result of Lessee’s
actions or inactions (other than with respect to or resulting from Pre-Existing
Hazardous Substances or Pre-Existing Environmental Conditions), Lessee promptly
shall Clean-Up and remove any Hazardous Substance or cause the Clean-Up and the
removal of any Hazardous Substance and in any such case such Clean-Up and
removal of the Hazardous Substance shall be effected to Lessor’s reasonable
satisfaction and in any event in strict compliance with applicable Environmental
Laws;

 

(iv)          Discharge of Lien.  Within twenty (20) days of the date any lien
is imposed against the Leased Properties or any part thereof under any
Environmental Law (other than with respect to or resulting from Pre-Existing
Hazardous Substances or Pre-Existing Environmental Conditions), Lessee shall
cause such lien to be discharged (by payment, by bond or otherwise to Lessor’s
absolute satisfaction);

 

(v)           Notification of Lessor.  Within three (3) Business Days after
receipt by Lessee of Notice or discovery by Lessee of any fact or circumstance
that might result in a breach or violation of any Environmental Law, Lessee
shall give Lessor Notice of such fact or circumstance; and

 

(vi)          Requests, Orders and Notices.  Within three (3) Business Days
after receipt of any request, order or other notice relating to a Leased
Property under any Environmental Law, Lessee shall forward a copy thereof to
Lessor.

 

(i)            Environmental Related Remedies.  In the event of a breach by
Lessee beyond any applicable notice and/or grace period of its covenants with
respect to environmental matters, Lessor may, in its sole discretion, do any one
or more of the following (the exercise of one right or remedy hereunder not
precluding the simultaneous or subsequent exercise of any other right or remedy
hereunder):

 

(i)            Cause a Clean-Up.  Cause the Clean-Up of any Hazardous Substance
or other environmental condition on or under a Leased Property, or both, at
Lessee’s cost and expense (except to the extent such Clean-Up relates to
Pre-Existing Hazardous Substances or Pre-Existing Environmental Conditions); or

 

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(ii)           Payment of Regulatory Damages.  Pay on behalf of Lessee any
damages, costs, fines or penalties imposed on Lessee or Lessor as a result of
any Regulatory Actions; or

 

(iii)          Payments to Discharge Liens.  On behalf of Lessee, make any
payment or perform any other act or cause any act to be performed that will
prevent a lien in favor of any federal, state or local governmental authority
from attaching to a Leased Property or that will cause the discharge of any lien
then attached to such Leased Property; or

 

(iv)          Payment of Third Party Damages.  Pay, on behalf of Lessee, any
damages, cost, fines or penalties imposed on Lessee as a result of any Third
Party Claims; or

 

(v)           Demand of Payment.  Demand that Lessee make immediate payment of
all of the costs of such Clean-Up and/or exercise of the remedies set forth in
this Section 7.3 incurred by Lessor and not paid by Lessee as of the date of
such demand.

 

(j)            Environmental Indemnification.  Except to the extent of
Pre-Existing Hazardous Substances or Pre-Existing Environmental Conditions,
Lessee shall and does hereby indemnify, and shall defend and hold harmless,
Lessor, each Facility Mortgagee and the principals, officers, directors, agents
and employees of Lessor and each Facility Mortgagee, from each and every
incurred and potential claim, cause of action, damage, demand, obligation, fine,
laboratory fee, liability, loss, penalty, imposition settlement, levy, lien
removal, litigation, judgment, proceeding, disbursement, expense and/or cost
(including without limitation the cost of each and every Clean-Up), however
defined and of whatever kind or nature, known or unknown, foreseeable or
unforeseeable, contingent, incidental, consequential or otherwise (including,
but not limited to, attorneys’ fees, consultants’ fees, experts’ fees and
related expenses, capital, operating and maintenance costs, incurred in
connection with (i) any Investigation or monitoring of site conditions, and
(ii) any Clean-Up required or performed by any federal, state or local
governmental entity or performed by any other entity or person because of the
presence of any Hazardous Substance, Release, threatened Release or any
Contamination on, in, under or about any of the Leased Properties) that may be
asserted against, imposed on, suffered or incurred by, each and every indemnitee
arising out of or in any way related to, or allegedly arising out of or due to
any environmental matter,  including, but not limited to, any one or more of the
following:

 

(i)            Release Damage or Liability.  The presence of Contamination in,
on, at, under or near the Leased Properties or migrating to a Leased Property
from another location, except to the extent that such Contamination existed
prior to the Commencement Date;

 

(ii)           Injuries.  All injuries to health or safety (including wrongful
death), or to the environment, by reason of environmental matters relating to
the condition of or activities past or present on, at, in or under the Leased
Properties, other than with respect to or resulting from Pre-Existing Hazardous
Substances or Pre-Existing Environmental Conditions;

 

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(iii)          Violations of Law.  All violations, and alleged violations, of
any Environmental Law relating to a Leased Property or any activity on, in, at
or under the Leased Properties, other than with respect to or resulting from
Pre-Existing Hazardous Substances or Pre-Existing Environmental Conditions;

 

(iv)          Misrepresentation.  All material misrepresentations relating to
environmental matters in any documents or materials furnished by Lessee to
Lessor and/or its representatives in connection with the Lease;

 

(v)           Event of Default.  Each and every Event of Default relating to
environmental matters;

 

(vi)          Lawsuits.  Any and all lawsuits brought or threatened, settlements
reached and governmental orders relating to any Hazardous Substances at, on, in
or under the Leased Properties, and all demands of governmental authorities, and
all policies and requirements of Lessor’s, based upon or in any way related to
any Hazardous Substances at, on, in or under the Leased Properties, other than
with respect to or resulting from Pre-Existing Hazardous Substances or
Pre-Existing Environmental Conditions; and

 

(vii)         Presence of Liens.  All liens imposed upon a Leased Property in
favor of any governmental entity or any person as a result of the presence,
disposal, release or threat of release of Hazardous Substances at, on, in, from
or under such Leased Property, other than with respect to or resulting from
Pre-Existing Hazardous Substances or Pre-Existing Environmental Conditions.

 

(k)           Rights Cumulative and Survival.  The rights granted Lessor under
this Section are in addition to and not in limitation of any other rights or
remedies available to Lessor under this Lease or allowed at law or in equity or
rights of indemnification provided to Lessor in any agreement pursuant to which
Lessor purchased any of the Leased Properties.  The payment and indemnification
obligations set forth in this Section 7.3 shall survive the expiration or
earlier termination of the Term.

 

(j)            Exculpation.  Notwithstanding anything to the contrary in this
Lease, Lessee shall not be liable for any costs, loss, liability, damage or
expense arising from or in connection with the Clean-Up of any Pre-Existing
Hazardous Substances or Pre-Existing Environmental Conditions.  If any Clean-Up
is required to be performed by any federal, state or local governmental entity
solely because of the presence of any Pre-Existing Hazardous Substances or
Pre-Existing Environmental Conditions and if a Facility will no longer be
permitted under applicable law to operate for their Primary Intended Use unless
such Clean-Up is performed (a “Required Clean-Up”), then Lessee shall promptly
notify Lessor of such Required Clean-Up.  If Lessor elects in writing not to
perform such Required Clean-Up, then Lessee may elect within thirty (30) days of
such determination to terminate this Lease.  If Lessor elects to perform such
Required Clean-Up, then Lessor shall immediately undertake and diligently pursue
the remediation of the applicable Pre-Existing Hazardous Substances or
Pre-Existing Environmental Conditions.

 

7.4.         Liens.  Lessor represents and warrants that, except as described on
Exhibit C, as of March 1, 2003, the Leased Properties were free and clear of any
and all Encumbrances.

 

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ARTICLE VIII

 

8.1          Compliance with Legal and Insurance Requirements.  In its use,
maintenance, operation and any alteration of the Leased Properties, Lessee, at
its expense, promptly will (a) comply with all Legal Requirements and Insurance
Requirements, whether or not compliance with them requires structural changes in
any of the Leased Improvements (which structural changes shall be subject to
Lessor’s prior written approval, which Lessor shall not unreasonably withhold or
delay) or interferes with or prevents the use and enjoyment of the Leased
Properties, and (b) procure, maintain and comply with all licenses, certificates
of need, provider agreements and other authorizations required for the use of
the Leased Properties and Lessee’s Personal Property for the Primary Intended
Use, and for the proper erection, installation, operation and maintenance of the
Leased Property or any part thereof. The judgment of any court of competent
jurisdiction, or the admission of Lessee in any action or proceeding against
Lessee, whether or not Lessor is a party thereto, that Lessee has violated any
such Legal Requirements or Insurance Requirements shall be conclusive of that
fact as between Lessor and Lessee.

 

8.2          Certain Covenants.

 

8.2.1       Lessee’s Tangible Net Worth.  At all times during the Term
Lessee shall maintain a positive Tangible Net Worth. If at any time Lessee’s
Tangible Net Worth is not positive, within thirty (30) days Lessee shall cause
the holders of its outstanding equity interests to contribute to Lessee
sufficient equity capital in the form of cash to cause Lessee’s Tangible Net
Worth to become positive.  For purposes of calculating Lessee’s Tangible Net
Worth, Tangible Net Worth includes the amount of any cash Security Deposit.

 

8.2.2       Guarantor’s Tangible Net Worth.  At all times during the Term,
Guarantor shall maintain a Tangible Net Worth of at least Five Million Dollars
($5,000,000). If at any time Guarantor’s Tangible Net Worth is not at least Five
Million Dollars ($5,000,000), within thirty (30) days Lessee shall cause the
holders of Guarantor’s outstanding equity interests to contribute to Guarantor
sufficient equity capital in the form of cash to cause Guarantor’s Tangible Net
Worth to become at least Five Million Dollars ($5,000,000).  For purposes of
calculating Guarantor’s Tangible Net Worth, Tangible Net Worth includes the
amount of any cash Security Deposit.

 

8.2.3       Cash Flow to Rent Ratio. Lessee and the Sublessees shall maintain,
on a consolidated basis, a Cash Flow to Rent Ratio (in each case, for the
immediately preceding 12 month period) not less than 1.30:1.

 

8.2.4       Debt.  None of the Lessee or any Sublessee will, or will permit any
Subsidiary to, create, incur or suffer to exist any Debt, except (i) Debt owed
to Lessor (or one of its Affiliates) or trade credit incurred in the ordinary
course of business, (ii) the Line of Credit if permitted under Section 6.4, and
(iii) the equipment financing permitted under Section 8.2.4.

