Exhibit 10.79.9

LEASE
 
This "Lease" is entered into as of October 1, 2004 to be effective as of October
1, 2004 (the "Effective Date") between NHP JOLIET, INC., an Illinois corporation
("Landlord"), and EMERITUS CORPORATION, a Washington corporation ("Tenant"), for
the real property and improvements thereon (the "Facility") as legally described
on Exhibit A and the "Landlord Personal Property" associated therewith as
described in Exhibit B or as may be acquired after the Effective Date
(collectively, the "Premises"), operating as a licensed assisted living facility
(the "Business"). In consideration of the mutual covenants, conditions and
agreements set forth herein, Landlord hereby leases the Premises to Tenant for
the Term upon the terms and conditions provided below. Certain capitalized terms
used in this Lease are defined on Exhibit D.
 
1.    Term. The "Term" of this Lease is the Initial Term plus all Renewal Terms,
and, except as otherwise provided herein, a "Lease Year" is the twelve (12)
month period commencing on April 1 of each year of the Term. The "Initial Term"
commences on the Effective Date and ends on March 31, 2019, and may be extended
for three (3) separate "Renewal Terms" of five (5) years each if: (a) at least
twelve (12), but not more than twenty-four (24) months prior to the end of the
then current Term, Tenant delivers to Landlord a "Renewal Notice" that it
desires to exercise its right to extend this Lease for one (1) Renewal Term;
(b) there is no Event of Default hereunder or under the Related Leases (as
hereinafter defined) on the date Landlord receives the Renewal Notice (the
"Exercise Date") or on the last day of the then current Term; and (c) the
Minimum Rent for the Renewal Term is determined pursuant to Section 2.3 within
ninety (90) days after the Exercise Date; and (d) Tenant concurrently delivers a
Renewal Notice to Nationwide Health Properties, Inc., a Maryland corporation
("NHP"), in compliance with the terms and conditions of those certain leases
(the "Related Leases") which may have already or hereafter be entered into
between NHP and/or its Affiliate, as landlord, and Tenant and/or its Affiliate,
as tenant, with respect to the health care facilities described on Exhibit F
attached hereto (each a "Related Facility" and collectively, the "Related
Facilities").
 
2.    Rent. During the Term, Tenant shall pay Landlord "Rent" consisting of
"Minimum Rent" plus "Additional Rent" determined as provided in this Section 2;
provided, the Rent for any Lease Year shall not be less than one hundred percent
(100%) of the Rent for the previous Lease Year. The Rent for any month that
begins or ends on other than the first or last day of a calendar month shall be
prorated based on actual days elapsed.
 
2.1    Initial Term Rent. During the Initial Term, "Minimum Rent" per Lease Year
is equal to the Landlord’s Investment (as defined below) multiplied by nine
percent (9.0%). Commencing with the second (2nd) Lease Year and continuing
thereafter during the Term (excluding the first Lease Year of any Renewal Term),
Tenant agrees to pay "Additional Rent" to Landlord monthly in advance together
with the payment of Minimum Rent. Such Additional Rent (which shall be expressed
as an annual amount but shall be payable in equal monthly installments) shall be
equal to the sum of (i) the Additional Rent for the immediately preceding Lease
Year and (ii) the product of the Minimum Rent and Additional Rent due for the
immediately preceding Lease Year and the lesser of (A) three percent (3.0%), or
(B) a
 

 
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percentage equal to four (4) times the percentage increase (the "CPI Increase")
in the United States Department of Labor, Bureau of Labor Statistics Consumer
Price Index for All Urban Wage Earners and Clerical Workers, United States
Average, Subgroup "All Items" (1982 - 1984 = 100) (the "CPI"). In no event shall
the CPI Increase be a negative number. The applicable CPI Increase shall be
calculated annually for each Lease Year by comparing the CPI in effect on the
first calendar day of the Lease Year for which Additional Rent is being
calculated to the first calendar day of the immediately preceding Lease Year.
 
2.2    Landlord’s Investment; Rent Adjustments.
 
(a)    As used herein, "Landlord’s Investment" in the Premises shall mean Eight
Million One Hundred Eighty-Four Thousand Four Hundred Fifty-Four Dollars
($8,184,454), plus any amount for Alterations advanced by Landlord pursuant to
Section 8.4, plus any other amount that, in accordance with any other term or
provision of this Lease, is to be added to Landlord’s Investment, and minus any
net award paid to Landlord for a Partial Taking or Complete Taking pursuant to
Section 18, minus any insurance proceeds paid to and retained by Landlord as a
result of any casualty, minus any other net capital proceeds received by
Landlord for any portion of the Premises sold or conveyed, as to any portion of
the Premises for which this Lease is terminated during the Term in accordance
with its terms, and minus any other amount that, in accordance with any other
term of provision of this Lease, is to be subtracted from Landlord’s Investment.
 
(b)    Concurrently with any increase or decrease in Landlord’s Investment
during the Term as described in Section 2.2(a), the Minimum Rent and Additional
Rent then due and payable for the balance of the applicable Lease Year and Term
shall be recalculated and reset based on the adjusted Landlord’s Investment.
 
2.3    Renewal Term Rent. To establish a fair market Minimum Rent for the
Premises during the Renewal Terms, the Minimum Rent for each Renewal Term shall
be reset and expressed as an annual amount equal to the greater of (a) the total
of the Minimum Rent and Additional Rent due for the last Lease Year of the
immediately preceding Term, multiplied by one hundred three percent (103.0%), or
(b) the product of: (i) the "Fair Market Value" of the Premises on the Exercise
Date as established pursuant to Exhibit C, and (ii) a percentage equal to fifty
percent (50%) of the sum of (A) the immediately preceding twenty (20) day
trading average of the Ten (10) Year U.S. Treasury Notes plus five hundred fifty
(550) basis points, plus (B) the immediately preceding twenty (20) day average
dividend yield on the common stock of Nationwide Health Properties, Inc. ("NHP")
plus two hundred (200) basis points. Commencing with the second (2nd) Lease Year
and continuing thereafter during each Renewal Term, "Additional Rent" shall be
due and payable and calculated as provided in Section 2.1.
 
2.4    Rent Caps and Floors.
 
(a)    Notwithstanding any of the other terms of this Lease, in no event shall
the Minimum Rent in the first (1st) Lease Year of any Renewal Term exceed one
hundred fifteen percent (115%) of the Minimum Rent and Additional Rent due for
the last Lease Year of the Initial Term or preceding Renewal Term, as the case
may be.
 

 
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(b)    Notwithstanding any of the other terms of this Lease, in no event shall
the Minimum Rent in the first (1st) Lease Year of any Renewal Term be less than
one hundred three percent (103%) of the Minimum Rent and Additional Rent due for
the last Lease Year of the Initial Term or preceding Renewal Term, as the case
may be.
 
2.5    Payment Terms. All Rent and other payments to Landlord shall be paid by
wire transfer or ACH (Automated Clearing House) only. Minimum Rent and
Additional Rent shall be paid in advance in equal monthly installments on or
before the tenth (10th) day of each calendar month for the period commencing on
the date such payment is due through the ninth (9th) day of following calendar
month.
 
2.6    Absolute Net Lease. All Rent payments shall be absolutely net to
Landlord, free of any and all Taxes, Other Charges, and operating or other
expenses of any kind whatsoever, all of which shall be paid by Tenant. Tenant
shall continue to perform its obligations under this Lease even if Tenant claims
that it has been damaged by Landlord. Thus, Tenant shall at all times remain
obligated under this Lease without any right of set-off, counterclaim,
abatement, deduction or reduction of any kind. Tenant’s sole right to recover
damages against Landlord under this Lease shall be to prove such damages in a
separate action.
 
3.    Late Charges. The late payment of Rent or other amounts due will cause
Landlord to lose the use of such money and incur administrative and other
expenses not contemplated under this Lease. While the exact amount of the
foregoing is extremely difficult to ascertain, the parties agree that as a
reasonable estimate of fair compensation to Landlord, if any Rent or other
amount is not paid within (a) two (2) days after the due date for such payment,
then Tenant shall thereafter pay to Landlord on demand a late charge equal to
five percent (5%) of such delinquent amounts, and (b) five (5) days after the
due date for such payment, such unpaid amount shall accrue interest from such
date at the "Agreed Rate" of five percent (5%) plus the prime rate of interest
then charged by Wells Fargo Bank, N.A., San Francisco, CA.
 
4.    Security Deposit; Collateral for Lease Obligations.
 

 
(a)    Subject to the limitations set forth in Section 4(e), in the event that
at any time following the sixth (6th) month of the Initial Term the Rent
Coverage Ratio is less than the Applicable Rent Coverage Ratio set forth below,
Tenant shall make deposits to Landlord pursuant to Section 4(b) until such time
as the total amount of the deposits is equal to three (3) times the monthly
Minimum Rent and Additional Rent then due from Tenant to Landlord (the "Security
Deposit"). As used herein, the "Applicable Rent Coverage Ratio" means:
 

 
Period of Determination            Applicable Rent Coverage Ratio
 

 
7th through 12th months of Initial Term            1.10 to 1
 
13th through 18th months of Initial Term            1.20 to 1
 
19th through 24th months of Initial Term            1.25 to 1
 
After the 24th month of Initial Term                1.30 to 1
 

 
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(b)    The monthly deposits to be made by Tenant in accordance with Section 4(a)
above shall be due on the tenth (10th) day of each calendar month in which the
actual Rent Coverage Ratio fails to equal or exceed the Applicable Rent Coverage
Ratio described above. Such monthly deposits shall be equal to five percent (5%)
of the gross revenues generated by the Facilities for the calendar month
immediately preceding the date of determination.
 

 
(c)    "Rent Coverage Ratio" means, as of the date of determination, the ratio
of (i) the EBITDARM for the immediately preceding two calendar quarters, minus
(A) an assumed management fee equal to five percent (5%) of the gross revenues
generated during such two calendar quarters, and (B) the sum of One Hundred
Twenty-Five Dollars ($125), multiplied by the aggregate number of licensed
dementia care beds and assisted living units in the Facility and the Related
Facilities, to (ii) the total amount of the Minimum Rent and Additional Rent due
for the immediately preceding two calendar quarters pursuant to the terms of
this Lease and the Related Leases. As used herein, "EBITDARM" means, for any
period of determination, the net income (or loss) of Tenant for such period to
the extent derived from the operation of the Facility and the Related
Facilities, adjusted to add thereto, to the extent allocable to the Facility and
the Related Facilities, without duplication, any amounts deducted in determining
such net income (or loss) for (v) interest expense, (w) income tax expense, (x)
depreciation and amortization expense, (y) rental expense, and (z) management
fee expense, in each case determined in conformity with generally accepted
accounting principles, consistently applied. In no event shall the annual
management fee expense paid by Tenant exceed six percent (6%) of the gross
revenues generated by the Facilities for such annual period.
 

 
(d)    Landlord may apply the Security Deposit, in whole or in part, against any
Event of Default, or may use such amounts for any other purpose allowed under
applicable law following the occurrence and during the continuance of an Event
of Default. If Landlord so applies all or any portion of the Security Deposit,
Tenant shall, within five (5) days of such application by Landlord and without
the requirement of notice or demand by Landlord, make a cash deposit to Landlord
in an amount sufficient to restore the Security Deposit to the amount on deposit
with Landlord immediately prior to the application of such funds by Landlord.
 

 
(e)    Notwithstanding the provisions of Sections 4(a) and (b) above, in the
event that (i) Tenant has made monthly deposits to Landlord that equal or exceed
one and one-half (1½) times the monthly Minimum Rent and Additional Rent then
due from Tenant to Landlord, and (ii) the Rent Coverage Ratio subsequently
equals or exceeds 1.5 to 1 for two (2) consecutive calendar quarters, the
maximum amount of the Security Deposit due from Tenant to Landlord, shall be
reduced to one and one-half (1½) times the monthly Minimum Rent and Additional
Rent then due from Tenant to Landlord. Upon the occurrence of such event,
Landlord shall remit any excess amounts then on deposit to Tenant (the "Released
Amount") within ten (10) days following Tenant’s delivery of satisfactory
evidence to Landlord that the Rent Coverage Ratio was equal to or greater than
1.5 to 1 for the two (2) immediately preceding calendar quarters.
Notwithstanding the foregoing, if the Rent Coverage Ratio subsequently declines
to less than 1.5 to 1: (i) but is equal to or greater than the Applicable Rent
Coverage Ratio, Tenant shall be entitled to retain the Released Amount or (ii)
and is less than the
 

 
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Applicable Rent Coverage Ratio, then the Released Amount shall be returned by
Tenant to Landlord within ten (10) days of the date of determination and held by
Landlord as a portion of the Security Deposit then due under the terms of this
Lease and Tenant shall be required to reinstate the Security Deposit to the
amount required by Section 4(a) in accordance with the payment provisions of
Section 4(b).
 