 

 

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8.2.5       Limitation of Distributions.  None of Lessee or any Sublessee shall
make any Distributions to the holders of its equity securities or any Affiliate
if, as of the date of such Distribution or upon giving effect to such
Distribution, (a) an Event of Default has occurred and is continuing or (b) an
Unmatured Event of Default has occurred and is continuing.

 

8.2.6       Guarantees Prohibited. Neither Lessee, nor any Sublessee shall
guarantee any indebtedness of any Affiliate or other third party.

 

8.2.4       Equipment Financing.        The aggregate amount of principal,
interest and lease payments due from Lessee and the Sublessees on any equipment
financing shall not exceed Twenty Five Thousand Dollars ($25,000) annually per
Facility.

 

8.2.5       Loans from Affiliates. Neither Lessee nor any Sublessee shall borrow
money from any Affiliate unless the obligations of Lessee or such Sublessee and
the rights of its Affiliates with respect to any such loan are subordinated to
the rights of Lessor pursuant to a written subordination agreement in form and
substance acceptable to Lessor.

 

8.3          Minimum Qualified Capital Expenditures.  From and after the
Effective Date, each Lease Year Lessee shall expend with respect to each
Facility at least Three Hundred Seventy Five Dollars ($375.00) per-licensed-bed
for Qualified Capital Expenditures to improve the Facilities, which amount shall
be increased each Lease Year, beginning with the second Lease Year commencing on
May 1, 2011, in proportion to increases in the CPI.  At least annually, at the
request of Lessor, Lessor and Lessee shall review capital expenditures budgets
and agree on modifications, if any, required by changed circumstances and the
changed conditions of the Leased Properties.

 

8.4          Management Agreements.  Lessee shall not enter into, amend or
terminate any Management Agreement without the prior written consent of Lessor
and any Facility Mortgagee.

 

8.5          Other Facilities.  Neither Lessee nor any Affiliate shall own,
operate or manage any nursing home, rest home, assisted living facility,
subacute facility, retirement center or similar health care facility within a
five (5) mile radius of any Facility.

 

8.6          No Other Business.  None of Lessee or any Sublessee shall engage in
any business other than the operation of the Facilities.

 

8.7          Tax Returns.  During the Term, the Lessee, Guarantor and the
Sublessees shall timely file, or cause to be timely filed, all required tax
returns for the operation of their business and shall pay all taxes required to
be paid in connection such returns, including but not limited to, employee
withholding taxes, before any penalty or interest for failure to file arises.

 

8.8          Existence; No Fundamental Change.  Lessee, the Sublessees, and
Guarantor shall preserve and maintain their legal existence and such of their
rights, licenses and privileges as are material to their business and
operations; and qualify and remain qualified to do business in each jurisdiction
in which such qualification is material to their business and operations or the
ownership of their properties.  Except with the prior written approval of
Lessor, which may be withheld in Lessor’s sole and absolute discretion, none of
Lessee or the Sublessees will fundamentally change the nature of its business,
enter into any amalgamation, merger, consolidation, reorganization or
recapitalization, or reclassify its capital stock or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
assign, lease, transfer or otherwise dispose of, in one

 

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transaction or a series of transactions, all or substantially all of its
business, property or assets, whether now owned or hereafter acquired, or
acquire by purchase or otherwise all or substantially all the business, property
or assets, of any Person or any shares of stock or other equity securities of
any Person.

 

8.9          No Investments.  Without the prior written consent of Lessor,
neither Lessee, nor any Sublessees will, or will they permit any Subsidiary to,
make or suffer to exist any Investments (including without limitation, loans and
advances to, and other Investments in, Subsidiaries), or commitments therefor,
or to create any Subsidiary or to become or remain a partner in any partnership
or joint venture, or to make any Acquisition of any Person.

 

8.10        Bank Accounts.  Lessee and the Sublessees shall maintain separate
bank accounts from any other Person.  None of Lessee and the Sublessees shall
permit its or their assets, including cash, cash equivalents, and the cash
proceeds arising out of the operation of the Facilities, to be commingled with
the assets of any Person (other than Lessee and the Sublessees); provided,
however, that the personal allowance accounts of the residents of the Facilities
need not be maintained separately and may be commingled so long as Lessee and
the Sublessees maintain adequate written records with respect to such personal
allowance accounts.

 

8.11        Liens.  Subject to the provisions of Section 12.1 relating to
permitted contests, Lessee and the Sublessees shall not directly or indirectly
create or allow to remain, and shall promptly discharge at their expense, any
lien, encumbrance, attachment, title retention agreement or claim upon any
assets of Lessee and the Sublessees, excluding, however, (a) the liens and
security interests in favor of Lessor and its Affiliates, (b) liens for
Impositions or for sums resulting from noncompliance with Legal Requirements so
long as (i) the same are not yet payable, or (ii) such liens are in the process
of being contested as permitted by Section 12.1, (c) liens of mechanics,
laborers, materialmen, suppliers or vendors for sums either disputed or not yet
due, provided that any such liens are in the process of being contested as
permitted by Section 12.1, and (g) liens permitted under Section 6.4 of this
Agreement.

 

ARTICLE IX

 

9.1          Maintenance and Repair.

 

9.1.1       Lessee, at its expense, will keep the Leased Properties, and all
appurtenant landscaping, private roadways, sidewalks and curbs that are under
Lessee’s control and Lessee’s Personal Property in good order and repair,
whether or not the need for such repairs arises out of Lessee’s use, any prior
use, the elements or the age of the Leased Properties or any portion thereof, or
any cause whatsoever except the act or negligence of Lessor, and with reasonable
promptness shall make all necessary and appropriate repairs. Lessee shall
maintain, operate and otherwise manage the Leased Properties at all times on a
basis and in a manner consistent with the standards of the other competing
healthcare facilities in the market areas served by the Leased Properties.  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. 
Lessee 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 Properties or
any parts thereof for the Primary Intended Use.

 

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9.1.2       Lessor shall not under any circumstances be required to maintain,
build or rebuild any improvements on a Leased Property (or any private roadways,
sidewalks or curbs appurtenant thereto), or to make any repairs, replacements,
alterations, restorations or renewals of any nature or description to a Leased
Property, whether ordinary or extraordinary, structural or non-structural,
foreseen or unforeseen, or upon any adjoining property, whether to provide
lateral or other support or abate a nuisance, or otherwise, or to make any
expenditure whatsoever with respect thereto, in connection with this Lease. 
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expense of Lessor pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted.

 

9.1.3       Nothing contained in this Lease shall be construed as
(a) constituting the consent or request of Lessor, expressed or implied, to any
contractor, subcontractor, laborer, materialmen or vendor to or for the
performance of any labor or services or the furnishing of any materials or other
property for the construction, alteration, addition, repair or demolition of or
to a Leased Property or any part thereof, or (b) giving Lessee any right, power
or permission to contract for or permit the performance of any labor or services
or the furnishing of any materials or other property in such fashion as would
permit the making of any claim against Lessor in respect thereof or to make any
agreement that may create, or in any way be the basis for, any right, title,
interest, lien, claim or other encumbrance upon the estate of Lessor in the
Leased Properties or any portion thereof.  Lessor shall have the right to give,
record and post, as appropriate, notices of non-responsibility under any
mechanics’ and construction lien laws now or hereafter existing.

 

9.1.4       Lessee promptly shall replace any of the Leased Improvements or
Lessor’s Personal Property that becomes worn out or unusable or unavailable for
the purpose for which intended. All replacements shall have a value and utility
at least equal to that of the items replaced and shall become part of the Leased
Properties immediately upon their acquisition by Lessee. Upon Lessor’s request,
Lessee promptly shall execute and deliver to Lessor a bill of sale or other
instrument establishing Lessor’s lien-free ownership of such replacements.
Lessee promptly shall repair all damage to a Leased Property incurred in the
course of such replacement.

 

9.1.5       Lessee will, upon the expiration or earlier termination of the Term,
vacate and surrender the Leased Properties to Lessor in the condition in which
they were originally received from Lessor, in good operating condition, ordinary
wear and tear excepted, except as repaired, rebuilt, restored, altered or added
to as permitted or required by the provisions of this Lease.

 

ARTICLE X

 

10.1                        Construction of Alterations and Additions to the
Leased Properties.

 

10.1.1     Lessee shall not (a) make or permit to be made any structural
alterations, improvements or additions of or to the Leased Properties or any
part thereof, or (b) materially alter the plumbing, HVAC or electrical systems
thereon or (c) make any other alterations, improvements or additions the cost of
which exceeds (i) Fifty Thousand ($50,000.00) Dollars per alteration,
improvement or addition, or (ii) One Hundred Thousand ($100,000.00) Dollars in
any Lease Year, unless and until Lessee has (x) caused complete plans and
specifications therefor to have been prepared by a licensed architect and
submitted to Lessor at least sixty (60) Business Days before the

 

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planned start of construction thereof, (y) obtained Lessor’s written approval
thereof and the approval of any Facility Mortgagee and (z), if required to do so
by Lessor, provided Lessor with reasonable assurance of the payment of the cost
of any such alterations, improvements or additions, in the form of a bond,
letter of credit or cash deposit. If Lessor requires a deposit, Lessor shall
retain and disburse the amount deposited in the same manner as is provided for
insurance proceeds in Section 14.6.  If the deposit is reasonably determined by
Lessor at any time to be insufficient for the completion of the alteration,
improvement or addition, Lessee immediately shall increase the deposit to the
amount reasonably required by Lessor. Lessee shall be responsible for the
completion of such improvements in accordance with the plans and specifications
approved by Lessor, and promptly shall correct any failure with respect thereto.

 

10.1.2     Alterations and improvements, other than normal maintenance and
repair of a Facility, not falling within the categories described in the first
sentence of Section 10.1.1 may be made by Lessee without the prior approval of
Lessor.

 

10.1.3     All alterations, improvements and additions shall (a) be constructed
in good, workmanlike, manner, in compliance with all Insurance Requirements and
Legal Requirements, (b) be in keeping with the character of the Leased
Properties and the area in which a Leased Property in question is located and
(c) be designed and constructed so that the value of the Leased Property will
not be diminished and the Primary Intended Use of a Leased Property will not be
changed.  All improvements, alterations and additions immediately shall become a
part of such Leased Property.

 

10.1.4     Lessee shall have no claim against Lessor at any time in respect of
the cost or value of any improvement, alteration or addition.  There shall be no
adjustment in the Rent by reason of any such improvement, alteration or
addition.

 

10.1.5     In connection with any alteration that involves the removal,
demolition or disturbance of any asbestos-containing material, Lessee shall
cause to be prepared at its expense a full asbestos assessment applicable to
such alteration and shall carry out such asbestos monitoring and maintenance
program as reasonably shall be required thereafter in light of the results of
such assessment.

 

ARTICLE XI

 

11.1        Liens.  Without the consent of Lessor or as expressly permitted
elsewhere herein, Lessee will not directly or indirectly create or allow to
remain and will promptly discharge at its expense any lien, encumbrance,
attachment, title retention agreement or claim upon a Leased Property, and any
attachment, levy, claim or encumbrance in respect of the Rent, except for
(a) Permitted Encumbrances, (b) liens of mechanics, laborers, materialmen,
suppliers or vendors for sums not yet due, and (c) liens created by the
malfeasance or negligence of Lessor.

 

ARTICLE XII

 

12.1        Permitted Contests.  Lessee, on its own or on Lessor’s behalf (or in
Lessor’s name), but at Lessee’s sole cost and expense, shall have the right to
contest, by appropriate legal proceedings conducted in good faith and with due
diligence, the amount or validity of any real or personal property
assessment, Imposition, Legal Requirement or Insurance Requirement, or any lien,
attachment, levy, encumbrance, charge or claim or any encroachment or
restriction burdening a

 

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Leased Property, provided: (a) prior Notice of such contest is given to Lessor;
(b) a Leased Property would not be in any danger of being sold, forfeited or
attached as a result of such contest, and there is no risk to Lessor of a loss
of or interruption in the payment of Rent; (c) in the case of an unpaid
Imposition or other lien, attachment, levy, encumbrance, charge or claim,
collection thereof is suspended during the pendency of such contest; (d) in the
case of a contest of a Legal Requirement, compliance may legally be delayed
pending such contest and pending such contest no license, permit, approval,
certificate of need, certificate of reimbursement or other authorization
necessary to operate the Facilities as a provider of health care services in
accordance with its Primary Intended Use may be irrevocably suspended or
revoked, or its right to so operate a Facility or to accept patients irrevocably
suspended. Upon request of Lessor, Lessee shall deposit funds or assure Lessor
in some other manner reasonably satisfactory to Lessor (such as paying
eighty-five percent of the amount claimed due to the Governmental Authority in
the case of real property taxes and assessments) that the amount to be paid by
Lessee that is the subject of a contested Imposition, Legal
Requirement, Insurance Requirement or Claim, together with interest and
penalties, if any, thereon, and any and all costs for which Lessee is
responsible will be paid if and when required upon the conclusion of such
contest. Lessee shall defend, indemnify and save harmless Lessor from all costs
or expenses arising out of or in connection with any such contest, including but
not limited to attorneys’ fees. If at any time Lessor reasonably determines that
payment of any Imposition or other lien, attachment, levy, encumbrance, charge
or claim, or compliance with any Legal or Insurance Requirement being contested
by Lessee is necessary in order to prevent loss of a Leased Property or Rent or
civil or criminal penalties or other damage (including revocation or suspension
of any license, permit, approval, certificate of need, certificate of
reimbursement or other authorization necessary to operate the Facilities as a
provider of health care services in accordance with its Primary Intended Use or
suspension of any right to accept patients), upon such prior Notice to Lessee as
is reasonable in the circumstances Lessor may pay such amount, require Lessee to
comply with such Legal or Insurance Requirement or take such other action as it
may deem necessary to prevent such loss or damage. If reasonably necessary, upon
Lessee’s written request, Lessor, at Lessee’s expense, shall cooperate with
Lessee in a permitted contest, provided Lessee upon demand makes arrangements
satisfactory to Lessor to assure the reimbursement of any and all Lessor’s costs
incurred in cooperating with Lessee in such contest.

 

ARTICLE XIII

 

13.1        General Insurance Requirements.  Lessee shall keep the Leased
Properties, and all property located in or on the Leased Properties, including
Lessor’s Personal Property and Lessee’s Personal Property, insured with
insurance meeting the following requirements: (a) all insurance shall be written
by companies authorized to do insurance business in the applicable States and
having a rating classification of not less than A- and a financial size category
of “Class VIII”, according to the then most recent issue of Best’s Key Rating
Guide; (b) all property and general liability policies (but not professional
liability, criminal liability or worker compensation policies) must name Lessor
as an additional insured, and name as an additional insured any Facility
Mortgagee by way of a standard form of mortgagee’s loss payable endorsement in
use in the applicable States and in accordance with any such other requirements
as may be established by such Facility Mortgagee.  However, if requested by
Lessor and available on a commercially reasonable basis, all public liability
and property damage insurance shall contain a provision that Lessor, although
named as an insured, nevertheless shall be entitled to recovery for loss, damage
or injury to Lessor, its servants, agents and employees by reason of the
negligence of Lessee or Lessor; (c) losses must be payable to Lessor or Lessee
as provided in Article XIV, and loss adjustments shall

 

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require the written consent of Lessor, any Facility Mortgagee and, provided it
is not then in default, Lessee, which consent shall not be unreasonably withheld
by either Lessor or Lessee; (d) each insurer must agree that it will give Lessor
and any Facility Mortgagee at least sixty (60) days’ written Notice before its
policy shall be altered, allowed to expire or canceled; (e) if the deductible
exceeds $50,000, then the amount of any deductible or retention must be approved
by Lessor prior to the issuance of any policy; and (f) the form of all policies
shall be approved by Lessor, whose approval shall not unreasonably be withheld,
and by any Facility Mortgagee.

 

13.2        Risks to be Insured.  The policies covering the Leased Properties
and Lessee’s Personal Property shall insure against the following risks:

 

13.2.1     Loss or damage by fire, vandalism and malicious mischief, earthquake,
extended coverage perils commonly known as “Special Risk,” and all physical loss
perils normally included in such Special Risk insurance, including but not
limited to sprinkler leakage, in an amount not less than one hundred percent
(100%) of Replacement Cost;

 

13.2.2     Broad form comprehensive boiler and machinery insurance on a blanket
repair and replace basis, with limits for each accident in an amount not less
than one hundred percent (100%) of Replacement Cost;

 

13.2.3     Loss of rental under a rental value insurance policy covering risk of
loss during reconstruction necessitated by the occurrence of any of the hazards
described in Sections 13.2.1 or 13.2.2 (but in no event for a period less than
twelve (12) months) in an amount sufficient to prevent Lessor and Lessee from
becoming a co-insurer;

 

13.2.4     Claims for bodily injury (including resulting death), personal injury
or property damage under a policy of commercial general public liability
insurance, in such amounts and on such terms, as Lessee may determine in its
sole discretion;

 

13.2.5     Claims arising out of malpractice, in such amounts and on such terms,
as Lessee may determine in its sole discretion;

 

13.2.6     Flood (with respect to any portions of the Leased Properties located
in whole or in part within a designated flood plain area) and such other hazards
and in such amounts as may be customary for comparable properties in the area;

 

13.2.7     During such time as Lessee is constructing any improvements,
(a) worker’s compensation insurance and employers’ liability insurance covering
all persons employed in connection with the improvements in statutory limits,
(b) a completed operations endorsement to the commercial general liability and
property damage insurance policies referred to above, (c) builder’s risk
insurance, completed value form, covering all physical loss, in an amount
satisfactory to Lessor, and (d) such other reasonable insurance, in such
amounts, as Lessor deems reasonably necessary to protect Lessor’s interest in
the Leased Properties from any act or omission of Lessee’s contractors or
subcontractors, and certificates of insurance evidencing such coverage, in form
satisfactory to Lessor, shall be presented to Lessor prior to the commencement
of construction of such improvements; provided, however, that with regard to the
insurance coverage required by subsections (a) and (b) of this Section 13.2.7,
Lessee shall be in compliance with these subsections

 

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if it causes the applicable contractors constructing any improvements to provide
such insurance in a manner consistent with the requirements of this Lease;

 

13.2.8             Primary automobile liability insurance with limits of One
Million Dollars ($1,000,000.00) per occurrence each for owned and non-owned and
hired vehicles;

 

13.2.9             Loss or damage commonly covered by blanket crime insurance
including dishonesty, loss of money orders or paper currency and depositor’s
forgery, with a limit of not less than One Hundred Fifty Thousand Dollars
($150,000.00).

 

13.3        Payment of Premiums; Copies of Policies; Certificates. Subject to
Section 12.2 of this Lease, Lessee shall pay when due all of the premiums for
the insurance required by this Lease, and shall deliver to Lessor and to any
Facility Mortgagee requesting such evidence, certificates of insurance in form
satisfactory to Lessor and such Facility Mortgagee. Copies of the policies of
insurance required by this Lease and certificates thereof shall be delivered to
Lessor when available to Lessee, and in the event of the failure of Lessee
either to carry the required insurance or pay the premiums therefor, or to
deliver copies of policies or certificates to Lessor as required, Lessor shall
be entitled, but shall have no obligation, to obtain such insurance and pay the
premiums therefor when due, in which event Lessee shall repay to Lessor the
premiums upon written demand therefor as Additional Charges.

 

13.4        Umbrella Policies. If Lessee chooses to carry umbrella liability
coverage to obtain the limits of liability required under this Lease, the
umbrella policies must provide coverage in substantially the same manner as the
primary commercial general liability policy and must contain no exclusions or
limitations materially different than, those of the primary policy.

 

13.5        Additional Insurance.  In addition to the insurance described above,
Lessee shall maintain such insurance as may be reasonably required from time to
time by any Facility Mortgagee and shall at all times comply with all Legal
Requirements with respect to worker’s compensation insurance coverage.

 

13.6        No Liability; Waiver of Subrogation.  Lessor shall have no liability
to Lessee, and, provided Lessee provides the insurance required of it by this
Lease, Lessee shall have no liability to Lessor, regardless of the cause, for
any loss or expense resulting from or in connection with damage to or the
destruction or other loss of the Leased Properties or Lessee’s Personal
Property, and neither party will have any right or claim against the other for
any such loss or expense by way of subrogation. Each insurance policy carried by
either party covering any of the Leased Properties and Lessee’s Personal
Property, including without limitation, contents, fire and casualty insurance,
shall contain an express waiver of any right of subrogation on the part of the
insurer against the other party.  Lessee shall pay any additional costs or
charges for obtaining such waiver.

 

13.7        Intentionally omitted.

 

13.8        Blanket Policy.  Any insurance required by this Lease may be
provided by so-called blanket policies of insurance carried by Lessee; provided,
however, that the coverage afforded Lessor thereby may not be less than or
materially different from that which would be provided by separate policies
meeting the requirements of this Lease.