5.    Taxes and Other Charges. At the commencement and end of the Term, all
Taxes and Other Charges shall be prorated. Landlord shall promptly forward to
Tenant copies of all bills and payment receipts for Taxes or Other Charges
received by it. Subject to Landlord’s obligations to make payments from the
impound deposits made by Tenant pursuant to Section 5.2 below, Tenant shall pay
and discharge (including the filing of all required returns), prior to
delinquency or imposition of any fine, penalty, interest or other cost
("Penalty") (excluding any Penalty payable by Landlord pursuant to Section 5.2
below), (a) "Taxes", consisting of any property (real and personal) and other
taxes and assessments levied or assessed with respect to this Lease, any portion
of the Premises or Landlord, with respect to the Premises [including, without
limitation, any state or county occupation tax, transaction privilege, franchise
taxes, business privilege, rental tax or other excise taxes, and other
assessments levied or assessed against the Premises, Tenant’s interest therein
or Landlord (with respect to this Lease and/or the Premises, but excluding any
local, state or federal income tax based upon the net income of Landlord and any
transfer tax or stamps for its transfer of any interest in any portion of the
Premises to any Person other than Tenant or any of its Affiliates)], and
(b) "Other Charges", consisting of any utilities and other costs and expenses of
the Business or any portion of the Premises and all other charges, obligations
or deposits assessed against any portion of the Premises during the Term. Tenant
may pay the foregoing in permitted installments (whether or not interest accrues
on the unpaid balance) when due and before any Penalty. Within thirty (30) days
of its receipt of Landlord’s written notice of payment from a source other than
the amounts impounded by Tenant with Landlord pursuant to Section 5.2, Tenant
shall pay Landlord an amount equal to any Taxes or Penalty that Landlord at any
time is assessed or otherwise becomes responsible and for which Tenant is liable
under this Lease, whether arising from the sole liability of Landlord or the
joint liability of the parties.
 
5.1    Protests. Tenant has the right, but not the obligation, in good faith to
protest or contest (a "Protest") in whole or in part (a) the amount or payment
of any Taxes or Other Charges and (b) the existence, amount or validity of any
Lien (as defined in Section 8.1) by appropriate proceedings sufficient to
prevent its collection or other realization and the sale, forfeiture or loss of
any portion of the Premises or Rent to satisfy it (so long as it provides
Landlord with reasonable security to assure the foregoing). Tenant shall
diligently prosecute any such Protest at its sole cost and expense and pay such
Taxes, Other Charges or Lien before the imposition of any Penalty. Landlord will
cooperate fully in any Protest that involves an amount assessed against it.
 
5.2    Impound.
 

 
(a)    Tenant shall include with each Minimum Rent payment a deposit of
one-twelfth (1/12th) of the amount required to discharge the annual amount of
real property Taxes secured by a Lien encumbering any portion of the Premises as
and when they become due. The deposits shall not bear interest nor be held by
Landlord in trust or as an agent of Tenant, but
 

 
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rather shall be applied to the payment of the related obligations. Provided that
the impound deposits are then sufficient for payment of the applicable
obligations, (i) the amounts held by Landlord shall be applied by Landlord
directly to the payment of the related obligations in a timely fashion and prior
to the imposition of any Penalty, and (ii) if any Penalty results from
Landlord’s failure to timely make any such payment, such Penalty shall be borne
by Landlord. If at any time within thirty (30) days prior to the due date the
deposits shall be insufficient for the payment of the obligation in full, Tenant
shall within ten (10) days after demand deposit the deficiency with Landlord. If
deposits are in excess of the actual obligation, the required monthly deposits
for the ensuing Lease Year shall be reduced proportionately and any such excess
at the end of the final Lease Year shall be refunded to Tenant within thirty
calendar (30) days so long as Tenant there is not then outstanding an Event of
Default under this Lease. Tenant shall forward to Landlord or its designee all
Tax bills, bond and assessment statements as soon as they are received. If
Landlord transfers this Lease, it shall transfer all such deposits to the
transferee, and Landlord shall thereafter have no liability of any kind with
respect thereto.
 

 
(b)    Notwithstanding the provisions of Section 5.2(a) above, in the event the
monthly impound deposits required for real property Taxes under the terms of the
Freddie Mac Loan Documents (as hereinafter defined) are greater than the amount
that Tenant would be required to pay under the terms of Section 5.2(a) and
Landlord has given Tenant written notice thereof, the monthly impound deposits
required to be made by Tenant pursuant to Section 5.2(a) shall increase to equal
the amount of the monthly impound deposits required for real property Taxes
under the terms of the Freddie Mac Loan Documents. As used herein, "Freddie Mac
Loan Documents" means (a) that certain MultiFamily Note dated as of January 25,
2002, executed by Joliet Assisted, L.L.C. ("Joliet LLC") in favor of NorthMarq
Capital, Inc., a Minnesota corporation ("NorthMarq") and evidencing a loan (the
"Loan") in the original principal amount of Six Million Eight Hundred Thousand
Dollars ($6,800,000) (the "Note"), as subsequently endorsed by NorthMarq to the
order of Federal Home Loan Mortgage Corporation ("Freddie Mac"); (b) that
certain Multifamily Mortgage, Assignment of Rents and Security Agreement dated
as of January 25, 2002, executed by Joliet LLC, as borrower, in favor of
NorthMarq, as lender, and recorded in the official records of Will County,
Illinois on February 4, 2002 as Document No. R2002020142, as assigned to Freddie
Mac pursuant to that certain Assignment of Security Interest dated January 25,
2002, filed for record on February 4, 2002, in the Land Records as Document No.
R2002020141 and recorded on February 15, 2002, in the Land Records as Document
No. R2002027902 (the "Mortgage"); and (c) any other document, agreement or
instrument which now or hereafter evidences and/or secures the Loan, together
with any replacements, substitutions, supplements, modifications or amendments
thereof or thereto (including, without limitation, any amendment to such
documents made in connection with Landlord’s acquisition of the Premises and
assumption of the Loan).
 
6.    Insurance.
 
6.1    Requirements. All insurance provided for in this Lease shall (i) be
maintained under valid and enforceable policies issued by insurers licensed and
approved to do business in the state where the Facility is located and having
general policyholders and financial ratings of not less than "A" and "XII",
respectively, in the then current Best’s Insurance Report, (ii)  name Landlord
as an additional insured and, for the casualty policy referenced in Section 6.1,
as the owner and loss payable beneficiary; provided, however, that Freddie Mac
 

 
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shall be named as Mortgagee and Loss Payee during any period in which any
amounts remain outstanding under the terms of the Freddie Mac Loan Documents,
(iii) be on an "occurrence" basis, (iv) cover all of Tenant’s operations at the
Facility or portion of the Premises, (v) provide that the policy may not be
canceled except upon not less than thirty (30) days prior written notice to
Landlord and (vi) be primary and provide that any insurance with respect to any
portion of the Premises maintained by Landlord is excess and noncontributing
with Tenant’s insurance. The parties hereby waive as to each other all rights of
subrogation which any insurance carrier, or either of them, may have by reason
of any provision in any policy issued to them, provided such waiver does not
thereby invalidate such policy. Satisfactory insurer certificates evidencing the
existence of the insurance required by this Lease and showing the interest of
Landlord shall be provided to it prior to the commencement of the Term or, for a
renewal policy, prior to the expiration date of the policy being renewed. If
required by Landlord’s lender in writing, Tenant shall provide Landlord with a
complete copy of the related policy within twenty (20) days of Landlord’s
written request therefor. If requested by Landlord, Tenant shall permit
representatives of Landlord, upon not less than seventy-two (72) hours notice,
to review a complete copy of the applicable insurance policy at the principal
business office of Tenant. Provided that Landlord agrees to maintain the
confidentiality of the terms thereof, Landlord shall be entitled to copy such
portions of the applicable insurance policy as may be reasonably necessary to
Landlord as the fee owner of the Premises. Tenant shall maintain the following
insurance and any claims thereunder shall be adjudicated by and at the expense
of it or its insurance carrier:
 
(a)    Fire and Extended Coverage with respect to the Facility against loss or
damage from all causes under standard "all risk" property insurance coverage
with an agreed amount endorsement (such that the insurance carrier has accepted
the amount of coverage and has agreed that there will be no co-insurance
penalty), without exclusion for fire, lightning, windstorm, explosion, smoke
damage, vehicle damage, sprinkler leakage, flood, vandalism, earthquake,
malicious mischief or any other risks normally covered under an extended
coverage endorsement, in amounts that are not less than the actual replacement
value of the Facility and all Tenant Personal Property associated therewith
(including the cost of compliance with changes in zoning and building codes and
other laws and regulations, demolition and debris removal and increased cost of
construction);
 
(b)    Commercial General Public Liability Coverage with respect to the Facility
(including products liability and broad form coverage) against claims for bodily
injury, death or property damage occurring on, in or about the Facility,
affording the parties protection of not less than Five Million Dollars
($5,000,000) for bodily injury or death to any one person, not less than Ten
Million Dollars ($10,000,000) for any one accident, and not less than One
Million Dollars ($1,000,000) for property damage;
 
(c)    Professional Liability Coverage with respect to the Facility for damages
for injury, death, loss of service or otherwise on account of professional
services rendered or which should have been rendered, in a minimum amount of
Five Million Dollars ($5,000,000) per claim and Ten Million Dollars
($10,000,000) in the aggregate;
 

 
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(d)    Worker’s Compensation Coverage with respect to the Facility for injuries
sustained by Tenant’s employees in the course of their employment and otherwise
consistent with all applicable legal requirements;
 
(e)    Boiler and Pressure Vessel Coverage with respect to the Facility on any
fixtures or equipment which are capable of bursting or exploding, in an amount
not less than Five Million Dollars ($5,000,000) for resulting damage to
property, bodily injury or death and with an endorsement for boiler business
interruption insurance;
 
(f)    Business Interruption and Extra Expense Coverage with respect to the
Facility for loss of rental value for a period not less than one (1) year; and
 
(g)    Deductibles/Self-Insured Retentions for the above policies shall not be
greater than Fifty Thousand Dollars ($50,000), and Landlord shall have the right
at any time to require a lower such amount or set higher policy limits, to the
extent commercially available and reasonable and customary for similar
properties.
 

 
6.2    Exceptions to Insurance Requirements. Tenant has advised Landlord that,
to the extent described on Schedule 1, it is not in compliance as of the
Effective Date with the requirements set forth in Section 6.1. Tenant
nonetheless represents and warrants to Landlord that the policies of insurance
(including the deductible or self-insured retention provisions thereof) and risk
management programs that Tenant has in effect as of the Effective Date are, and
as may be in effect at any time during the Term will be, consistent with custom,
practice and prudent management standards in the business and industry in which
Tenant is engaged. As and when insurance meeting the requirements set forth in
Section 6.1 becomes generally available to operators of assisted living
facilities owned by institutional landlords and similar to the Facility at
commercially reasonable rates, as jointly determined by Landlord and Tenant in
their respective reasonable judgment, Tenant shall purchase and maintain such
insurance. Tenant’s non-compliance with the requirements of Section 6.1 shall
not give rise to an Event of Default so long as (i) no other Event of Default
then exists, (ii) such non-compliance is limited to the matters described on
Schedule 1, as it may be amended from time to time during the Term with the
consent of Landlord in its sole discretion, (iii) the representations and
warranties set forth in this Section 6.2 remain true, correct and complete in
all respects, and (iv) Tenant is in compliance with the other covenants
contained in this Section 6.2 and Section 6.3. Notwithstanding anything to the
contrary set forth herein, if any insurance provided by Tenant in accordance
with Schedule 1 provides for coverage on a "claims-made" basis, every "claims
made" renewal or replacement policy shall continue to show the first date of
claims made coverage as of the Effective Date, or a date prior thereto, as its
prior acts/retroactive or continuity date. Furthermore, if any "claims made"
policy is cancelled or non-renewed, and not replaced by an "occurrence" policy
with "full prior acts", Tenant will purchase an "Extended Reporting Provision
Option" (i.e., tail coverage), for a minimum of two (2) years, and if any
"claims made" policy is subsequently replaced by an "occurrence" policy, Tenant
agrees that said "occurrence" policy will contain a "full prior acts" provision.
 

 
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6.3    Reimbursement of Landlord’s Insurance Costs. During any Lease Year or
portion thereof in which Tenant is not in compliance with the provisions of
Section 6.1 (without consideration of the effect of Section 6.2), Tenant shall
reimburse Landlord, within ten (10) days of Landlord’s demand therefor, for the
costs of the premiums of the general liability and environmental insurance
policies maintained by Landlord, or contributions to self-insurance in lieu
thereof, in connection with the Premises, which amount shall not exceed in any
Lease Year the sum of eleven cents ($.11) multiplied by the total square footage
of the Facility located on the Premises (as adjusted at the end of each Lease
Year for increases since the Effective Date in the CPI). Tenant shall have no
right to receive any proceeds or other benefits from any such insurance. For
purposes of this Section 6.3, Tenant shall not be in compliance with Section 6.1
(without consideration of the effect of Section 6.2) at any such time that any
insurance required hereunder is provided to Tenant by or through a "captive"
insurance company.
 