 

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13.9        No Separate Insurance.

 

13.9.1     Lessee shall not, on its own initiative or pursuant to the request or
requirement of any third party, take out separate insurance concurrent in form
or contributing in the event of loss with that required by this Lease, to be
furnished by, or that may reasonably be required to be furnished by, Lessee, or
increase the amount 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 in all cases Lessor and all
Facility Mortgagees, are named therein as additional insureds, and losses are
payable thereunder in the same manner as losses are payable under this Lease.

 

13.9.2     Nothing herein shall prohibit Lessee, upon Notice to Lessor, from
(a) securing insurance required to be carried hereby with higher limits of
liability than required in this Lease, or (b) securing insurance against risks
not required to be insured pursuant to this Lease, and as to such insurance,
Lessor and any Facility Mortgagee need not be included therein as additional
insureds, nor must losses thereunder be payable in the same manner as losses are
payable under this Lease.

 

ARTICLE XIV

 

14.1        Insurance Proceeds.  Net Proceeds shall be paid to Lessor and held,
disbursed or retained by Lessor as provided herein. If the Net Proceeds are less
than the Approval Threshold, and no Event of Default has occurred and is
continuing, Lessor shall pay the Net Proceeds to Lessee promptly upon Lessee’s
request. If the Net Proceeds equal or exceed the Approval Threshold, and no
Event of Default has occurred and is continuing, the Net Proceeds shall be made
available for restoration or repair as provided in Section 14.6. Within fifteen
(15) days of the receipt of the Net Proceeds of Special Risk Insurance, Lessor
and Lessee shall agree as to the portion thereof, if any, attributable to the
Lessee’s Personal Property that Lessee is not required and does not elect to
restore or replace, and if they cannot agree they shall submit the matter to
arbitration pursuant to Article XXXV hereof, and the portion of the proceeds of
such Special Risk Insurance agreed or determined by arbitration to be
attributable to the Lessee’s Personal Property that Lessee is not required and
does not elect to restore or replace shall be paid to Lessee.

 

14.2        Restoration in the Event of Damage or Destruction.    If all or any
portion of a Leased Property is damaged by fire or other casualty, Lessee shall:
(a) give Lessor Notice of such damage or destruction within five (5) Business
Days of the occurrence thereof; (b) within thirty (30) Business Days of the
occurrence commence the restoration of such Leased Property; and (c) thereafter
proceed diligently to complete such restoration as quickly as reasonably
possible to the end that such Leased Property is in substantially the same (or
better) condition as such Leased Property was in immediately prior to the damage
or destruction. Regardless of the anticipated cost thereof, if the restoration
of such Leased Property requires any modification of structural elements, prior
to commencing such modification Lessee shall obtain Lessor’s written approval of
the plans and specifications therefor.

 

14.3        Restoration of Lessee’s Property.  If Lessee is required to restore
a Leased Property, Lessee also concurrently shall restore any of Lessee’s
Personal Property that is integral to the Primary Intended Use of such Leased
Property at the time of the damage or destruction.

 

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14.4        No Abatement of Rent.  There shall be no abatement of Rent by reason
of any damage to or the partial or total destruction of a Leased Property.

 

14.5.       Waiver.  Except as provided elsewhere in this Lease, Lessee hereby
waives any statutory or common law rights of termination that may arise by
reason of any damage to or destruction of a Leased Property.

 

14.6.       Disbursement of Insurance Proceeds Equal to or Greater Than The
Approval Threshold.  If Lessee restores or repairs a Leased Property pursuant to
this Article XIV, and if the Net Proceeds equal or exceed the Approval
Threshold, the restoration or repair and disbursement of funds to Lessee shall
be in accordance with the following procedures:

 

(a)           The restoration or repair work shall be done pursuant to plans and
specifications approved by Lessor and a certified construction cost statement,
to be obtained by Lessee from a contractor reasonably acceptable to Lessor,
showing the total cost of the restoration or repair.

 

(b)           Construction Funds shall be made available, subject to a ten
percent (10%) holdback, to Lessee upon request, but no more frequently than
monthly, as the restoration and repair work progresses pursuant to certificates,
in form and substance reasonably acceptable to Lessor, of an architect selected
by Lessee and reasonably acceptable to Lessor (such architect to be, in the
reasonable judgment of Lessor, highly qualified in the design and construction
of the type of facility being repaired).

 

(c)           After the first disbursement to Lessee, sworn statements and lien
waivers in an amount at least equal to the amount of Construction Funds
previously paid to Lessee shall be delivered to Lessor from all contractors,
subcontractors and material suppliers covering all labor and materials furnished
through the date of the previous disbursement.

 

(d)           Lessee shall deliver to Lessor such other evidence as Lessor
reasonably may request, from time to time during the course of the restoration
and repair, as to the progress of the work, compliance with the approved plans
and specifications, the cost of restoration and repair and the total amount
needed to complete the restoration and repair, and showing that there are no
liens against any Leased Property arising in connection with the restoration and
repair and that the cost of the restoration and repair at least equals the total
amount of Construction Funds then disbursed to Lessee hereunder.

 

(e)           The Construction Funds may be disbursed by Lessor to Lessee or to
the persons entitled to receive payment thereof from Lessee, and such
disbursement in either case may be made directly or through a third party escrow
agent, such as, but not limited to, a title insurance company, or its agent, all
as Lessor may determine in its sole discretion.  Provided Lessee is not in
default hereunder, any excess Construction Funds shall be paid to Lessee upon
completion of the restoration or repair.

 

(f)            If Lessee at any time fails to perform promptly and fully the
conditions and covenants set forth in subparagraphs (a) through (f) above, and
the failure is not corrected within ten (10) days of written Notice thereof, or
if during the restoration or repair an Event

 

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of Default occurs, Lessor may, at its option, immediately cease making any
further payments to Lessee for the restoration and repair.

 

(g)           Lessor may reimburse itself out of the Construction Funds for its
reasonable expenses incurred in administering the Construction Funds and
inspecting the restoration and repair work, including without limitation
attorneys’ and other professional fees and escrow fees and expenses.

 

ARTICLE XV

 

15.1        Total Taking or Other Taking with Leased Properties Rendered
Unsuitable for Its Primary Intended Use. If title to the fee of the whole of any
Leased Property is Taken, this Lease shall cease and terminate as of the Date of
Taking by the Condemnor, and Rent shall be apportioned as of the Date of Taking.
If title to the fee of less than the whole of a Leased Property is Taken, but
such Leased Property is rendered Unsuitable for Its Primary Intended Use as a
result of the Partial Taking, each of Lessee and Lessor shall have the option,
which shall be exercisable by written Notice to the other at any time prior to
the first to occur of the taking of possession by, or the date of vesting of
title in, the Condemnor, to terminate this Lease with respect to such Leased
Property as of the date so determined, in which event this Lease shall so cease
and terminate as of the earlier of the date specified in the Notice or the date
on which possession is taken by the Condemnor.

 

15.2        Allocation of Award.  The total Award made with respect to all or
any portion of a Leased Property or for loss of Rent, or for loss of business,
shall be solely the property of and payable to Lessor or, if so provided in a
Facility Mortgage, to the Facility Mortgagee.  Nothing contained in this lease
will be deemed to create any additional interest in Lessee, or entitle Lessee to
any payment based on the value of the unexpired term or so-called “bonus value”
to Lessee of this Lease.  Any Award made for the taking of Lessee’s Personal
Property, or for removal and relocation expenses of Lessee in any such
proceedings, shall be payable to Lessee. In any proceedings with respect to an
Award, each of Lessor and Lessee shall seek its own Award in conformity
herewith, at its own expense.  Notwithstanding the foregoing, Lessee may pursue
a claim for loss of its business, provided that under the laws of the State,
such claim will not diminish the Award to Lessor.

 

15.3        Partial Taking. In the event of a Partial Taking, Lessee, at its own
cost and expense, shall (a) give Lessor Notice of such Partial Taking;
(b) within thirty (30) Business Days of the first to occur of the taking of
possession by, or the date of vesting of title in, the Condemnor provide Lessor
with the Estimated Cost with respect to restore of such Leased Property to a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as existed immediately prior
to the Partial Taking. If the Estimated Cost is less than the Approval Threshold
and the Award, then Lessee shall commence upon receipt of the Award from Lessor
the restoration of such Leased Property immediately and thereafter proceed
diligently to complete such restoration as quickly as reasonably possible, but
in any event within one hundred eighty (180) days of the date on which such
Notice is given.  Lessor shall contribute to the cost of restoration that
portion of the Award not in excess of the Estimated Cost.  As long as no Event
of Default has occurred and is continuing, if such portion of the Award is in an
amount less than the Approval Threshold, Lessor shall pay the same to Lessee to
fund completion of such restoration. If the Estimated Cost exceeds the either
the Award or the Approval Threshold, then prior to commencing such restoration,
Lessee shall obtain Lessor’s written approval of the plans and

 

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specifications therefor.  If the Estimated Cost exceeds the either the Award or
the Approval Threshold, then Lessor shall provide Lessee within thirty (30) days
of receipt of the Estimated Cost of Lessor’s decision whether to reconstruct
such Leased Property.  If Lessor elects to have Lessee reconstruct such Leased
Property, then (1) Lessee shall commence the restoration of such Leased Property
immediately, (2) Lessor shall make the Award available therefor, (3) Lessor
shall fund any amount by which the Estimated Cost exceeds the Award, and
(4) Lessee shall thereafter proceed diligently to complete such restoration as
quickly as reasonably possible.  If Lessor elects not to have Lessee reconstruct
such Leased Property, (1) Lessor shall be entitled to retain the Award, and
(2) if no Event of Default exists, then Lessee may terminate the Lease.

 

15.4        Temporary Taking.  If there is a Partial Taking of possession or the
use of all or part of a Leased Property, but the fee of such Leased Property is
not Taken in whole or in part, until such Partial Taking of possession or use
continues for more than two (2) months, all the provisions of this Lease shall
remain in full force and effect and the entire amount of any Award made for such
Partial Taking shall be paid to Lessee provided there is then no Event of
Default. Upon the termination of any such period of temporary use or occupancy,
Lessee at its sole cost and expense shall restore the affected Leased Property,
as nearly as may be reasonably possible, to the condition existing immediately
prior to such Partial Taking.  If any such Partial Taking continues for longer
than two (2) months, and thirty percent (30%) or more of the patient capacity of
such Facility is thereby rendered Unsuitable for Its Primary Use, this Lease
shall cease and terminate as of the last day of the second (2nd) month, but if
less than thirty percent (30%) of the patient capacity of such Facility is
thereby rendered Unsuitable for Its Primary Use, each of Lessee and Lessor shall
have the option, which shall be exercisable by giving written Notice to the
other at least sixty (60) days prior written Notice to the other, at any time
prior to the end of the temporary Partial Taking, to terminate this Lease as of
the date set forth in such Notice, and Lessee shall be entitled to any Award
made for the period of such temporary Partial Taking prior to the date of
termination of the Lease. Rent shall not abate during the period of any
temporary Partial Taking.

 

ARTICLE XVI

 

16.1        Lessor’s Rights Upon an Event of Default. If an Event of Default
occurs, Lessor may terminate this Lease by giving Lessee a Notice of
Termination, and in such event the Term shall end and all rights of Lessee under
this Lease shall cease on the Termination Date.  The Notice of Termination shall
be in lieu of and not in addition to any notice required by the laws of any
State as a condition to bringing an action for possession of the Leased Premises
or to recover damages under this Lease.  In addition to Lessor’s right to
terminate this Lease, Lessor shall have all other rights set forth in this Lease
and all remedies available at law and in equity.

 

Lessee shall, to the extent permitted by law, pay as Additional Charges all
costs and expenses incurred by or on behalf of Lessor, including, without
limitation, reasonable attorneys’ fees and expenses (whether or not litigation
is commenced, and if litigation is commenced, including fees and expenses
incurred in appeals and post-judgment proceedings) as a result of any default of
Lessee hereunder.

 

No Event of Default (other than a failure to make payment of money) shall be
deemed to exist if and for so long as Lessee is unable to prevent such Event of
Default because of Force Majeure, provided that, upon the cessation of the Force
Majeure, Lessee immediately shall

 

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proceed to remedy the action or condition giving rise to the Event of Default
within the applicable cure period as extended by the Force Majeure.

 

16.2        Certain Remedies.  If an Event of Default occurs, whether or not
this Lease has been terminated pursuant to Section 16.1, if required to do so by
Lessor Lessee immediately shall surrender such Leased Property to Lessor in the
condition required by Section 9.1.5 and quit the same, and Lessor may enter upon
and repossess such Leased Property by reasonable force, summary proceedings,
ejectment or otherwise, and may remove Lessee and all other persons and any and
all personal properties from such Leased Property, subject to rights of any
residents or patients and to any Legal Requirements.

 

16.3        Damages.  None of (a) the termination of this Lease pursuant to
Section 16.1, (b) the repossession of a Leased Property, (c) the failure of
Lessor to relet a Leased Property, (d) the reletting of all or any portion
thereof, or (v) the failure of Lessor to collect or receive any rentals due upon
such any reletting, shall relieve Lessee of its liability and obligations
hereunder, all of which shall survive any such termination, repossession or
reletting.  If this Lease is terminated by Lessor, Lessee immediately shall pay
to Lessor all Rent due and payable with respect to a Leased Property to and
including the Termination Date, including without limitation all interest and
late charges payable under Section 3.3 hereof with respect to any late payment
of such Rent.  Lessee also shall pay to Lessor, as liquidated damages, at
Lessor’s option, either:

 

(A)                               The sum of:

 

(i)            Lessor’s Interim Rent Loss, minus Net Reletting Proceeds for such
period, and minus the portion of Lessor’s Interim Rent Loss, if any, that Lessee
proves reasonably could have been mitigated by Lessor, plus

 

(ii)           the Present Value on the Judgment Date of Lessor’s Future Rent
Loss, assuming the Cost of Living Index were to increase four (4) percentage
points per Lease Year from the Judgment Date through the Expiration Date, minus
the Present Value on the Termination Date of the portion of Lessor’s Future Rent
Loss that Lessee proves reasonably could be mitigated by Lessor;

 

or

 

(B)          Each month between the Termination Date and the Expiration Date,
Lessor’s Monthly Rent Loss, minus the Net Reletting Proceeds for such month, and
minus the portion, if any, of Lessor’s Monthly Rent Loss that Lessee proves
reasonably could have been avoided. Any suit brought to recover liquidated
damages payable under this subsection (B) shall not prejudice Lessor’s right to
collect liquidated damages for subsequent months in a similar proceeding.

 

16.4        Waiver.  If this Lease is terminated pursuant to Section 16.1,
Lessee waives, to the extent permitted by applicable law, (a) any right of
reentry, repossession or redesignation, (b) any right to a trial by jury in the
event of summary proceedings to enforce the remedies set forth in this
Article XVI, and (c) the benefit of any laws now or hereafter in force exempting
property from liability for rent or for debt.  Acceptance of Rent at any time
does not prejudice or remove any right of Lessor as to any right or remedy.  No
course of conduct shall be held to bar Lessor from literal enforcement of the
terms of this Lease.

 

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16.5        Application of Funds.  Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default shall be applied to Lessee’s obligations in the order that Lessor
determines in its sole discretion or as may be prescribed by law.

 

ARTICLE XVII

 

17.1        Lessor’s Right to Cure Lessee’s Default.  If Lessee fails to make
any payment or perform any act required to be made or performed under this
Lease, and fails to cure the same within any grace or cure period applicable
thereto, upon such Notice as may be expressly required herein (or, if Lessor
reasonably determines that the giving of Notice would risk material loss to a
Leased Property or cause material damage to Lessor, upon such Notice as is
practical under the circumstances), and without waiving or releasing any
obligation of Lessee, Lessor may make such payment or perform such act for the
account and at the expense of Lessee, and may, to the extent permitted by law,
enter upon a Leased Property for such purpose and take all such action thereon
as, in Lessor’s sole opinion, may be necessary or appropriate.  No such entry
shall be deemed an eviction of Lessee.  All amounts so paid by Lessor and all
costs and expenses (including, without limitation, reasonable attorneys’ fees
and expenses) so incurred, together with the late charge and interest provided
for in Section 3.3 thereon, shall be paid by Lessee to Lessor on demand.  The
obligations of Lessee and rights of Lessor contained in this Article shall
survive the expiration or earlier termination of this Lease.

 

ARTICLE XVIII

 

18.1        Holding Over.  If Lessee remains in possession of a Leased Property
after the expiration of the Term or earlier termination of this Lease, such
possession shall be as a month-to-month tenant, and throughout the period of
such possession Lessee shall pay as Rent for each month one and one half (1 ½)
times the sum of:(a) one-twelfth (1/12th) of the Base Rent payable during the
Lease Year in which such expiration or termination occurs, plus (b) all
Additional Charges accruing during the month, plus (c) any and all other sums
payable by Lessee pursuant to this Lease.  During such period of month-to-month
tenancy, Lessee 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 month-to-month
tenancies, to continue its occupancy and use of such Leased Property until the
month-to-month tenancy is terminated.  Nothing contained herein shall constitute
the consent, express or implied, of Lessor to the holding over of Lessee after
the expiration or earlier termination of this Lease.

 

18.2        Indemnity.  If Lessee fails to surrender the Leased Properties in a
timely manner and in accordance with the provisions of Section 9.1.5 upon the
expiration or termination of this Lease, in addition to any other liabilities to
Lessor accruing therefrom, Lessee shall defend, indemnify and hold Lessor, 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 paid by Lessee pursuant to
this Lease during Lessee’s hold-over and any claims by any proposed new tenant
founded on such failure.  The provisions of this Section 18.2 shall survive the
expiration or earlier termination of the Term.

 

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18.3                        If Lessor fails to find a new lessee, manager,
operator or owner for the Leased Properties in a timely manner prior to the
expiration of the Term, and Lessee is required by its obligations as the
licensed operator of the Facilities to, or is requested by Lessor to, hold over,
then Lessee shall have no obligation to pay Rent during such period. In such
circumstances, Lessee shall not be obligated to remain in possession and
operating the Facilities for a period in excess of six months after the
expiration of the Term.

 

ARTICLE XIX

 

19.1                        Subordination.  This Lease is subject and
subordinate to any Facility Mortgage. This clause shall be self-operative and no
further instrument of subordination need be required by any Facility Mortgagee;
provided, however, that Lessor or any Facility Mortgagee may elect to make this
Lease superior to a Facility Mortgage at any time by Notice to Lessee. As to any
Facility Mortgage to which this Lease is subordinate, Lessor shall provide
Lessee with a “non-disturbance agreement” reasonably acceptable to such Facility
Mortgagee and Lessee providing that, if such Facility Mortgagee acquires the
Leased Properties by way of foreclosure or deed in lieu of foreclosure, such
Facility Mortgagee will not disturb Lessee’s possession under this Lease and
will recognize Lessee’s rights hereunder if and for so long as no Event of
Default has occurred under this Lease and is continuing.  Lessee agrees that it
shall not withhold or delay its consent unreasonably to any amendment of this
Lease reasonably required by a Facility Mortgagee, and Lessee shall be deemed to
have withheld or delayed its consent unreasonably if Lessee has received the
non-disturbance agreement provided for above and the requested amendment does
not materially (a) alter the economic terms of this Lease, (b) diminish the
rights of Lessee under this Lease or (c) increase the obligations of Lessee
under this Lease.

 

19.2                        Attornment.  If a Facility Mortgagee enforces the
remedies provided for by law or by a Facility Mortgage, Lessee shall, at the
option of the party succeeding to the interest of Lessor as a result of such
enforcement or as a result of a deed or delivery of possession of the Leased
Properties in lieu of such enforcement, attorn to such successor and recognize
such successor as Lessor under this Lease; provided, however, that such
successor in interest shall not (a) be bound by any payment of Rent for more
than one (1) month in advance, except for any such advance payments as may be
expressly required by this Lease; (b) be bound by any modification of this Lease
made without the written consent of the Facility Mortgagee or successor in
interest; (c) be liable for any act or omission of Lessor (provided, that
nothing in this Section 19.2 shall release Lessor of any such liability); or (d)
be subject to any offset or defense arising prior to the date such successor in
interest acquired title to the Leased Properties. Upon request, Lessee shall
execute and deliver an instrument or instruments confirming the attornment
provided for herein.

 

19.3                        Lessee’s Certificate.  Lessee shall, upon not less
than twenty (20) days prior Notice from Lessor, execute, acknowledge and deliver
to Lessor Lessee’s Certificate containing then-current facts.  It is intended
that any Lessee’s Certificate delivered pursuant hereto may be relied upon by
Lessor, any prospective tenant or purchaser of the Leased Properties, any
mortgagee or prospective mortgagee and any other party who reasonably may rely
on such statement.  Lessee’s failure to deliver the Lessee’s Certificate within
such time shall constitute an Event of Default.