 
6.4    Determination of Commercial Reasonableness. In the event that Landlord
and Tenant are unable to agree on any matter in this Section 6 requiring a
determination of commercial reasonableness, such determination shall be made by
a reputable insurance company, consultant or expert (an "Insurance Arbitrator")
with experience in the assisted living insurance industry as mutually identified
by Landlord and Tenant in the exercise of their reasonable judgment. As a
condition to a determination of commercial reasonableness with respect to any
particular matter, the Insurance Arbitrator shall be capable of providing,
procuring or identifying particular policies or coverages that would be
available to Tenant and would satisfy the requirement in issue. The
determinations made by any such experts shall be binding on Landlord and Tenant
for purposes of Section 6, and the costs, fees and expenses of the same shall be
shared equally by Tenant and Landlord. If Tenant and Landlord are unable to
mutually agree upon an Insurance Arbitrator, each party shall within ten (10)
days after written demand by the other select one Insurance Arbitrator. Within
ten (10) days of such selection, the Insurance Arbitrators so selected by the
parties shall select a third (3rd) Insurance Arbitrator who shall be solely
responsible for rendering a final determination of commercial reasonableness. If
either party fails to select an Insurance Arbitrator within the time period set
forth above, the Insurance Arbitrator selected by the other party shall alone
render the final determination of commercial reasonableness in accordance with
the foregoing provisions and such final determination shall be binding upon the
parties. If the Insurance Arbitrators selected by the parties are unable to
agree upon a third (3rd) Insurance Arbitrator within the time period set forth
above, either party shall have the right to apply at Tenant’s and Landlord’s
joint expense to the presiding judge of the court of original trial jurisdiction
in the county in which the Premises are located to name the third (3rd)
Insurance Arbitrator.
 

 
6.5    Insurance Required under Freddie Mac Loan Documents. Notwithstanding any
provision set forth in this Section 6, in the event that the insurance coverages
and policy amounts required to be maintained under the terms of the Freddie Mac
Loan Documents are greater than the insurance coverages and policy amounts
required under the terms of this Lease and Freddie Mac has not agreed to waive
such requirements under the terms of any documents to which Freddie Mac and
Tenant may be a party with respect to the Facility,
 

 
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Tenant shall be obligated to maintain such insurance policies and coverages as
are necessary to comply with the requirements under the Freddie Mac Loan
Documents so long as any amounts remain outstanding under the terms of the
Freddie Mac Loan Documents or in the event that Freddie Mac exercises the right
to foreclose its security interest in the Premises pursuant to the terms of the
Mortgage. Landlord covenants and agrees that it shall not enter into any
agreement to modify the insurance requirements under the Freddie Mac Loan
Documents without the prior consent of Tenant, which consent shall not be
unreasonably withheld or delayed.
 
7.    Use, Regulatory Compliance and Preservation of Business.
 
7.1    Permitted Use; Qualified Care. Tenant shall continuously use and occupy
the Facility during the Term as a licensed assisted living facility with not
less than one hundred one (101) units and for ancillary services relating
thereto, but for no other purpose. Landlord acknowledges and agrees that (a)
following the repayment of the obligations due to Freddie Mac under the terms of
the Freddie Mac Loan Documents, or (b) with the prior written approval of
Freddie Mac, during any period in which any amounts remain outstanding under the
terms of the Freddie Mac Loan Documents, or of Freddie Mac or any other party
which becomes the owner of the Premises after a foreclosure or conveyance in
lieu of foreclosure ("Successor Landlord"), in the event that Freddie Mac
exercises the right to foreclose its security interest in the Premises pursuant
to the terms of the Mortgage, Tenant shall have the right to (i) combine units
at the Facility at the request of a resident or to provide for their use by
multiple residents, and (ii) reduce the licensed units at the Facility by no
more than five (5) units (but not to exceed 5% of the total units at the
Facility) in order to enable Tenant to operate special care units and/or to
provide other ancillary services at the Facility; provided, however, in no event
shall the total reductions in the Facility and Related Facilities exceed thirty
(30) units. Tenant shall not allow the average occupancy of the Facility for any
trailing three (3) month period to be less than sixty percent (60%). Tenant
shall provide care, treatment and services to the residents of the Facility and
the Business conducted thereon in a manner consistent with all applicable laws.
So long as any amounts remain outstanding under the terms of the Freddie Mac
Loan Documents or in the event that Freddie Mac exercises the right to foreclose
its security interest in the Premises pursuant to the terms of the Mortgage,
Tenant shall not, without the prior written consent of Freddie Mac or Successor
Landlord (which may be withheld or conditioned in the sole discretion of Freddie
Mac or Successor Landlord, as the case may be) use or occupy the Facility or any
part thereof as a facility certified for participation in Medicare or Medicaid
except to the extent that Tenant is required by law to do so.
 
7.2    Regulatory Compliance . Tenant, the Facility and the other portions of
the Premises shall comply in all material respects with all licensing and other
laws and all CC&R’s and other use or maintenance requirements applicable to the
Business conducted thereon and, to the extent Tenant elects to participate in
the same or as may be required by law to serve its resident population, all
Medicare, Medicaid and other third-party payor certification requirements,
including timely filing properly completed cost and other required reports,
timely paying all expenses shown thereon, and ensuring that, to the extent
Tenant has elected to participate in the same or as required by law to serve its
respective resident population, the Facility continues to be fully certified for
participation in Medicare and Medicaid throughout the Term and when it is
returned to Landlord, all without any suspension, revocation, decertification
 

 
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or other material limitation. Further, Tenant shall not commit any act or
omission that would in any way violate any certificate of occupancy affecting
the Facility, result in closure of the Business conducted at the Facility or
result in the sale or transfer of all or any portion of any related certificate
of need, bed rights or other similar certificate or license. All inspection
fees, costs and charges associated with a change of such licensure or
certification shall be borne solely by Tenant.
 
7.3    Preservation of Business. Tenant acknowledges that a fair return to
Landlord on and protection of its investment in the Premises is dependent, in
part, on Tenant’s dedication to the Business and the concentration on the
Facility of similar businesses of Tenant and its Affiliates in the geographical
area of the Facility. Tenant further acknowledges that the diversion of
residents or patient care activities from the Facility to other facilities owned
or operated by Tenant or its Affiliates at any time during the Term will have a
material adverse affect on the value and utility of the Facility. Therefore,
Tenant agrees that during the Term and for a period of one (1) year thereafter,
neither Tenant nor any of its Affiliates shall, without the prior written
consent of Landlord: (i) operate, own, participate in or otherwise receive
revenues from any other business providing services similar to those of the
Business of the Facility within a ten (10) mile radius of the Facility;
provided, however, the foregoing shall not be deemed or construed to apply to
any facilities acquired by Tenant or its Affiliates after the Effective Date
(except during the last three (3) Leases Years of the Initial Term or any
applicable Renewal Term unless Tenant has elected to renew this Lease for the
next applicable Renewal Term), whether by acquisition, lease or management
agreement, as part of a transaction or series of related transactions involving
three (3) or more facilities, provided that, (A) less than fifty percent (50%)
of the facilities involved in any such transaction are located within the area
protected by this Section 7.3 and Section 7.3 of each of the Related Leases, and
(B) without the prior written consent of Landlord no such transactions may
collectively have the affect of allowing Tenant to operate more than five (5)
facilities within the area protected by this Section 7.3 and Section 7.3 of each
of the Related Leases, or (ii) except as is necessary to provide residents or
patients with an alternative level of care or as is otherwise necessary as a
result of an admissions ban or non payment of stay or to ensure the health and
welfare of other residents of the Facility, (A) recommend or solicit the removal
or transfer of any resident or patient from the Facility to any other nursing,
health care, senior housing or retirement housing facility or (B) divert actual
or potential residents or patients of the Business conducted at the Facility to
any other facilities owned or operated by Tenant or its Affiliates or to
facilities from which Tenant or its Affiliates receive any type of referral fees
or other compensation for transfers. Tenant further agrees that during the last
two (2) years of the Initial Term or any applicable Renewal Term (unless Tenant
has elected to renew this Lease for the next applicable Renewal Term) and for a
period of one (1) year after the expiration or earlier termination of the Term,
Tenant shall not employ any management or supervisory personnel working at the
Facility for any other business without the consent of Landlord in its
reasonable discretion. Notwithstanding the foregoing, unless this Lease
terminates as a result of an Event of Default by Tenant, the prohibition of
employment during the one (1) year period after the expiration or earlier
termination of the Term shall not apply to unsolicited personnel who approach
Tenant directly and request employment by Tenant.
 

 
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8.    Acceptance, Maintenance, Upgrade, Alteration and Environmental.
 
8.1    Acceptance "AS IS"; No Liens. Tenant acknowledges that it is presently
engaged in operations like the Business conducted at the Facility in the state
where the Facility is located and has expertise in such industry and, in
deciding to enter into this Lease, has not relied on any representations or
warranties, express or implied, of any kind from Landlord. Tenant has examined
the condition of title to and thoroughly investigated the Premises, has selected
the Premises to its own specifications, has concluded that no improvements or
modifications to them are required in order to conduct the Business, and accepts
them on an "AS IS" basis and assumes all responsibility and cost for the
correction of any observed or unobserved deficiencies or violations. Except with
respect to the liens which are being duly protested in accordance with
Section 5.1, and liens on furniture, fixtures and equipment located at the
Facility and acquired by Tenant during the Term, provided the value of the
furniture, fixtures and equipment secured by such liens does not exceed Seventy
Five Thousand and no/100 Dollars ($75,000), Tenant shall not cause or permit any
lien, levy or attachment to be placed or assessed against any portion of the
Premises or the operation thereof (a "Lien") for any reason (excluding, however,
any such Liens arising from the acts or omissions of Landlord or its
predecessors in interest in the Premises or any Liens granted in favor of
Freddie Mac pursuant to any collateral documents executed by Tenant in favor of
Freddie Mac (the "Tenant Collateral Documents") in connection with Landlord’s
acquisition of the Premises and assumption of the Loan).
 
8.2    Tenant’s Maintenance Obligations. Tenant shall (a) keep and maintain the
Premises in good appearance, repair and condition and maintain proper
housekeeping, (b) promptly make all repairs (interior and exterior, structural
and nonstructural, ordinary and extraordinary, foreseen and unforeseen)
necessary to keep the Facility in good and lawful order and condition and in
substantial compliance with all applicable requirements and laws relating to the
Business conducted thereon, including if applicable certification for
participation in Medicare and Medicaid, and (c) keep and maintain all Landlord
and Tenant Personal Property in good condition, ordinary wear and tear excepted,
and repair and replace such property consistent with prudent industry practice.
In addition, Tenant shall, within one (1) year following the Effective Date and
at Tenant’s sole cost and expense, diligently make the repairs and/or
improvements to the Facility set forth on Exhibit G attached hereto (the
"Mandatory Repairs").
 
8.3    Upgrade Expenditures.
 

 
(a)    Tenant shall deliver to Landlord, with each payment of Minimum Rent, a
deposit to be added to a reserve (the "Upgrade Reserve") equal to the sum of
(a) of one-twelfth (1/12th) of the Applicable Annual Reserve (as hereinafter
defined and as adjusted annually after the tenth (10th) Lease Year for increases
in the CPI since the commencement of the tenth (10th) Lease Year), multiplied by
(b) the aggregate number of assisted living units in the Facility (the "Upgrade
Minimum") minus (c) the Upgrade Overage (as hereinafter defined). As used
herein, the "Applicable Annual Reserve" means:
 

 
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Lease Years                Applicable Annual Reserve
 

 
One through Four                $ 360.00
 
Five through Seven                $ 460.00
 
Eight through Ten                 $ 500.00
 
Each Lease Year thereafter            $ 500.001
 

 
From time to time, but not more often than twice in any calendar month and
provided that no Event of Default is then continuing, Landlord will disburse to
Tenant amounts from the Upgrade Reserve for the payment of costs incurred by
Tenant with respect to the Premises, subject to the following conditions: (i)
the costs incurred by Tenant shall be for the purposes of making capital
improvements to the Facility, acquiring furniture and fixtures needed for the
operation of the Facility or making Upgrade Expenditures (the "Permitted
Expenditures"); provided, however, in no event shall the Permitted Expenditures
be deemed or construed to include the costs of the Mandatory Repairs to be made
by Tenant pursuant to Section 8.2 above; and (ii) Tenant’s request for
disbursement shall be accompanied with such invoices or purchase orders
evidencing the expenditure as Landlord may reasonably require. Landlord shall
make the reimbursements to Tenant required hereunder within fourteen (14) days
after satisfaction of all conditions to such disbursement. Upon reasonable
advance request, Landlord may require Tenant to procure mechanic’s lien waivers,
in form and substance reasonably satisfactory to Landlord, in connection with
any Upgrade Expenditures in excess of Twenty-Five Thousand Dollars ($25,000). As
used herein, "Upgrade Expenditures" means expenditures in commercially
reasonable amounts to Persons not affiliated with Tenant for (x) upgrades or
improvements to the 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, but excluding 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, and
(y) other improvements to the Facility as reasonably approved by Landlord. Any
amount remaining in the Upgrade Reserve at the expiration of the Term or earlier
termination of this Lease shall be retained by Landlord as additional or
supplemental Rent hereunder. As used herein "Upgrade Overage" means any amounts
expended by Tenant on the Permitted Expenditures in the two immediately
preceding Lease Years in excess of the Upgrade Minimum (excluding any such
amounts that are financed by Tenant and secured by a lien on the personal
property relating thereto).
 