 

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ARTICLE XX

 

20.1                        Risk of Loss.  During the Term, the risk of loss or
of decrease in the enjoyment and beneficial use of the Leased Properties in
consequence of the damage or destruction thereof by fire, the elements,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions (other than those caused by Lessor and those
claiming from, through or under Lessor) is assumed by Lessee, and, in the
absence of gross negligence, willful misconduct or material breach of this Lease
by Lessor, Lessor in no event shall be answerable or accountable therefor nor
shall any of the events mentioned in this Section entitle Lessee to any
abatement of Rent.

 

ARTICLE XXI

 

21.1                        Indemnification by Lessee.  Notwithstanding the
existence of any insurance or self-insurance provided for in Article XIII, and
without regard to the policy limits of any such insurance or self-insurance,
Lessee shall protect, indemnify, save harmless and defend Lessor and any
Facility Mortgagee, and the principals, officers, directors and agents and
employees of Lessor and of any Facility Mortgagee, from and against all
liabilities, obligations, claims, damages, penalties, causes of action, costs
and expenses (including, without limitation, reasonable attorneys’ fees and
expenses), to the extent permitted by law, imposed upon or incurred by or
asserted against Lessor or any Facility Mortgagee by reason of: (a) any
accident, injury to or death of persons or loss of or damage to property
occurring on or about the Leased Properties or adjoining sidewalks, including
without limitation any claims of malpractice; (b) any use, misuse, non-use,
condition, maintenance or repair by Lessee of the Leased Properties; (c) the
failure to pay any Impositions; (d) any failure on the part of Lessee to perform
or comply with any of the terms of this Lease; (e) the management and operation
of the Facilities from and after the Commencement Date; and (f) the
nonperformance of any contractual obligation, express or implied, assumed or
undertaken by Lessee or any party in privity with Lessee with respect to the
Leased Properties or any business or other activity carried on with respect to
the Leased Properties during the Term or thereafter during any time in which
Lessee or any such other party is in possession of the Leased Properties or
thereafter to the extent that any conduct by Lessee or any such person (or
failure of such conduct thereby if the same should have been undertaken during
such time of possession and leads to such damage or loss) causes such loss or
claim.  Any amounts that become payable by Lessee under this Section shall be
paid within ten (10) days after the date of demand, and, if not timely paid,
shall bear interest (to the extent permitted by law) at the Overdue Rate from
the date of such determination to the date of payment.  Nothing herein shall be
construed as indemnifying either Lessor or any Facility Mortgagee against its
own grossly negligent acts or omissions or willful misconduct.

 

21.2                        Survival of Indemnification.  Lessee’s liability
under this Article shall survive the expiration or any earlier termination of
this Lease.

 

ARTICLE XXII

 

22.1                        General Prohibition against Transfers.  Lessee
acknowledges that a significant inducement to Lessor to enter into this Lease
with Lessee on the terms set forth herein is the combination of financial
strength, experience, skill and reputation possessed by Lessee. Therefore, there
shall be no Transfer except as specifically permitted by this Lease or consented
to in advance by Lessor in writing.  Any attempted Transfer that is not
specifically permitted by this Lease or

 

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consented to by Lessor in advance in writing shall be null and void and of no
force and effect whatsoever.  In the event of a Transfer, Lessor may collect
Rent and other charges from the Transferee and apply the amounts collected to
the Rent and other charges herein reserved, but no Transfer or collection of
Rent and other charges shall be deemed to be a waiver of Lessor’s rights to
enforce Lessee’s covenants or an acceptance of the Transferee as Lessee, or a
release of the Lessee named herein from the performance of its covenants.
Notwithstanding any Transfer, Lessee shall remain fully liable for the
performance of all terms, covenants and provisions of this Lease.  Any violation
of this Lease by any Transferee shall be deemed to be a violation of this Lease
by Lessee.  Notwithstanding the foregoing, Lessor shall grant its consent to a
transfer by AdCare of 100% of the outstanding equity interests in AdCare to a
new owner (“New Parent”) provided that (i) New Parent meets the threshold
requirements set forth on Exhibit D and (ii) New Parent delivers a guaranty of
this Lease and a security agreement substantially in the forms of guaranty and
security agreement delivered by AdCare.

 

22.3                        Subordination and Attornment.  Lessee shall insert
in any sublease permitted by Lessor provisions to the effect that (a) such
sublease is subject and subordinate to all of the terms and provisions of this
Lease and to the rights of Lessor hereunder, (b) if this Lease terminates before
the expiration of such sublease, the sublessee thereunder will, at Lessor’s
option, attorn to Lessor and waive any right the sublessee may have to terminate
the sublease or to surrender possession thereunder, as a result of the
termination of this Lease, and (c) if the sublessee receives a written Notice
from Lessor or Lessor’s assignee, if any, stating that Lessee is in default
under this Lease, the sublessee thereafter shall be obligated to pay all rentals
accruing under the sublease directly to the party giving such Notice, or as such
party may direct, and such payments shall be credited against the amounts owing
by Lessee under this Lease.

 

22.4                        Sublease Limitation.  Anything contained in this
Lease to the contrary notwithstanding, even if a sublease of a Leased Property
is permitted, Lessee shall not sublet such Leased Property on any basis such
that the rental to be paid by the sublessee thereunder would be based, in whole
or in part, on either (a) the income or profits derived by the business
activities of the sublessee, or (b) any other formula such that any portion of
the sublease rental received by Lessor would fail to qualify as “rents from real
property” within the meaning of Section 856(d) of the Code, or any similar or
successor provision thereto.  The parties agree that this Section shall not be
deemed waived or modified by implication, but may be waived or modified only by
an instrument in writing explicitly referring to this Section by number.

 

ARTICLE XXIII

 

23.1                        Financial Statements and Other Reports and Materials
Required by Lessor.  Lessee shall furnish to Lessor, in paper form and by
electronic means, in the form customarily provided by Lessee or its Affiliates
to their lenders or other landlords:

 

(a)                                 Within ninety (90) days after the end of
each of Lessee’s fiscal years:  (i) Lessee’s Financial Statements; (ii)
Guarantor’s Financial Statements; and (iii) an Officer’s Certificate stating
that Lessee is not in default in the performance or observance of any of the
terms of this Lease, or if Lessee is in default, specifying all such defaults,
the nature thereof, and the steps being taken to remedy the same;

 

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(b)                                 Within thirty (30) days after the end of
each month, monthly financial reports for the Facilities, including detailed
statements of income and expense and detailed operational statistics regarding
occupancy rates, patient mix and patient rates by type for the Facilities;

 

(c)                                  If applicable, within fifteen (15) days of
filing a copy of each cost report filed with a governmental agency for the
Facility;

 

(d)                                 If applicable, within fifteen (15) days of
Lessee’s receipt thereof, copies of Medicare and Medicaid Rate Letters and
correspondence;

 

(e)                                  Within thirty (30) days of Lessee’s or
Manager’s receipt thereof, copies of surveys performed by the appropriate
governmental agencies for licensing or certification purposes which show any
material deficiencies, including, without limitation, annual surveys, revisits
and complaint surveys, copies of any plans of correction and all related
correspondence;

 

(f)                                   Immediate Notice to Lessor of any action,
proposal or investigation by any agency or entity, or complaint to such agency
or entity, known to Lessee, the result of which could be to (i) modify in a way
materially adverse to Lessee or revoke or suspend or terminate, or fail to renew
or fully continue in effect, any license or certificate or operating authority
pursuant to which Lessee carries on any part of the Primary Intended Use of the
Facilities, or (ii) suspend, terminate, adversely modify, or fail to renew or
fully continue in effect any cost reimbursement or cost sharing program by any
state or federal governmental agency, including but not limited to Medicaid or
Medicare or any successor or substitute therefor, or seek return of or
reimbursement for any funds previously advanced or paid pursuant to any such
program, or (iii) impose any bed hold, limitation on patient admission or
similar restriction on a Leased Property;

 

(g)                                  As soon as it is prepared in each Lease
Year, but not later than the last day of the first (1st) month in each Lease
Year, a capital and operating budget for the Facilities for that Lease Year;

 

(h)                                 Upon Lessor’s request from time to time,
such additional information and unaudited quarterly financial information
concerning the Leased Properties and Lessee as Lessor may reasonably require for
its on-going filings with the Securities and Exchange Commission, under both the
Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as
amended, including, but not limited to, 10-Q Quarterly Reports, 10-K Annual
Reports and registration statements to be filed by Lessor during the Term of
this Lease; and

 

(i)                                     Within fifteen (15) Business Days after
the expiration of each license and permit required for the operation of the
Facilities for The Primary Intended Use, evidence satisfactory to Lessor that
such license or permit has been renewed by the issuer thereof.

 

23.2                        Public Offering Information.  Lessee specifically
agrees that Lessor may include financial information and information concerning
the operation of the Facilities that does not violate the confidentiality of the
facility-patient relationship and the physician-patient privilege under

 

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applicable laws, in offering memoranda or prospectus, or similar publications in
connection with syndications or public offerings of Lessor’s securities or
interests, and any other reporting requirements under applicable Federal and
State Laws, including those of any successor to Lessor.  Lessee agrees to
provide such other reasonable information necessary with respect to Lessee and
the Leased Properties to facilitate a public offering or to satisfy SEC or
regulatory disclosure requirements. Upon request of Lessor, Lessee shall notify
Lessor of any necessary corrections to information Lessor proposes to publish
within a reasonable period of time (not to exceed three (3) days) after being
informed thereof by Lessor.

 

ARTICLE XXIV

 

24.1                        Lessor’s Right to Inspect.  Lessee shall permit
Lessor and its authorized representatives to inspect the Leased Properties
during normal business hours upon five (5) days prior notice to Lessee, except
in the event of an emergency when no notice is required.

 

ARTICLE XXV

 

25.1                        No Waiver.  No failure by Lessor to insist upon the
strict performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach hereof, and no acceptance of full or partial payment of
Rent during the continuance of any such breach, shall constitute a waiver of any
such breach or of any such term.  No waiver of any breach shall affect or alter
this Lease, which shall continue in full force and effect with respect to any
other then existing or subsequent breach.

 

ARTICLE XXVI

 

26.1                        Remedies Cumulative.  To the extent permitted by
law, each legal, equitable or contractual right, power and remedy of Lessor now
or hereafter provided either in this Lease or by statute or otherwise shall be
cumulative and concurrent and shall be in addition to every other right, power
and remedy, and the exercise or beginning of the exercise by Lessor of any one
or more of such rights, powers and remedies shall not preclude the simultaneous
or subsequent exercise by Lessor of any or all of such other rights, powers and
remedies.

 

ARTICLE XXVII

 

27.1                        Acceptance of Surrender.  No surrender to Lessor of
this Lease or of the Leased Properties or any part thereof, or of any interest
therein, shall be valid or effective unless agreed to and accepted in writing by
Lessor, and no act by Lessor or any representative or agent of Lessor, other
than such a written acceptance by Lessor, shall constitute an acceptance of any
such surrender.

 

ARTICLE XXIII

 

28.1                        No Merger of Title.  There shall be no merger of
this Lease or of the leasehold estate created hereby by reason of the fact that
the same person, firm, corporation or other entity may acquire, own or hold,
directly or indirectly, (a) this Lease or the leasehold estate created hereby or
any interest in this Lease or such leasehold estate, and (b) the fee estate in
the Leased Properties.

 

28.2                        No Partnership.  Nothing contained in this Lease
will be deemed or construed to create a partnership or joint venture between
Lessor and Lessee or to cause either party to be

 

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responsible in any way for the debts or obligations of the other or any other
party, it being the intention of the parties that the only relationship
hereunder is that of Lessor and Lessee.

 

ARTICLE XXIX

 

29.1                        Conveyance by Lessor.  If Lessor or any successor
owner of the Leased Properties conveys the Leased Properties other than as
security for a debt, Lessor or such successor owner, as the case may be, shall
be released from all future liabilities and obligations of Lessor under this
Lease arising or accruing from and after the date of such conveyance or other
transfer, and all such future liabilities and obligations shall be binding upon
the new owner.

 

ARTICLE XXX

 

30.1                        Quiet Enjoyment.  So long as Lessee pays all Rent as
it becomes due and complies with all of the terms of this Lease and performs its
obligations hereunder, Lessee shall peaceably and quietly have, hold and enjoy
the Leased Properties for the Term, free of any claim or other action by Lessor
or anyone claiming by, through or under Lessor, but subject to all liens and
encumbrances of record as of the date hereof or hereafter provided for in this
Lease or consented to by Lessee.  Except as otherwise provided in this Lease, no
failure by Lessor to comply with the foregoing covenant will give Lessee any
right to cancel or terminate this Lease or abate, reduce or make a deduction
from or offset against the Rent or any other sum payable under this Lease, or to
fail to perform any other obligation of Lessee.  Lessee shall, however, have the
right, by separate and independent action, to pursue any claim it may have
against Lessor as a result of a breach by Lessor of the covenant of quiet
enjoyment contained in this Section.

 

ARTICLE XXXI

 

31.1                        Notices.  Any notice, request or other communication
to be given by any party hereunder shall be in writing and shall be sent by
registered or certified mail, postage prepaid, or by hand delivery or facsimile
transmission to the following address:

 

To Lessee:

ADK Georgia, LLC

 

Two Buckhead Plaza

 

3050 Peachtree Road NW, Suite 570

 

Atlanta, Georgia 30305

 

Attention: Chris Brogdon

 

Tel: (770) 650-7086, ext. 12

 

Fax: (770) 650-8883

 

 

With a copy to:

Gregory P. Youra, Esq.

(which shall not

Holt Ney Zatcoff & Wasserman, LLP

constitute notice)

100 Galleria Parkway, Suite 600

 

Atlanta, Georgia 30339

 

Tel: (770) 956-9600

 

Fax: (770) 956-1490

 

 

To Lessor:

c/o Omega Healthcare Investors, Inc.

 

200 International Circle, Suite 3500

 

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Hunt Valley, MD 21030

 

Attn.: Daniel J. Booth

 

Telephone No.: (410) 427-1700

 

Facsimile No.: (410) 427-8800

 

 

And with copy to

Mark E. Derwent, Esq.

(which shall not

Doran Derwent, PLLC

constitute notice):

5960 Tahoe Drive, SE, Suite 101

 

Grand Rapids, MI 49546

 

Telephone No.: (616) 451-8690

 

Facsimile No.: (616) 451-8697

 

or to such other address as either party may hereafter designate. Notice shall
be deemed to have been given on the date of delivery if such delivery is made on
a Business Day, or if not, on the first Business Day after delivery. If delivery
is refused, Notice shall be deemed to have been given on the date delivery was
first attempted. Notice sent by facsimile transmission shall be deemed given
upon confirmation that such Notice was received at the number specified above or
in a Notice to the sender.

 

ARTICLE XXXII

 

32.1                        Intentionally deleted.

 

ARTICLE XXXIII

 

33.1                        Intentionally deleted.

 

ARTICLE XXXIV

 

34.1                        Intentionally omitted.

 

34.2                        Transfer of Operational Control of the Facilities.

 

34.2.1                                      Lessee acknowledges and agrees that,
subject to applicable law, the certificates of need and licenses necessary to
operate the Leased Properties for the Primary Intended Use are appurtenant to
the Leased Properties, both during and following the expiration or earlier
termination of the Term.  If the certificates of need or licenses to operate the
Leased Properties for the Primary Intended Use are issued to Lessee or any
Affiliate of Lessee, Lessee agrees that it will cooperate with Lessor to turn
over, or to cause to turn over, to Lessor or its designee, upon the expiration
or earlier termination of the Term, all of Lessee’s or its Affiliate’s rights in
connection with the certificate of need and/or licenses.

 

34.2.3                                      Upon the expiration or earlier
termination of the Term, Lessee shall cooperate fully in transferring
operational control of the Facilities to Lessor or Lessor’s nominee and shall
use its best efforts to cause the business conducted at the Facility to continue
without interruption.  Upon the request of Lessor, Lessee shall execute and
deliver an Operations Transfer Agreement to Lessor and any new operator
identified by Lessor in substantially the same form as the Operations Transfer
Agreement attached as Exhibit E.  The obligation of Lessee regarding the

 

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Operations Transfer Agreement shall survive the termination of this Lease.  To
that end, pending completion of the transfer of the operational control of the
Facility to Lessor or its nominee:

 

(a)                                                         Lessee will provide
all necessary information requested by Lessor or its nominee for the preparation
and filing of any and all necessary applications or notifications of any federal
or state governmental authority having jurisdiction over a change in the
operational control of the Facilities, and any other information reasonably
required to effect an orderly transfer of the Facilities, and Lessee will use
reasonable, good faith efforts to cause all operating health care licenses to be
transferred to Lessor or to Lessor’s nominee if permitted by law;

 

(b)                                                         Lessee shall engage
only in transactions or other activities with respect to the Facilities that are
in the ordinary course of its business and shall perform all maintenance and
repairs reasonably necessary to keep the Facilities in satisfactory operating
condition and repair, and shall maintain the supplies and foodstuffs at levels
that are consistent and in compliance with all applicable health care
regulations, and shall not sell or remove any personal property except in the
ordinary course of business and in accordance with the terms and conditions of
this Lease; and

 

(c)                                                          Upon the request of
Lessor, Lessee shall, and shall cause the applicable Sublessee to, execute and
deliver an Operations Transfer Agreement to Lessor and any new operator
identified by Lessor which is no less favorable to the former operator as the
Operations Transfer Agreement pursuant to which operations were transferred to
Lessee and/or the Sublessees on the Commencement Date.

 

34.3                        Intangibles and Personal Property.  Notwithstanding
any other provision of this Lease, Lessor’s Personal Property shall not include
goodwill nor shall it include any other intangible personal property that is
severable from Lessor’s “interests in real property” within the meaning of
Section 856(d) of the Code, or any similar or successor provision thereto.

 

ARTICLE XXXV

 

35.1                        Arbitration.  Except with respect to the payment of
Rent under this Lease, and any proceedings to recover possession of one or more
of the Leased Properties, if any controversy arises between the parties hereto
as to any of the provisions of this Lease or the performance thereof, and if the
parties are unable to settle the controversy by agreement or as otherwise
provided herein, the controversy shall be decided by arbitration.  The
arbitration shall be conducted by three arbitrators selected in accordance with
the rules and procedures of the American Arbitration Association.  The decision
of the arbitrators shall be final and binding, and judgment may be entered
thereon in any court of competent jurisdiction.  The decision shall set forth in
writing the basis for the decision.  In rendering the decision and award, the
arbitrators shall not add to, subtract from or otherwise modify the provisions
of this Lease.  The expense of the arbitration shall be divided between Lessor
and Lessee unless otherwise specified in the award.  Each party in interest
shall pay the fees and expenses of its own counsel. The arbitration shall be
conducted in Baltimore, Maryland.  In any arbitration, the parties shall be
entitled to conduct discovery in the same manner as permitted under Federal
Rules of Civil Procedure 26 through 37, as amended.  No provision in this
Article shall limit the right of any party to this Agreement to obtain
provisional or ancillary remedies from a

 

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court of competent jurisdiction before, after or during the pendency of any
arbitration, and the exercise of such remedies does not constitute a waiver of
the right of either party to arbitration.

 

ARTICLE XXXVI

 

36.1                        Miscellaneous.

 

36.1.1              Survival, Choice of law.  Anything contained in this Lease
to the contrary notwithstanding, all claims against, and liabilities of, Lessee
or Lessor arising prior to the date of expiration or termination of this Lease
shall survive such expiration or termination.  If any term or provision of this
Lease or any application thereof is held invalid or unenforceable, the remainder
of this Lease and any other application of such term or provisions shall not be
affected thereby. Neither this Lease nor any provision hereof may be changed,
waived, discharged or terminated except by an instrument in writing and in
recordable form signed by Lessor, any Facility Mortgagee and Lessee.  All the
terms and provisions of this Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.  The
headings in this Lease are for convenience of reference only and shall not limit
or otherwise affect the meaning hereof. This Lease shall be governed by and
construed in accordance with the laws of the state of Maryland, except as to
matters which, under applicable procedural conflicts of laws rules require the
application of laws of another State.

 

LESSEE CONSENTS TO IN PERSONAM JURISDICTION BEFORE THE STATE AND FEDERAL COURTS
OF THE STATES OF MARYLAND AND GEORGIA, AND AGREES THAT ALL DISPUTES CONCERNING
THIS AGREEMENT BE HEARD IN THE STATE AND FEDERAL COURTS LOCATED IN THE STATES OF
MARYLAND AND GEORGIA.  LESSEE AGREES THAT SERVICE OF PROCESS MAY BE EFFECTED
UPON IT UNDER ANY METHOD PERMISSIBLE UNDER THE LAWS OF THE STATES OF MARYLAND
AND GEORGIA AND IRREVOCABLY WAIVES ANY OBJECTION TO VENUE IN THE STATE AND
FEDERAL COURTS OF THE STATES OF MARYLAND AND GEORGIA.