 
(b)    Notwithstanding the provisions of Section 8(a) above, in the event the
monthly deposits required to be made to the Replacement Reserve (as defined in
the Freddie Mac Loan Documents) under the terms of the Freddie Mac Loan
Documents are greater than the amount that Tenant would be otherwise be required
to deliver under the terms of Section 8(a), so long as any amounts remain
outstanding under the terms of the Freddie Mac Loan Documents or in the event
that Freddie Mac exercises the right to foreclose its security interest in the
Premises pursuant to the terms of the Mortgage, the monthly Upgrade Minimum
shall be equal to the
 

 
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amount of the monthly Replacement Reserve deposits required to be made under the
Freddie Mac Loan Documents, and any disbursement request made by Tenant shall be
accompanied with copies of such invoices or purchase orders, lien waivers and
other documentation as may be required by Freddie Mac in order to make
disbursements from the Replacement Reserve. Landlord covenants and agrees that
it (i) will cooperate with Tenant and execute such documents as may reasonably
be necessary to cause Freddie Mac to make required disbursements from the
Replacement Reserve, and (ii) shall not enter into any agreement to increase the
Replacement Reserve requirements under the Freddie Mac Loan Documents without
the prior consent of Tenant, which consent shall not be unreasonably withheld or
delayed.
 
8.4    Alterations by Tenant. With the prior written approval of Freddie Mac
(during any period in which any amounts remain outstanding under the terms of
the Freddie Mac Loan Documents) or Successor Landlord (in the event that Freddie
Mac exercises the right to foreclose its security interest in the Premises
pursuant to the terms of the Mortgage), or to the extent that Tenant and/or
Landlord is required or permitted to make alterations or improvements to the
Premises under the terms of the Freddie Mac Loan Documents, Tenant may alter,
improve, exchange, replace, modify or expand (collectively, "Alterations") the
Facility, equipment or appliances in the Premises from time to time as it may
determine is desirable for the continuing and proper use and maintenance of the
Premises; provided, that any Alterations in excess of Two Hundred Fifty Thousand
Dollars ($250,000) during any Lease Year with respect to the Facility shall
further require Landlord’s prior written consent, which consent shall not be
unreasonably withheld or delayed; provided further, that any Alterations to the
Premises must satisfy the requirements set forth in Sections 4.04 (2) and (3) of
Revenue Procedure 2001-28, 2001-19 I.R.B. 1156. All Alterations shall
immediately become a part of the Premises and the property of Landlord subject
to this Lease, and except to the extent that Landlord in its sole discretion
agrees to fund them following Tenant’s written request therefor, the cost of all
Alterations or other purchases, whether undertaken as an on-going licensing,
Medicare, Medicaid or other regulatory requirement, or otherwise shall be borne
solely by Tenant. All Alterations shall be done in a good and workmanlike manner
in compliance with all applicable laws and the insurance required under this
Lease.
 
8.5    Hazardous Materials. Tenant’s use of the Premises shall comply with all
Hazardous Materials Laws. If any Environmental Activities occur or are suspected
to have occurred in violation of any Hazardous Materials Laws or if Tenant has
received notice of any Hazardous Materials Claim against any portion of the
Premises, Tenant shall promptly obtain all permits and approvals necessary to
remedy any such actual or suspected problem through the removal of Hazardous
Materials or otherwise, and upon Landlord’s approval of the remediation plan,
remedy any such problem to the satisfaction of Landlord and all applicable
governmental authorities, in accordance with all Hazardous Materials Laws and
good business practices. Tenant shall immediately advise Landlord in writing of
(a) any Environmental Activities in violation of any Hazardous Materials Laws;
(b) any Hazardous Materials Claims against Tenant or any portion of the
Premises; (c) any remedial action taken by Tenant in response to any Hazardous
Materials Claims or any Hazardous Materials on, under or about any portion of
the Premises in violation of any Hazardous Materials Laws; (d) Tenant’s
discovery of any occurrence or condition on or in the vicinity of the Premises
that materially increases the risk that any portion of the Premises will be
exposed to Hazardous Materials; and (e) all communications to or from Tenant,
any governmental authority or any other Person relating to Hazardous
 

 
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Materials Laws or Hazardous Materials Claims with respect to the Premises,
including copies thereof. Notwithstanding any other provision of this Lease, if
any Hazardous Materials are discovered on, under or about any portion of the
Premises in violation of any Hazardous Materials Law, the Term shall be
automatically extended and this Lease shall remain in full force and effect
until the earlier to occur of the completion of all remedial action or
monitoring, as approved by Landlord, in accordance with all Hazardous Materials
Laws, or the date specified in a written notice from Landlord to Tenant
terminating this Lease (which date may be subsequent to, but not earlier than,
the date upon which the Term was to have expired). Landlord shall have the
right, at Tenant’s sole cost and expense (including, without limitation,
Landlord’s reasonable attorneys’ fees and costs) and with counsel chosen by
Landlord, to join and participate in, as a party if it so elects, any legal
proceedings or actions initiated in connection with any Hazardous Materials
Claims.
 
9.    Tenant Property and Security Interest.
 
9.1    Tenant Property. Tenant shall obtain and install all items of furniture,
fixtures, supplies and equipment not included as Landlord Personal Property as
shall be necessary or reasonably appropriate to operate the Facility in
compliance with this Lease ("Tenant Personal Property"). (Tenant Personal
Property and "Tenant Intangible Property" shall be collectively referred to
herein as "Tenant Property".) As used herein, "Tenant Intangible Property" means
all the following at any time owned by Tenant in connection with its use of the
Premises during the Term: Medicare, Medicaid and other accounts and proceeds
thereof; rents, profits, income or revenue derived from such operation or use;
all documents, chattel paper, instruments, contract rights (including contracts
with residents, employees and third-party payors), deposit accounts, general
intangibles and choses in action; refunds of any Taxes or Other Charges;
licenses and permits necessary or desirable for Tenant’s use of the Premises,
including any certified Medicaid beds, any applicable certificate of need or
other similar certificate, and, to the extent permitted by law, the exclusive
right to transfer, move or apply for the foregoing and manage the Business
conducted at the Premises (including the right to apply for permission to reduce
the licensed bed complement, take any of the licensed beds out of service or
move the beds to a different location); and the right to use the name "Manor at
Essington" and any other trade or other name or logo now or hereafter associated
with Tenant’s operation of the Premises (excluding the "Emeritus" or "ESC" name
or any variation thereof and any name that now or hereafter begins with
"Loyalton of").
 
9.2    Landlord’s Security Interest and Financing Statements. The parties intend
that upon the occurrence of an Event of Default under this Lease, Landlord will
have the right, subject to any limitations imposed by applicable law, including
any requirements that Landlord or its designee must be licensed to operate the
Facility before assuming operational control with respect thereto, to control
the Tenant Property so that Landlord or its designee can operate or re-let the
Facility and associated personal property intact for use as a licensed facility
engaged in the applicable Business. Therefore, to implement the intention of the
parties, and for the purpose of securing the payment and performance of Tenant’s
obligations under this Lease, subject to any limitations imposed by applicable
law, including any licensure laws, Tenant, as debtor, hereby grants to Landlord,
as secured party, in addition to any statutory lien provided to Landlord under
applicable law, a security interest in and an express contractual Lien upon, all
of Tenant’s right, title and interest in and to the Tenant Property and any and
all products and
 

 
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proceeds thereof, which Tenant now owns or leases or at anytime during the Term
acquires an interest or right. This Lease constitutes a security agreement
covering all such Tenant Property and Tenant shall keep such Tenant Property
free and clear of all Liens other than Liens in favor of Landlord and Assumable
Tenant Property Liens (as defined below). The security interest granted to
Landlord hereunder is intended by the parties to be subordinate to any security
interest granted in Tenant Personal Property in connection with the financing or
leasing of all or any portion thereof, so long as, if the value of the property
which is subject to such financing exceeds Seventy Five Thousand and no/100
Dollars ($75,000) with respect to the Facility, the lessor or financier agrees
to give Landlord written notice of any default by Tenant under the terms of such
arrangement and a reasonable time following such notice to cure any such default
and to consent to Landlord’s written assumption of such arrangement upon curing
such default ("Assumable Tenant Property Liens"); provided, however, that
Landlord shall have no obligation to subordinate its security interest to any
third party other than Freddie Mac, during any period in which any amounts
remain outstanding under the terms of the Freddie Mac Loan Documents, and
Successor Landlord, in the event that Freddie Mac exercises the right to
foreclose its security interest in the Premises pursuant to the terms of the
Mortgage. Following the repayment of the obligations due to Freddie Mac under
the terms of the Freddie Mac Loan Documents, Landlord agrees to execute and
deliver such subordination or intercreditor agreements as may be reasonably
required by a third party creditor of Tenant in connection with Assumable Tenant
Property Liens in favor of such creditor. With respect to any of the Tenant’s
Property now owned or acquired by Tenant during the Term, this security interest
and agreement shall survive the termination of this Lease resulting from an
Event of Default. Tenant shall pay all filing and reasonable record search fees
and other costs for such additional security agreements, financing statements,
fixture filings and other documents as Landlord may reasonably require to
perfect or continue the perfection of its security interest. Tenant shall have
the right to review and approve, which approval shall not be unreasonably
withheld, any financing statements or continuation statements which Landlord
proposes to file. To the extent any amounts collected by Landlord upon the
exercise of its rights under this Section 9.2 exceed the amounts due from Tenant
to Landlord under this Lease, including any amounts due as a result of the
occurrence of an Event of Default hereunder, Landlord shall be required to remit
such excess to Tenant.
 
10.    Financial, Management and Regulatory Reports. Tenant shall provide
Landlord with the reports listed in Exhibit E at the times described therein,
and such other information about it or the operations of the Premises and
Business as Landlord may reasonably request from time to time. All financial
information provided shall be prepared in accordance with generally accepted
accounting principles consistently applied except with respect to the method of
accounting for resident move in fees, which are on a cash basis. If Tenant is or
becomes subject to any reporting requirements of the Securities and Exchange
Commission during the Term, it shall concurrently deliver to Landlord such
reports as are delivered pursuant to applicable securities laws. Tenant shall be
assessed with a $500 administrative fee for each instance in which Tenant fails
to provide Landlord with the monthly, quarterly or annual financial reports
listed in Exhibit E within the time specified therein, which administrative fee
shall be immediately due and payable to Landlord. Notwithstanding the foregoing,
such administrative fee shall not be assessed to Tenant so long as (a) Tenant is
not delinquent in the delivery of such financial reports more than two (2) times
in any consecutive twelve (12) month period, and (b) Tenant remits any
delinquent report to Landlord within five (5) business days of
 

 
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Landlord’s written request therefor. In the event that the reporting
requirements under the Freddie Mac Loan Documents are greater than the
requirements under the term of this Lease and Freddie Mac has not agreed to
waive such requirements under the terms of any documents to which Freddie Mac
and Tenant may be a party with respect to the Facility, Tenant shall be
obligated to provide such reports as are necessary to comply with the
requirements under the Freddie Mac Loan Documents, so long as any amounts remain
outstanding under the terms of the Freddie Mac Loan Documents or in the event
that Freddie Mac exercises the right to foreclose its security interest in the
Premises pursuant to the terms of the Mortgage. Landlord covenants and agrees
that it shall not enter into any agreement to modify the reporting requirements
under the Freddie Mac Loan Documents without the prior consent of Tenant, which
consent shall not be unreasonably withhold or delayed.
 
11.    Representations and Warranties. Each party represents and warrants to the
other that: (a) this Lease and all other documents executed or to be executed by
it in connection herewith have been duly authorized and shall be binding upon
it; (b) it is duly organized, validly existing and in good standing under the
laws of the state of its formation and is duly authorized and qualified to
perform this Lease within the state in which the Premises is located; and
(c) neither this Lease nor any other document executed or to be executed in
connection herewith violates the terms of any other agreement of such party.
 
12.    Events of Default. So long as there is no Event of Default, Tenant shall
peaceably and quietly have, hold and enjoy the Premises for the Term, free of
any claim or other action not caused or created by Tenant or pursuant to
Sections 17 or 18. The occurrence of any of the following events will constitute
an "Event of Default" on the part of Tenant, and there shall be no cure period
therefor except as otherwise expressly provided:
 
(a)    Tenant’s failure to pay within two (2) business days of when due any
Rent, tax impound deposits, Upgrade Reserve Deposits, Other Charges or other
required payments;
 
(b)    (i) The revocation of any license which would have a material adverse
affect on the operation of the Premises or the certification of the Premises for
provider status under Medicare or Medicaid, if applicable; (ii) the closure of a
material portion (as hereinafter defined) of the Business other than during a
period of repair or reconstruction following damage or destruction thereto or a
Taking (as hereinafter defined) thereof; (iii) the sale or transfer, without
Landlord’s consent, of all or any portion of any certificate of need, bed rights
or other similar certificate or license relating to the Business or the
Premises; or (iv) the use of any portion of the Premises other than for a
licensed facility engaged in the Business and for ancillary services relating
thereto (each a "Catastrophic Event of Default"), it being understood and agreed
that for purposes of clause (ii) above the phrase "a material portion" shall
mean any portion of the Premises that is equal to or greater than ten percent
(10%) of the units at the Facility;
 
(c)    Any other material suspension, termination or restriction placed upon
Tenant, any license to operate the Business, the Premises or the ability to
admit residents or patients (e.g., an admissions ban or non-payment for new
admissions by Medicare or Medicaid resulting from an inspection survey);
provided, however, if any such material suspension or restriction is curable by
Tenant it shall not constitute an Event of Default if Tenant promptly commences
to cure such breach and thereafter diligently pursues such cure to the
completion thereof within the
 

 
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lesser of: (i) the time period in which the applicable governmental agency has
given Tenant to undertake corrective action, or (ii) one hundred twenty (120)
days after the occurrence of any such material suspension or restriction;
 
(d)    A material default by Tenant or any Affiliate of Tenant as of the date of
such default [including, without limitation, Alterra Healthcare Corporation
("Alterra") if such entity subsequently becomes an Affiliate of Tenant (an
"Alterra Event")] (i) under any other lease, agreement or obligation between it
and NHP or Landlord or any of their Affiliates, which is not cured within any
applicable cure period specified therein, or (ii) with respect to any obligation
under (A) any other lease or leases with any other party under which Tenant or
its Affiliate is obligated to make annual rental payments in excess of One
Hundred Thousand Dollars ($100,000) which is not cured within any applicable
cure period specified therein, or (B) any financing agreement with a then
outstanding principal balance in excess of $1 million with any other party which
is not cured within any applicable cure period specified therein; provided,
however, that the Events of Default set forth in this Section 12(d) shall be of
no force or effect during any period in which any amounts remain outstanding
under the terms of the Freddie Mac Loan Documents or in the event that Freddie
Mac exercises the right to foreclose its security interest in the Premises
pursuant to the terms of the Mortgage;
 
(e)    (i) the occurrence of a default by Tenant under the Tenant Collateral
Documents which continues beyond the expiration of any applicable cure period
set forth therein, or (ii) any material misstatement or omission of fact in any
written report, notice or communication from Tenant to Landlord with respect to
Tenant, the Premises or the Business;
 
(f)    The failure to perform or comply with the provisions of Sections 6, 16 or
24;
 
(g)    (i) Tenant shall generally not pay its debts as they become due, or shall
admit in writing its inability to pay its debts generally, or shall make an
assignment of all or substantially all of its property for the benefit of
creditors; or (ii) a receiver, trustee or liquidator shall be appointed for
Tenant or any of its property, if within three (3) business days of such
appointment Tenant does not inform Landlord in writing that Tenant intends to
cause such appointment to be discharged or such discharge is not diligently
prosecuted to completion within sixty (60) days after the date of such
appointment; (iii) the filing by Tenant of a voluntary petition under any
federal bankruptcy or state law to be adjudicated as bankrupt or for any
arrangement or other debtor’s relief; or (iv) the involuntary filing of such a
petition against Tenant by any other party, unless Tenant within three (3)
business days of such filing informs Landlord in writing of its intent to cause
such petition to be dismissed, such dismissal is diligently prosecuted and such
petition is dismissed within ninety (90) days after filing; or
 
(h)    The failure to perform or comply with any other provision of this Lease
not requiring the payment of money unless (i) within three (3) business days of
Tenant’s receipt of a notice of default from Landlord, Tenant gives Landlord
notice of its intent to cure such default; and (ii) Tenant cures it either
(x) within thirty (30) days after such notice from Landlord or (y) if such
default cannot with due diligence be so cured because of the nature of the
default or delays beyond the control of Tenant and cure after such period will
not have a materially adverse effect upon the Premises or the Business, then
such default shall not constitute an Event of Default if Tenant uses its
commercially reasonable efforts to cure such default by promptly commencing
 

 
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and diligently pursuing such cure to the completion thereof and cures it within
one hundred twenty (120) days after such notice from Landlord.
 
13.    Remedies. Upon the occurrence of an Event of Default, Landlord may
exercise all rights and remedies under this Lease and the laws of the state
where the Facility is located that are available to a lessor of real and
personal property in the event of a default by its lessee, and as to the Tenant
Property, all remedies granted under the laws of such state to a secured party
under its Uniform Commercial Code. Landlord shall have no duty to mitigate
damages unless required by applicable law and, absent gross negligence or
willful misconduct, shall not be responsible or liable for any failure to relet
any of the Premises or to collect any rent due upon any such reletting. Tenant
shall pay Landlord, immediately upon demand, all expenses incurred by it in
obtaining possession and reletting any of the Premises, including fees,
commissions and costs of attorneys, architects, agents and brokers.
 
13.1    General. Without limiting the foregoing, Landlord shall have the right
(but not the obligation) to do any of the following upon an Event of Default:
(a) sue for the specific performance of any covenant of Tenant as to which it is
in breach; (b) enter upon any portion of the Premises, terminate this Lease,
dispossess Tenant from the Premises and/or collect money damages by reason of
Tenant’s breach, including the acceleration of all Rent which would have accrued
after such termination and all obligations and liabilities of Tenant under this
Lease which survive the termination of the Term; (c) elect to leave this Lease
in place and sue for Rent and other money damages as the same come due;
(d) (before or after repossession of the Premises pursuant to clause (b) above
and whether or not this Lease has been terminated) relet any portion of the
Premises to such tenant(s), for such term(s) (which may be greater or less than
the remaining balance of the Term), rent, conditions (which may include
concessions or free rent) and uses as it may determine in its sole discretion
and collect and receive any rents payable by reason of such reletting; and
(e) sell any Tenant Property in a non-judicial foreclosure sale.
 
13.2    Receivership. Tenant acknowledges that a Catastrophic Event of Default
will materially and irreparably impair the value of Landlord’s investment in the
Premises. Therefore, in addition to its other rights and remedies, upon a
Catastrophic Event of Default Landlord shall have the right to petition any
appropriate court for the appointment of a receiver to take possession of the
Facility, to manage the operation of the Premises, to collect and disburse all
rents, issues, profits and income generated thereby and to the extent applicable
and possible, to preserve or replace any affected license or provider
certification for the Premises or to otherwise substitute the licensee or
provider thereof (the "Receivership"). If Landlord commences the Receivership,
the receiver shall be paid a reasonable fee for its services and all such fees
and other expenses of the Receivership shall be paid in addition to, and not in
limitation of, the Rent otherwise due to Landlord hereunder. Tenant irrevocably
consents to the Receivership upon a Catastrophic Event of Default and thus
stipulates to and agrees not to contest the appointment of a receiver under such
circumstances and for such purposes.
 
13.3    Remedies Cumulative; No Waiver. No right or remedy herein conferred upon
or reserved to Landlord is intended to be exclusive of any other right or
remedy, and each and every right and remedy shall be cumulative and in addition
to any other right or remedy given hereunder or now or hereafter existing at law
or in equity. Any notice or cure period provided herein shall run concurrently
with any provided by applicable law. No failure of
 

 
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Landlord to insist at any time upon the strict performance of any provision of
this Lease or to exercise any option, right, power or remedy contained herein
shall be construed as a waiver, modification or relinquishment thereof as to any
similar or different breach (future or otherwise) by Tenant. Landlord’s receipt
of any rent or other sum due hereunder (including any late charge) with
knowledge of any breach shall not be deemed a waiver of such breach, and no
waiver by Landlord of any provision of this Lease shall be effective unless
expressed in a writing signed by it.
 
13.4    Performance of Tenant’s Obligations. If Tenant at any time shall fail to
make any payment or perform any act on its part required to be made or performed
under this Lease, then Landlord may, without waiving or releasing Tenant from
any obligations or default hereunder, make such payment or perform such act for
the account and at the expense of Tenant, and enter upon any portion of the
Premises for the purpose of taking all such action as may be reasonably
necessary. No such entry shall be deemed an eviction of Tenant. All sums so paid
by Landlord and all necessary and incidental costs and expenses (including
reasonable attorneys’ fees and expenses) incurred in connection with the
performance of any such act by it, together with interest at the Agreed Rate
from the date of the making of such payment or the incurring of such costs and
expenses, shall be payable by Tenant to Landlord upon Landlord’s written demand
therefor.
 
14.    Provisions on Termination.
 
14.1    Surrender of Possession. On the expiration of the Term or earlier
termination or cancellation of this Lease (the "Termination Date"), Tenant shall
deliver to Landlord or its designee possession of (a) the Facility and
associated Landlord Personal Property in a neat and clean condition and in as
good a condition as existed at the date of their possession and occupancy
pursuant to this Lease, after taking into consideration and giving effect to any
improvements, renovations or upgrades required to be made by Tenant as of the
commencement of the Term, ordinary wear and tear excepted, (b) a fully
operational, licensed and, if applicable, certified Business at the Facility but
specifically excluding any Alterations necessitated by, or imposed in connection
with, a change of ownership inspection survey for the transfer of operation of
any portion of the Premises to Landlord or its designee unless Landlord is able
to demonstrate that such Alterations were previously required by the applicable
licensing authorities to be undertaken by Tenant and Tenant failed to do so, and
(c) all patient charts and resident records, along with appropriate resident
consents if necessary, and copies of all its books and records relating to the
Business and the Premises, other than Tenant’s corporate financial books and
records and other proprietary materials. Accordingly, Tenant shall not at any
time during or after the Term seek to transfer, surrender, allow to lapse, or
grant any security interest or any other interest in and to the licenses, other
than those interests granted to Landlord under the terms of this Lease (to the
extent permitted by applicable law), permits or certifications relating to any
portion of the Business or the Premises, nor shall Tenant knowingly commit or
omit any act that would jeopardize any the Business or any licensure or
certification of the Premises. Upon request, Tenant shall cooperate fully with
Landlord or its designee in transferring or obtaining all necessary licenses
and, if applicable, certifications for Landlord or its designee, and Tenant
shall comply with all requests for an orderly transfer of the Business, Facility
licenses, and, if applicable, Medicare and Medicaid certifications and
possession at the time of its surrender of the Premises to Landlord or its
designee but Tenant shall have no liability
 

 
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hereunder if, through no fault of Tenant, Landlord or its designee are unable to
secure such licenses and, if applicable, certifications in their own name.
Subject to all applicable laws, Tenant hereby assigns, effective upon the
Termination Date, all rights to operate the Facility to Landlord or its designee
including all required licenses and permits and all rights to apply for or
otherwise obtain them, and all other nonproprietary Tenant Intangible Property
relating to any portion of the Premises; provided, however, this assignment
shall be ineffective in any State, including the State of Washington, where such
an assignment is prohibited under applicable licensure laws.
 
14.2    Removal of Tenant Personal Property. Provided that no Event of Default
then exists, in connection with the surrender of the Premises, Tenant may upon
at least five (5) business days prior notice to Landlord remove from the
Premises in a workmanlike manner all Tenant Personal Property, leaving the
Premises in good and presentable condition and appearance, including repair of
any damage caused by such removal; provided that Landlord shall have the right
and option to purchase the Tenant Personal Property for its then net book value
during such five (5) business day notice period, in which case Tenant shall so
convey the Tenant Personal Property to Landlord by executing a bill of sale in a
form reasonably acceptable to Landlord and Tenant. If there is any Event of
Default then existing, Tenant will not remove any Tenant Personal Property from
the Premises and instead will, on demand from Landlord, convey it to Landlord
for no additional consideration by executing a bill of sale in a form reasonably
required by Landlord. Title to any Tenant Personal Property which is not removed
by Tenant as permitted above upon the expiration of the Term shall, at
Landlord’s election, vest in Landlord; provided, however, that Landlord may
remove and store or dispose at Tenant’s expense any or all of such Tenant
Personal Property which is not so removed by Tenant without obligation or
accounting to Tenant.
 
14.3    Management of Premises. Commencing on the Termination Date, Landlord or
its designee, upon written notice to Tenant, may elect to assume the
responsibilities and obligations for the management and operation of the
Business and Tenant agrees to cooperate fully to accomplish the transfer of such
management and operation without interrupting the operation of the Business.
Subject to the limitations of applicable law, including any state licensure law
which requires the manager of an assisted living facility to be licensed or
which requires the management agreement to be approved by the applicable
regulatory authorities prior to the commencement thereof and subject to the
parties agreeing on the form of a management agreement which shall include, at a
minimum, an indemnity in favor of Tenant in form and substance acceptable to
Tenant and from an entity acceptable to Tenant, Tenant agrees that Landlord or
its designee may, for a period not to exceed one hundred eighty (180) days,
operate the Business under Tenant’s licenses and, if applicable, certifications
pending the issuance of new licenses and, if applicable, certifications to
Landlord or its designee. During the period of such management, Tenant shall not
knowingly commit any act or fail to take any action that would jeopardize any
licensure or certification, if applicable, of the Premises, and Tenant shall
comply with all reasonable requests for an orderly transfer of any and all
facility and other licenses, Medicare and Medicaid certifications, if
applicable, and possession of the Premises at the time of any such surrender.
 