 

36.1.2              Limitation on Recovery.  Lessee specifically agrees to look
solely to Lessor’s interest in the Leased Properties for recovery of any
judgment from Lessor, it being specifically agreed that no constituent
shareholder, officer or director of Lessor shall ever be personally liable for
any such judgment or for the payment of any monetary obligation to Lessee. 
Furthermore, Lessor (original or successor) shall never be liable to Lessee for
any indirect or consequential damages suffered by Lessee from whatever cause.

 

36.1.3              Waivers.  Lessee waives any defense by reason of any
disability of Lessee, and waives any other defense based on the termination of
Lessee’s (including Lessee’s successor’s) liability from any cause.  Lessee
waives all presentments, demands for performance, notices of nonperformance,
protests, notices of protest, notices of dishonor, and notices of acceptance,
and waives all notices of the existence, creation, or incurring of new or
additional obligations.

 

36.1.4              Lessee to Pay Reasonable Expenses.  Lessee shall pay or
reimburse Lessor for all reasonable costs and expenses incurred by Lessor in
connection with or relating in any way to the administration of this Lease,
including without limitation, search costs, audit fees, appraisal fees,
attorneys’ fees, and other costs paid or incurred by Lessor in the analysis,
administration and enforcement of this Lease and the other Transaction
Documents, the protection and defense of the

 

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rights of Lessor in and to the Leased Properties, the Collateral and the other
Transaction Documents, or as otherwise referred to in this Lease or in the other
Transaction Documents, and all costs and expenses relating to extensions,
amendments, waivers, or consents requested by Lessee, pursuant to this Lease or
any other Transaction Document or any agreements with other parties or
termination of this Lease (collectively, “Reasonable Expenses”).  All Reasonable
Expenses for which Lessee is liable shall be reasonably documented in a manner
that generally describes the services rendered, disbursements advanced, or fees
charged or any other amounts for which any party is or may be obligated pursuant
to the terms of this Lease or any other Transaction Document, it being
understood and agreed that certain documentation may be redacted to exclude
confidential or strategic information.  All such Reasonable Expenses shall be
due on demand; provided, however, that so long as no Event of Default has
occurred hereunder, Reasonable Expenses incurred after the date of this Lease
which are unrelated to the closing shall be paid on or before the earlier of (i)
30 days following written notice thereof to Lessee or (ii) the date of
expiration or earlier termination of this Lease.  Any Reasonable Expenses not
paid when due shall bear interest at the Overdue Rate.

 

36.1.5              Counterparts.  This Lease may be executed in separate
counterparts, each of which shall be considered an original when each party has
executed and delivered to the other one or more copies of this Lease.

 

36.1.6              Options Personal.  The renewal options granted to Lessee in
this Lease are granted solely to Lessee and are not assignable or transferable
except in connection with a Transfer permitted in Article XXII.

 

36.1.7              Rights Cumulative.  Except as provided herein to the
contrary, the respective rights and remedies of the parties specified in this
Lease shall be cumulative and in addition to any rights and remedies not
specified in this Lease.

 

36.1.8              Entire Agreement.  There are no oral or written agreements
or representations between the parties hereto affecting this Lease.  This Lease
supersedes and cancels any and all previous negotiations, arrangements,
representations, brochures, agreements and understandings, if any, between
Lessor and Lessee.

 

36.1.9              Amendments in Writing.  No provision of this Lease may be
amended except by an agreement in writing signed by Lessor, any Facility
Mortgagee and Lessee.

 

36.1.10                               Severability.  If any provision of this
Lease or the application of such provision to any person, entity or circumstance
is found invalid or unenforceable by a court of competent jurisdiction, such
determination shall not affect the other provisions of this Lease and all other
provisions of this Lease shall be deemed valid and enforceable.

 

36.1.11                               Time of the Essence.  Except for the
delivery of possession of the Facilities to Lessee, time is of the essence with
respect to all provisions of this Lease of which time is an element.

 

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ARTICLE XXXVII

 

37.1                        Commissions. Lessor and Lessee represents and
warrants to each other that no real estate commission, finder’s fee or the like
is due and owing to any person in connection with this Lease.  Lessor and Lessee
agrees to save, indemnify and hold the other respective party harmless from and
against any and all claims, liabilities or obligations for brokerage, finder’s
fees or the like in connection with this Lease or the transactions contemplated
hereby, asserted by any person on the basis of any statement or act alleged to
have been made or taken by Lessor/Lessee.

 

ARTICLE XXXVIII

 

38.1                        Memorandum or Short Form of Lease.  Lessor and
Lessee shall, promptly upon the request of either, enter into a Memorandum or
Short Form of this Lease, substantially in the form of attached Exhibit F, with
such modifications as may be appropriate under the laws and customs of the
States and in the customary form suitable for recording under the laws of each
of the States.  Lessee shall pay all costs and expenses of recording such
memorandum or short form of this Lease.

 

ARTICLE XXXIX

 

39.1                        Security Deposit.  As of the date of this Lease,
Lessee has delivered Three Hundred Seventy Thousand Dollars ($375,000)
(“Security Deposit”), which Lessor shall hold as security for the full and
faithful performance by Lessee of each and every term, provision, covenant and
condition of this Lease in accordance with, and subject to, the terms and
conditions of this Lease.  The initial Security Deposit shall be in the form of
cash; provided, however, that Lessee shall have the option at any time during
the Term to substitute for such cash Security Deposit an irrevocable and
unconditional Letter of Credit (together with all replacements thereof, the
“Letter of Credit”).  The initial Letter of Credit shall be in the form required
by the Letter of Credit Agreement and shall remain, as extended and replaced,
continually in existence during the entire Term (or such portion thereof as
Tenant desires to have the Security Deposit in the form of a Letter of Credit;
Tenant may replace not less than thirty (30) days prior to the end of any Letter
of Credit period the same with cash, in its sole discretion).  If at any time
the Security Deposit is in the form of cash, it may be deposited by Lessor into
an interest-bearing account.  The Security Deposit shall not be considered an
advance payment of Rent (or of any other sum payable to Lessee under this Lease)
or a measure of Lessor’s damages in case of a default by Lessee.  The Security
Deposit shall not be considered a trust fund, and Lessee expressly acknowledges
and agrees that Lessor is not acting as a trustee or in any fiduciary capacity
in controlling or using the Security Deposit.  Lessor shall have no obligation
to maintain the Security Deposit separate and apart from Lessor’s general and/or
other funds.  The Security Deposit, less any portion thereof applied as provided
in Section 39.2, shall be returned to Lessee within sixty (60) days following
the expiration of the Term.

 

39.2                        Application of Security Deposit.  If Lessee defaults
in respect of any of the terms, provisions, covenants and conditions of this
Lease or of any agreement or instrument with which this Lease is
cross-defaulted), including, but not limited to, payment of any Rent and other
sums of money payable by Lessee, Lessor may, but shall not be required to, in
addition to and not in lieu of any other rights and remedies available to
Lessor, apply all or any part of the Security Deposit (or draw the Letter of
Credit, in whole or in part) to the payment of any sum in default, or any other

 

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sum that Lessor may expend or be required to expend by reason of Lessee’s
default, including but not limited to, any damages or deficiency in reletting
the Leased Properties,.  Whenever, and as often as, Lessor has applied any
portion of the Security Deposit to cure Lessee’s default hereunder or under any
agreement with which this Lease is cross-defaulted, Lessee shall, within ten
(10) days after Notice from Lessor, deposit additional money or deliver a new
Letter of Credit with Lessor sufficient to restore the Security Deposit to the
full amount then required to be deposited with Lessor pursuant to Section 39.1
above, and Lessee’s failure to do so shall constitute an Event of Default
without any further Notice.

 

39.3                        Transfer of Security Deposit.  If Lessor transfers
its interest under this Lease, Lessor shall assign the Security Deposit to the
new lessor and thereafter Lessor shall have no further liability for the return
of the Security Deposit, and Lessee agrees to look solely to the new lessor for
the return of the Security Deposit.  The provisions of the preceding sentence
shall apply to every transfer or assignment of Lessor’s interest under this
Lease.  Lessee agrees that it will not assign or encumber or attempt to assign
or encumber the Security Deposit and that Lessor, its successors and assigns may
return the Security Deposit to the last Lessee in possession at the last address
for which Notice has given by such Lessee and that Lessor thereafter shall be
relieved of any liability therefor, regardless of one or more assignments of
this Lease or any such actual or attempted assignment or encumbrances of the
Security Deposit.

 

SIGNATURE PAGES FOLLOW

 

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Signature Page to

THIRD AMENDED AND RESTATED MULTIPLE FACILITIES LEASE

(Parkview Manor Nursing Home (Atlanta, Georgia))
(Bonterra Nursing Center (East Point, Georgia))

 

 

LESSOR:

 

 

 

GEORGIA LESSOR — BONTERRA/PARKVIEW, INC.

 

 

 

 

 

By:

/s/ Daniel J. Booth

 

Name:

Daniel J. Booth

 

Title:

Chief Operating Officer

 

 

 

 

THE STATE OF MARYLAND

)

 

 

)

 

COUNTY OF BALTIMORE

)

 

 

This instrument was acknowledged before me on the 29 day of September, 2010, by
Daniel J. Booth, the Chief Operating Officer of Georgia Lessor —
Bonterra/Parkview, Inc., a Maryland corporation, on behalf of said corporation.

 

 

/s/ Jennie M. Bathras

 

Notary Public

 

1

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Signature Page to

THIRD AMENDED AND RESTATED MULTIPLE FACILITIES LEASE

(Parkview Manor Nursing Home (Atlanta, Georgia))
(Bonterra Nursing Center (East Point, Georgia))

 

 

LESSEE:

 

 

 

ADK BONTERRA/PARKVIEW, LLC

 

 

 

 

 

By:

/s/ Chris Brogdon

 

Name:

Chris Brogdon

 

Title:

Manager

 

 

 

 

THE STATE OF GEORGIA

)

 

 

)

 

COUNTY OF COBB

)

 

 

This instrument was acknowledged before me on the 29 day of October, 2010, by
Chris Brogdon, the Manager, of ADK Bonterra/Parkview, LLC, a Georgia limited
liability company, on behalf of said company.

 

 

Notary Public

 

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