14.4    Holding Over. If Tenant shall for any reason remain in possession of any
portion of the Premises after the Termination Date without the consent of
Landlord, such
 

 
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possession shall be a month-to-month tenancy during which time Tenant shall pay
as rental on the first (1st) business day of each month one and one-half (1½)
times the total of the monthly Minimum Rent payable with respect to the last
Lease Year plus Additional Rent allocable to the month, all additional charges
accruing during the month and all other sums, if any, payable by Tenant pursuant
to this Lease. Nothing contained herein shall constitute the consent, express or
implied, of Landlord to the holding over of Tenant after the Termination Date,
nor shall anything contained herein be deemed to limit Landlord’s remedies.
 
14.5    Survival. All representations, warranties, covenants and other
obligations of Tenant under this Lease shall survive the Termination Date.
 
15.    Certain Landlord Rights.
 
15.1    Entry and Examination of Records. Landlord and its representatives may
enter the Premises at any reasonable time after reasonable notice to Tenant to
inspect the Premises for compliance, to exhibit the Premises for sale, lease
(but, with respect to leasing, only (a) after the occurrence of an Event of
Default or (b) during the last Lease Year of the Initial Term or any applicable
Renewal Term and only if Tenant has not exercised its option to renew pursuant
to Section 2.3 above) or mortgaging, upon an Event of Default or to post notices
of non-responsibility under any mechanic’s or materialman’s lien law or for any
other reason; provided that no such notice shall be required in the event of an
emergency. No such entry shall unreasonably interfere with residents, patients,
patient care or the Business. During normal business hours, Tenant will permit
Landlord and its representatives, inspectors and consultants to examine all
contracts, books and financial and other records (wherever kept) relating to
Tenant’s operations at the Premises, but specifically excluding the records of
residents of the Facility to the extent such access is prohibited by law,
including applicable State licensure laws and/or the Health Insurance
Portability and Accountability Act of 1996.
 
15.2    Grant Liens. Without the consent of Tenant, Landlord may from time to
time, directly or indirectly, create or otherwise cause to exist any Lien, title
retention agreement or other encumbrance upon the Premises, or any portion
thereof or interest therein (including this Lease), whether to secure any
borrowing or other means of financing or refinancing or otherwise. Upon the
request of Landlord, Tenant shall subordinate this Lease to the Lien of any such
encumbrance so long as such encumbrance provides that it is subject to the
rights of Tenant under this Lease and that so long as no Event of Default shall
exist, Tenant’s occupancy shall not be disturbed if any Person takes possession
of the applicable portion of the Premises through foreclosure proceeding or
otherwise.
 
15.3    Estoppel Certificates. Each of Landlord and Tenant shall, at any time
upon not less than ten (10) days prior written request by the other party, have
an authorized representative execute, acknowledge and deliver to the requesting
party or its designee a written statement certifying (a) that this Lease,
together with any specified modifications, is in full force and effect, (b) the
dates to which Rent and additional charges have been paid, (c) that no default
by either party exists or specifying any such default and (d) as to such other
matters as the requesting party may reasonably request.
 

 
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15.4    Conveyance Release. If Landlord or any successor owner shall transfer
the Premises in accordance with this Lease, upon the written assumption by any
successor owner of the obligations of Landlord or such prior successor owner
hereunder, Landlord or such prior successor owner shall thereupon be released
from all future liabilities and obligations hereunder arising or accruing from
and after the date of such conveyance or other transfer, which instead shall
thereupon be binding upon the new owner.
 
16.    Assignment and Subletting. Without the prior written consent of Landlord,
and of Freddie Mac (during any period in which any amounts remain outstanding
under the terms of the Freddie Mac Loan Documents or in the event that Freddie
Mac exercises the right to foreclose its security interest in the Premises
pursuant to the terms of the Mortgage), both of which may be withheld or
conditioned at their sole discretion, this Lease shall not, nor shall any
interest of Tenant herein, be assigned or encumbered by operation of law, nor
shall Tenant voluntarily or involuntarily assign, mortgage, encumber or
hypothecate any interest in this Lease or sublet any portion of the Premises
(except in the ordinary course of Tenant’s business to occupants of the Facility
or their immediate family members using Tenant’s standard form occupancy lease).
Any of the foregoing acts without such consent shall be void and shall, at
Landlord’s sole option, constitute an Event of Default giving rise to Landlord’s
right, among other things, to terminate this Lease. An assignment of this Lease
by Tenant shall be deemed to include: (a) entering into a management or similar
agreement relating to the operation or control of any portion of the Premises
with any Person that is not an Affiliate of Tenant; (b) any change (voluntary or
involuntary, by operation of law or otherwise, including the transfer,
assignment, sale, hypothecation or other disposition of any equity interest in
Tenant) in the Person that ultimately exert effective Control over the
management of the affairs of Tenant as of the date hereof; provided that any
transfers of Tenant’s stock on a national stock exchange shall not be deemed to
be an assignment of the Lease so long as no more than twenty-five percent (25%)
of the voting stock of Tenant is held by any Person or related group other than
(i) Daniel R. Baty or an entity or entities owned or Controlled by him, and (ii)
Saratoga Partners IV, L.P. ("Saratoga") or an entity or entities owned or
Controlled by Saratoga; or (c) the sale or other transfer of all or any portion
of any certificate of need, bed rights or other similar certificate or license
relating to the Business or the Premises. Notwithstanding the foregoing, Tenant
may, without Landlord’s prior written consent (but not without Freddie Mac’s
consent, so long as any amounts remain outstanding under the terms of the
Freddie Mac Loan Documents, or Successor Landlord’s consent. in the event that
Freddie Mac exercises the right to foreclose its security interest in the
Premises pursuant to the terms of the Mortgage), assign this Lease or sublet the
Premises or any portion thereof (i) pending the issuance to Tenant of a license
to operate the Facility pursuant to a sublease in the form approved by Landlord
prior to the Effective Date or (ii) to an Affiliate of Tenant if all of the
following are first satisfied: (w) such Affiliate fully assumes Tenant’s
obligations hereunder; (x) Tenant remains fully liable hereunder; (y) the use of
the Premises remains unchanged; and (z) Landlord in its reasonable discretion
shall have approved the form and content of all documents for such assignment or
sublease and received an executed counterpart thereof. In no event shall Tenant
sublet any portion of the Premises on any basis such that the rental to be paid
by the sublessee would be based, in whole or in part, on either the income or
profits derived by the business activities of the sublessee, or any other
formula, such that any portion of the sublease rental received by Landlord would
fail to qualify
 

 
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as "rents from real property" within the meaning of Section 856(d) of the U.S.
Internal Revenue Code, or any similar or successor provision thereto.
 
17.    Damage by Fire or Other Casualty. Tenant shall promptly notify Landlord
of any damage or destruction of any portion of the Premises and diligently
repair or reconstruct the Premises to a like or better condition than existed
prior to such damage or destruction in accordance with Section 8.4. Any net
insurance proceeds payable with respect to the casualty shall be paid directly
to Landlord and, if an Event of Default has not occurred hereunder, used for the
repair or reconstruction of the Premises pursuant to Landlord’s disbursement
requirements. If such proceeds are insufficient, Tenant shall provide the
required additional funds; if they are more than sufficient, the surplus shall
belong and be paid to Tenant. Except as otherwise specifically set forth in this
Section 17, Tenant shall not have any right under this Lease, and hereby waives
all rights under applicable law, to abate, reduce or offset rent by reason of
any damage or destruction of any portion of the Premises by reason of an insured
or uninsured casualty. In the event any such damage or destruction occurs during
the last six (6) months of the Initial Term or applicable Renewal Term, to the
extent of fifty percent (50%) or more of the replacement value of the Facility,
Tenant may, at Tenant’s option to be evidenced by notice in writing given to
Landlord within thirty (30) days after the occurrence of such damage or
destruction, elect to pay to Landlord any available insurance proceeds,
including, without limitation, business interruption insurance proceeds
described in Section 5.7, in which event this Lease shall terminate; provided,
however, that if the available insurance proceeds are insufficient to cover the
cost of the repair or reconstruction of the Facility, Tenant shall remain
obligated to pay the additional cost to repair or reconstruct the Facility.
 
18.    Condemnation. Except as provided to the contrary in this Section 18, this
Lease shall not terminate and shall remain in full force and effect in the event
of a taking or condemnation of the Premises, or any portion thereof, and Tenant
hereby waives all rights under applicable law to abate, reduce or offset rent by
reason of such taking. If during the Term all or substantially all (a "Complete
Taking") or a smaller portion (a "Partial Taking") of the Facility is taken or
condemned by any competent public or quasi-public authority, then (a) in the
case of a Complete Taking, Tenant may at its election made within thirty (30)
days of the effective date of such Taking, terminate this Lease, or (b) in the
case of a Partial Taking, the Rent shall be abated to the same extent as the
resulting diminution in Fair Market Value of the portion of the Premises taken.
The award payable upon a Complete Taking shall be allocated (i) as provided by
the taking authority, (ii) in the absence thereof, as agreed by the parties, or
(iii) failing such agreement within thirty(30) days after the effective date of
such Taking, pursuant to the appraisal procedure described in Exhibit C. The
resulting diminution in Fair Market Value on the effective date of a Partial
Taking shall be as established pursuant to Exhibit C. Landlord alone shall be
entitled to receive and retain any award for a Partial Taking other than the
portion specifically allocated to Tenant’s Personal Property or the value of
Tenant’s leasehold interest hereunder.
 
19.    Indemnification. Tenant agrees to protect, indemnify, defend and save
harmless Landlord, its directors, officers, shareholders, agents and employees
from and against any and all foreseeable or unforeseeable liability, expense,
loss, cost, deficiency, fine, penalty or damage (including consequential or
punitive damages) of any kind or nature, including reasonable attorneys’ fees,
from any suits, claims or demands, on account of any matter or thing, action or
 

 
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failure to act arising out of or in connection with this Lease, the Premises or
the operations of Tenant on the Premises, including (a) the breach by Tenant of
any of its representations, warranties, covenants or other obligations hereunder
which is not cured within any applicable cure period provided for herein,
(b) any Protest, (c) all known and unknown Environmental Activities on the
Premises, Hazardous Materials Claims or violations by Tenant of a Hazardous
Materials Law with respect to the Premises, and (d) upon or following the
Termination Date, any liability assessed or asserted by, any governmental agency
or Medicare or Medicaid as a result of or arising out of or in connection with
this Lease or Tenant’s occupancy of the Premises (including any overpayment to
Medicare, Medicaid or any other third-party payor); but specifically excluding
any such liability, expense, loss, cost, deficiency, fine, penalty or damages
arising (i) under clauses (a) or (c) from the gross negligence or willful
misconduct of Landlord, and (ii) under clause (d) with respect to any
Alterations necessitated by, or imposed in connection with, a change of
ownership inspection survey for the transfer of operation of the Premises to
Landlord or its designee unless Landlord is able to demonstrate that such
Alterations were previously required by the applicable licensing authorities to
be undertaken by Tenant and Tenant failed to do so. Upon receiving knowledge of
any suit, claim or demand asserted by a third party that Landlord believes is
covered by this indemnity, it shall give Tenant notice of the matter and Tenant
shall promptly assume the defense thereof with counsel reasonably acceptable to
Landlord. If Tenant does not timely elect to defend the matter, then Landlord
shall have the right to assume the defense thereof with its own counsel at
Tenant’s expense.
 
20.    Disputes. If any party brings any action to interpret or enforce this
Lease, or for damages for any alleged breach, the prevailing party shall be
entitled to reasonable attorneys’ fees and costs as awarded by the court in
addition to all other recovery, damages and costs. EACH PARTY HEREBY WAIVES ANY
RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY
EITHER PARTY AGAINST THE OTHER IN CONNECTION WITH ANY MATTER WHATSOEVER ARISING
OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, INCLUDING THE RELATIONSHIP OF
THE PARTIES, TENANT’S USE AND OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY
OR DAMAGE RELATING TO THE FOREGOING OR THE ENFORCEMENT OF ANY REMEDY.
 
21.    Notices. All notices and demands, certificates, requests, consents,
approvals and other similar instruments under this Lease shall be in writing and
sent by personal delivery, U. S. certified or registered mail (return receipt
requested, postage prepaid) or FedEx or similar generally recognized overnight
carrier regularly providing proof of delivery, addressed as follows:
 
If to Tenant:        Emeritus Corporation
3131 Elliott Avenue, Suite 500
Seattle, Washington 98121
Attention: Raymond R. Brandstrom, CFO
Fax No.: (206) 301-4500
 

 
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With a copy to:    The Nathanson Group PLLC
1520 Fourth Street, Sixth Floor
Seattle, Washington 98101
Attention: Randi Nathanson, Esq.
Fax No.: (206) 623-1738
 
If to Landlord:        c/o Nationwide Health Properties, Inc.
610 Newport Center Drive, Suite 1150
Newport Beach, California 92660
Attention: President and General Counsel
Fax No.: (949) 759-6876
 
With a copy to:    Sherry Meyerhoff Hanson & Crance LLP
610 Newport Center Drive, Suite 1200
Newport Beach, California 92660
Attention: Kevin L. Sherry, Esq.
Fax No.: (949) 719-1212
 

 
A party may designate a different address by notice as provided above. Any
notice or other instrument so delivered (whether accepted or refused) shall be
deemed to have been given and received on the date of delivery established by
U.S. Post Office return receipt or the carrier’s proof of delivery or, if not so
delivered, upon its receipt. Delivery to any officer, general partner or
principal of a party shall be deemed delivery to such party. Notice to any one
co-Tenant shall be deemed notice to all co-Tenants.
 
22.    Miscellaneous. Since each party has been represented by counsel and this
Lease has been freely and fairly negotiated, all provisions shall be interpreted
according to their fair meaning and shall not be strictly construed against any
party. While nothing contained in this Lease should be deemed or construed to
constitute an extension of credit by Landlord to Tenant, if a portion of any
payment made to Landlord is deemed to violate any applicable laws regarding
usury, such portion shall be held by Landlord to pay the future obligations of
Tenant as such obligations arise and if Tenant discharges and performs all
obligations hereunder, such funds will be reimbursed (without interest) to
Tenant on the Termination Date. If any part of this Lease shall be determined to
be invalid or unenforceable, the remainder shall nevertheless continue in full
force and effect. Time is of the essence, and whenever action must be taken
(including the giving of notice or the delivery of documents) hereunder during a
certain period of time or by a particular date that ends or occurs on a
Saturday, Sunday or federal holiday, then such period or date shall be extended
until the immediately following business day. Whenever the words "including",
"include" or "includes" are used in this Lease, they shall be interpreted in a
non-exclusive manner as though the words "without limitation" immediately
followed. Whenever the words day or days are used in this Lease, they shall mean
"calendar day" or "calendar days" unless expressly provided to the contrary. The
titles and headings in this Lease are for convenience of reference only and
shall not in any way affect the meaning or construction of any provision. Unless
otherwise expressly provided, references to any "Section" mean a section of
 

 
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this Lease (including all subsections), to any "Exhibit" or "Schedule" mean an
exhibit or schedule attached hereto or to "Medicare" or "Medicaid" include any
successor program. If more than one Person is Tenant hereunder, their liability
and obligations hereunder shall be joint and several. Promptly upon the request
of either party and at its expense, the parties shall prepare, enter into and
record a suitable short form memorandum of this Lease. This Lease (a) contains
the entire agreement of the parties as to the subject matter hereof and
supersedes all prior or contemporaneous verbal or written agreements or
understandings, (b) may be executed in several counterparts, each of which shall
be deemed an original, but all of which shall constitute one and the same
document, (c) may only be amended by a writing executed by the parties and with
the prior written approval of Freddie Mac (during any period in which any
amounts remain outstanding under the terms of the Freddie Mac Loan Documents or
in the event that Freddie Mac exercises the right to foreclose its security
interest in the Premises pursuant to the terms of the Mortgage), (d) shall inure
to the benefit of and be binding upon the successors and permitted assigns of
the parties, (e) shall be governed by and construed and enforced in accordance
with the internal laws of the State of California, without regard to the
conflict of laws rules thereof, provided that the law of the State in which the
Facility is located (the "Situs State") shall govern procedures for enforcing,
in the respective Situs State, provisional and other remedies directly related
to the Facility and related personal property as may be required pursuant to the
law of such Situs State, including without limitation the appointment of a
receiver; and, further provided that the law of the Situs State also applies to
the extent, but only to the extent, necessary to create, perfect and foreclose
the security interests and liens created under this Lease, and (f) incorporates
by this reference any Exhibits and Schedules attached hereto.
 
23.    Collateral for Other Leases. Upon the occurrence of the Alterra Event,
any cash or letters of credit held by Landlord as a security deposit or
collateral pursuant to this Lease shall also be held by Landlord as additional
security for the obligations due to Landlord or its Affiliates under the terms
of any and all leases between Alterra or its Affiliate, as tenant, and Landlord
or its Affiliate, as landlord; provided, however, that the foregoing provision
shall be of no force or effect during any period in which any amounts remain
outstanding under the terms of the Freddie Mac Loan Documents or in the event
that Freddie Mac exercises the right to foreclose its security interest in the
Premises pursuant to the terms of the Mortgage.
 
24.    Leverage Covenant. At all times during the term of this Lease, the ratio
of Tenant’s total liabilities (minus deferred gain on sale of communities) to
Tenant’s total assets, in each case determined in conformity with generally
accepted accounting principles, consistently applied, shall not be equal to or
greater than 1.6 to 1.
 

 
[SIGNATURE PAGE TO FOLLOW]
 

 

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1 As adjusted annually for increases in the CPI since the commencement of the
tenth (10th) Lease Year.

14387.7    --
     

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IN WITNESS WHEREOF, this Lease has been executed by Tenant and Landlord as of
the Effective Date.
 

TENANT:
 
EMERITUS CORPORATION, a Washington corporation
 

 
By:    _/s/ William M. Shorten___________________________________
 
Name:    William M. Shorten____________________________________
 
Title:    Director of Real Estate Finance____________________________________
 

 

 
LANDLORD:
 
NHP JOLIET, INC.,
an Illinois corporation
 
By:    /s/ Donald D. Bradley                               
Donald D. Bradley, Senior Vice President
and Chief Investment Officer

 

 

 

14387.SIG    S-
     

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EXHIBIT A
 
LEGAL DESCRIPTION
 

 
(Includes all improvements thereon and all appurtenances thereto.)
 

 
THAT PART OF THE SOUTHEAST QUARTER OF SECTION 2, TOWNSHIP 35 NORTH, RANGE 9 EAST
OF THE THIRD PRINCIPAL MERIDIAN, DESCRIBED AS FOLLOWS:
 
BEGINNING AT THE SOUTHWEST CORNER OF LOT 1 OF ESSINGTON PROFESSIONAL PARK
SUBDIVISION AS RECORDED DECEMBER 2, 1985 AS DOCUMENT NO. R85-41059; THENCE NORTH
88 DEGREES 57 MINUTES 52 SECONDS WEST, 637.57 FEET; THENCE NORTH 43 DEGREES 57
MINUTES 52 SECONDS WEST, 313.25 FEET TO A POINT IN THE SOUTHEASTERLY LINE OF THE
LAND CONVEYED TO THE FOREST PRESERVE DISTRICT BY DOCUMENT NO. R90-44385; THENCE
NORTH 50 DEGREES 35 MINUTES 22 SECONDS EAST, ALONG THE SOUTHEASTERLY LINE OF THE
LAND CONVEYED TO THE FOREST PRESERVE DISTRICT BY DOCUMENT NOS. R90-44385 AND
R90-44384, 964.00 FEET; THENCE NORTH 26 DEGREES 45 MINUTES 02 SECONDS EAST ALONG
THE SOUTHEASTERLY LINE OF THE LAND CONVEYED TO THE FOREST PRESERVE DISTRICT BY
DOCUMENT NO. R90-44384, 244.66 FEET TO A POINT ON THE WEST LINE OF SAID
ESSINGTON PROFESSIONAL PARK SUBDIVISION; THENCE SOUTH 00 DEGREES 00 MINUTES 00
SECONDS WEST, 1067.48 FEET ALONG THE SAID WEST LINE OF ESSINGTON PROFESSIONAL
PARK SUBDIVISION TO THE POINT OF BEGINNING, IN WILL COUNTY, ILLINOIS.
 
SAID LAND IS ALSO DESCRIBED AS:
 
PART OF THE NORTHEAST QUARTER OF THE SOUTHEAST QUARTER, PART OF THE SOUTHEAST
QUARTER OF THE SOUTHEAST QUARTER AND PART OF THE SOUTHWEST QUARTER OF THE
SOUTHEAST QUARTER, SECTION 2, TOWNSHIP 35 NORTH, RANGE 9 EAST OF THE THIRD
PRINCIPAL MERIDIAN, CITY OF JOLIET, WILL COUNTY, ILLINOIS, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
 
BEGINNING AT THE SOUTHWEST CORNER OF LOT 1, ESSINGTON PROFESSIONAL PARK
SUBDIVISION, CITY OF JOLIET, WILL COUNTY, ILLINOIS; THENCE NORTH 88 DEGREES 57
MINUTES 53 SECONDS WEST, 637.57 FEET; THENCE NORTH 43 DEGREES 57 MINUTES 52
SECONDS WEST, 313.25 FEET; THENCE NORTH 50 DEGREES 35 MINUTES 22 SECONDS EAST,
964.00 FEET; THENCE NORTH 26 DEGREES 45 MINUTES 02 SECONDS EAST, 244.66 FEET TO
THE WEST LINE OF SAID ESSINGTON PROFESSIONAL PARK SUBDIVISION; THENCE SOUTH 00
DEGREES 00 MINUTES 00 SECONDS WEST ALONG THE WEST LINE OF SAID ESSINGTON
PROFESSIONAL PARK SUBDIVISION, 1067.48 FEET TO THE POINT OF BEGINNING.

14387.7    A-
     

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EXHIBIT B
 
LANDLORD PERSONAL PROPERTY
 

 
includes any such personal property replaced by Tenant
 
or required by the state in which the Facility is located
 
or by any other governmental entity to operate the Facility.
 
ALL OF THE PERSONAL PROPERTY CONVEYED TO LANDLORD PURSUANT TO THE BILL OF SALE
DELIVERED TO LANDLORD CONCURRENTLY WITH LANDLORD’S ACQUISITION OF THE PREMISES.
 

14387.7    B-
     

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EXHIBIT C
 
FAIR MARKET VALUE
 

 
"Fair Market Value" means the fair market value of the Premises or applicable
portion thereof on a specified date as agreed to by the parties, or failing such
agreement within ten (10) of such date, as established pursuant the following
appraisal process. Each party shall within ten (10) days after written demand by
the other select one MAI Appraiser to participate in the determination of Fair
Market Value. For all purposes under this Lease, the Fair Market Value shall be
the fair market value of the Premises or applicable portion thereof unencumbered
by this Lease. Within ten (10) days of such selection, the MAI Appraisers so
selected by the parties shall select a third (3rd) MAI Appraiser. The three (3)
selected MAI Appraisers shall each determine the Fair Market Value of the
Premises or applicable portion thereof within thirty days of the selection of
the third appraiser. To the extent consistent with sound appraisal practices as
then existing at the time of any such appraisal, and if requested by Landlord,
such appraisal shall be made on a basis consistent with the basis on which the
Premises or applicable portion thereof were appraised at the time of their
acquisition by Landlord. Tenant shall pay the fees and expenses of any MAI
Appraiser retained pursuant to this Exhibit.
 
If either party fails to select a MAI Appraiser within the time period set forth
in the foregoing paragraph, the MAI Appraiser selected by the other party shall
alone determine the fair market value of the Premises or applicable portion
thereof in accordance with the provisions of this Exhibit and the Fair Market
Value so determined shall be binding upon the parties. If the MAI Appraisers
selected by the parties are unable to agree upon a third (3rd) MAI Appraiser
within the time period set forth in the foregoing paragraph, either party shall
have the right to apply at Tenant’s expense to the presiding judge of the court
of original trial jurisdiction in the county in which the Premises or applicable
portion thereof are located to name the third (3rd) MAI Appraiser.
 
Within five(5) days after completion of the third (3rd) MAI Appraiser’s
appraisal, all three (3) MAI Appraisers shall meet and a majority of the MAI
Appraisers shall attempt to determine the fair market value of the Premises or
applicable portion thereof. If a majority are unable to determine the fair
market value at such meeting, the three (3) appraisals shall be added together
and their total divided by three (3). The resulting quotient shall be the Fair
Market Value. If, however, either or both of the low appraisal or the high
appraisal are more than ten percent (10%) lower or higher than the middle
appraisal, any such lower or higher appraisal shall be disregarded. If only one
(1) appraisal is disregarded, the remaining two (2) appraisals shall be added
together and their total divided by two (2), and the resulting quotient shall be
such Fair Market Value. If both the lower appraisal and higher appraisal are
disregarded as provided herein, the middle appraisal shall be such Fair Market
Value. In any event, the result of the foregoing appraisal process shall be
final and binding.
 
"MAI Appraiser" shall mean an appraiser licensed or otherwise qualified to do
business in the state where the Premises is located and who has substantial
experience in performing appraisals of facilities similar to the Premises or
applicable portion thereof and is certified as a member of the American
Institute of Real Estate Appraisers or certified as a SRPA by the Society of
Real Estate Appraisers, or, if such organizations no longer exist or certify
appraisers, such successor organization or such other organization as is
approved by Landlord.
 

 

 

14387.7    C-
     

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EXHIBIT D
CERTAIN DEFINITIONS
For purposes of this Lease, the following terms and words shall have the
specified meanings:
 
ENVIRONMENTAL DEFINITIONS
 
"Environmental Activities" shall mean the use, generation, transportation,
handling, discharge, production, treatment, storage, release or disposal of any
Hazardous Materials at any time to or from the Premises or located on or present
on or under any portion of the Premises.
 
"Hazardous Materials" shall mean (a) any petroleum products and/or by-products
(including any fraction thereof), flammable substances, explosives, radioactive
materials, hazardous or toxic wastes, substances or materials, known carcinogens
or any other materials, contaminants or pollutants which pose a hazard to the
Premises or to Persons on or about the Premises or cause any portion of the
Premises to be in violation of any Hazardous Materials Laws; (b) asbestos in any
form which is friable; (c) urea formaldehyde in foam insulation or any other
form; (d) transformers or other equipment which contain dielectric fluid
containing levels of polychlorinated biphenyls in excess of fifty (50) parts per
million or any other more restrictive standard then prevailing; (e) medical
wastes and biohazards; (f) radon gas; and (g) any other chemical, material or
substance, exposure to which is prohibited, limited or regulated by any
governmental authority or may or could pose a hazard to the health and safety of
the occupants of the Premises or the owners and/or occupants of property
adjacent to or surrounding the Premises, including, without limitation, any
materials or substances that are listed in the United States Department of
Transportation Hazardous Materials Table (49 CFR 172.101) as amended from time
to time.
 
"Hazardous Materials Claims" shall mean any and all enforcement, clean-up,
removal or other governmental or regulatory actions or orders threatened,
instituted or completed pursuant to any Hazardous Material Laws, together with
all claims made or threatened by any third party against the Premises, Landlord
or Tenant relating to damage, contribution, cost recovery compensation, loss or
injury resulting from any Hazardous Materials.
 
"Hazardous Materials Laws" shall mean any laws, ordinances, regulations, rules,
orders, guidelines or policies relating to the environment, health and safety,
Environmental Activities, Hazardous Materials, air and water quality, waste
disposal and other environmental matters.
 
OTHER DEFINITIONS
 
"Affiliate" shall mean with respect to any Person, any other Person which
Controls, is Controlled by or is under common Control with the first Person;
provided, however, a Person shall not be deemed or construed to constitute an
Affiliate of another Person solely as a result of the common ownership or
Control of such Persons by Daniel R. Baty.
 
"Control" shall mean, as applied to any Person, the possession, directly or
indirectly, of the power to direct the management and policies of that Person,
whether through ownership, voting control, by contract or otherwise (excluding
any contract that gives a Person the right to control or manage the assets of
another Person, but not the power to direct the management and policies of such
Person).
 
"Person" shall mean any individual, partnership, association, corporation,
limited liability company or other entity.
 
"CC&R’s" shall mean covenants, conditions and restrictions or similar use,
maintenance or ownership obligations encumbering or binding upon the real
property comprising the Facility.
 

 

14387.7    D-
     

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EXHIBIT E
 
FINANCIAL, MANAGEMENT AND REGULATORY REPORTS
 
 
REPORT
 
 
DUE DATE
 
 
Monthly financial reports concerning the Business at the Facility
 
 
consisting of:
 
(1)    a balance sheet;
(2)    a reasonably detailed income statement showing, among other things, Gross
Revenues;
(3)    total patient days;
(4)    occupancy; and
(5)    payor mix.
 
 
Thirty (30) days after the end of each calendar month
 
 
Quarterly consolidated or combined financial statements
 
 
of Emeritus
 
 
Forty-Five (45) days after the end of each of the first three quarters of the
fiscal year of Emeritus
 
 
Annual consolidated or combined financial statements
 
 
of Emeritus audited by a reputable certified public accounting firm.
 
 
Ninety (90) days after the fiscal year end of Emeritus
 
 
Regulatory reports with respect to the Facility, as follows:
 
(1)    all federal, state and local licensing and reimbursement certification
surveys, inspection and other reports received by Tenant as to any portion of
the Premises and any portion of the Business, including state department of
health licensing surveys;
(2)    Medicare and Medicaid certification surveys; and
(3)    life safety code reports.
 
 
Ten (10) business days after receipt
 
 
Reports of regulatory violations,
 
 
by written notice of the following:
 
(1)    any violation of any federal, state or local licensing or reimbursement
certification statute or regulation, including Medicare or Medicaid;
(2)    any suspension, termination or restriction placed upon Tenant or any
portion of the Premises, the operation of any portion of the Business or the
ability to admit residents or patients; or
(3)    any violation of any other permit, approval or certification in
connection with any portion of the Premises or any portion of the Business, by
any federal, state or local authority, including Medicare or Medicaid.
 
 
Five (5) business days after receipt
 
 
Annual operating budget
 
 
covering the operations of the Facility and the Business conducted thereon for
the forthcoming fiscal year.
 
 
Thirty (30) days after the beginning of each fiscal year
 

 

 

14387.7    E-
     

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EXHIBIT F
 
SCHEDULE OF RELATED FACILITIES2
 

 
Facility Name
Location
Lease Commencement Date
Beckett Meadows
Austin, TX
April 1, 2004
Charleston Gardens
Charleston, W. VA
April 1, 2004
Kingsley Place-Shreveport
Shreveport, LA
April 1, 2004
Silverleaf Manor
Meridian, MS
April 1, 2004
Pines of Goldsboro
Goldsboro, NC
April 1, 2004
Loyalton of Rockford
Rockford, IL
April 1, 2004
Creekside
Plano, TX
April 1, 2004
Heritage Hills
Columbus, GA
April 1, 2004
Oak Hollow
Bedford, TX
April 1, 2004
Pine Meadow
Hattiesburg, MS
April 1, 2004
Pinehurst
Tyler, TX
April 1, 2004
Stonebridge
Dallas, TX
April 1, 2004
Austin Gardens
Lodi, CA
April 1, 2004
Desert Springs
El Paso, TX
April 1, 2004
Loyalton of Folsom
Folsom, CA
April 1, 2004
The Lakes
Fort Myers, FL
April 1, 2004
Canterbury Woods
Attleboro, MA
April 1, 2004
Autumn Ridge
Herculaneum, MO
June 1, 2004
Richland Gardens**
Richland, WA
N/A
Loyalton of Cape May**
Cape May, NJ
N/A
Quail Ridge**
Lubbock, TX
N/A
Clare Bridge
Corona, CA
October 1, 2004

 

 

 

 

 

 

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2 As of October 1, 2004, Related Leases have not been entered into with respect
to the facilities marked with a ** hereinabove. Landlord and Tenant hereby
agreed to update this schedule from time to time to reflect the subsequent
execution and delivery of each Related Lease.

14387.7    F-
     

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EXHIBIT G
 
SCHEDULE OF MANDATORY REPAIRS

Community Name
Description
Cost
Capacity
$/Unit
 
 
 
 
 
Manor at Essington
Pave driveway along southeast and east side of building *
5,000
100
50
Manor at Essington
Repair landscaping along east side of building *
1,640
100
16
Manor at Essington
Perform general repair of downspout drains *
Maint.
100
0
         
Total
 
6,640
100
66
 
 
 
 
 
         
* Identified by third party inspector
     

 

 

 

 

 

14387.7    G-
     

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SCHEDULE 1

EXCEPTIONS TO INSURANCE REQUIREMENTS

1.    Contrary to the requirements of Section 6.1, Emeritus provides its general
and professional liability insurance through a captive insurance company
domiciled in Hawaii and known as National Orion Insurance Company ("NOI"). NOI
is not rated.

2.    Contrary to the requirements of Section 6.1, the general and professional
liability insurance maintained by Tenant is on a claims made basis, not an
occurrence basis.

3.    Contrary to the requirements of Section 6.1(a), damage to vehicles owned
or leased by Tenant as well as damage to third party vehicles caused by Tenant
is not covered by Tenant’s property insurance. Coverage for damage to third
party vehicles may be available under certain circumstances under (i) the NOI
policy, (ii) a personal auto policy purchased by an employee of Tenant for their
own vehicle when used for company business or (iii) the Emeritus auto policy,
which acts as an excess layer over an employee personal policy.

4.    Contrary to the requirements in Sections 6.1(b), (c) and (g), the general
and professional liability insurance maintained by Tenant is subject to a $1
million per claim and $1,600,000 in the aggregate self insured retention amount
and to a $ 4 million per claim and $4,800,000 aggregate limit on coverage.

5.    In Texas Emeritus has exercised its right under State law to opt out of
the Workers Compensation system and instead to offer its employee an ERISA
defined benefit plan which complies with the requirements of Texas law.

6.    Coverage for damages due to boiler and pressure vessels bursting or
exploding is covered by Emeritus’ property insurance policy. However, the
property insurance does not cover bodily injury or death resulting therefrom.
Instead such claims would be covered under the general liability insurance
policy provided by NOI.

7.    Emeritus’ business interruption insurance is provided under this property
insurance policy and provides for loss of income for a period of 18 months.

8.    In addition to the exceptions noted in Section 4, above, the deductible
under Emeritus’ property insurance for earthquake coverage is 5% with a $100,000
minimum in California, Hawaii and Alaska and a $100,000 in all other states. The
deductible for storm and wind damage is 5% and 3%, respectively, or $100,000 in
Tier 1 counties and all of Florida. The deductible for flood damage is 5% or
$1,000,000 if the location is in Zone A or V. For all other flood damage the
deductible is 5% or $100,000. All other property claims are subject to $50,000
deductible.
 

14387.7    Schedule 1-
     

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LEASE
 

 
Between
 

 
NHP JOLIET, INC.,
an Illinois corporation
 
as "Landlord"
 

 
and
 
EMERITUS CORPORATION,
a Washington corporation

as "Tenant"
 

 

 
Dated: October 1, 2004
 
To be Effective as of October 1, 2004
 

 

 

 

     

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1.Term1
 
2.Rent1
 
2.1Initial Term Rent1
 
2.2Landlord’s Investment; Rent Adjustments2
 
2.3Renewal Term Rent2
 
2.4Rent Caps and Floor2
 
2.5Payment Terms3
 
2.6Absolute Net Lease3
 
3.Late Charges3
 
4.Security Deposit; Collateral for Lease Obligations3
 
5.Taxes and Other Charges5
 
5.1Protests5
 
5.2Impounds5
 
6.Insurance6
 
6.1Requirements6
 
6.2Exceptions to Insurance Requirements7
 
6.3Reimbursement of Landlord’s Costs8
 
6.4Determination of Commercial Reasonableness8
 
6.5Insurance Required under Freddie Mac Loan Documents9
 
7.Use, Regulatory Compliance and Preservation of Business9
 
7.1Permitted Use; Qualified Care9
 
7.2Regulatory Compliance9
 
7.3Preservation of Business11
 
8.Acceptance, Maintenance, Upgrade, Alteration and Environmental11
 
8.1Acceptance "AS IS"; No Liens11
 
8.2Tenant’s Maintenance Obligations11
 
8.3Upgrade Expenditures11
 
8.4Alterations by Tenant12
 
8.5Hazardous Materials13
 

       

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TABLE OF CONTENTS
(continued)
Page
 

 
9.Tenant Property and Security Interest13
 
9.1Tenant Property13
 
9.2Landlord’s Security Interest and Financing Statements14
 
10.Financial, Management and Regulatory Reports15
 
11.Representations and Warranties15
 
12.Events of Default15
 
13.Remedies17
 
13.1General17
 
13.2Receivership17
 
13.3Remedies Cumulative; No Waiver18
 
13.4Performance of Tenant’s Obligations18
 
14.Provisions on Termination18
 
14.1Surrender of Possession18
 
14.2Removal of Tenant Personal Property19
 
14.3Management of Premises19
 
14.4Holding Over20
 
14.5Survival20
 
15.Certain Landlord Rights20
 
15.1Entry and Examination of Records20
 
15.2Grant Liens20
 
15.3Estoppel Certificates21
 
15.4Conveyance Release21
 
16.Assignment and Subletting21
 
17.Damage by Fire or Other Casualty22
 
18.Condemnation22
 
19.Indemnification22
 
20.Disputes23
 
21.Notices23
 
22.Miscellaneous24
 

       

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TABLE OF CONTENTS
(continued)
Page
 

 
23.Collateral for Other Leases25
 
24.Leverage Covenant25
 

EXHIBITS:
 
EXHIBIT A        LEGAL DESCRIPTIONS
 
EXHIBIT B        LANDLORD PERSONAL PROPERTY
 
EXHIBIT C        FAIR MARKET VALUE
 
EXHIBIT D        CERTAIN DEFINITIONS
 
EXHIBIT E        FINANCIAL, MANAGEMENT AND REGULATORY REPORTS
 
EXHIBIT F        SCHEDULE OF RELATED FACILITIES
 
EXHIBIT G        SCHEDULE OF MANDATORY REPAIRS
 
SCHEDULE 1        EXCEPTIONS TO INSURANCE REQUIREMENTS
 

     

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TABLE OF CONTENTS(continued)Page

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