Georgetowne Place

 

Exhibit 10.1

MASTER LEASE AGREEMENT

BY

VENTAS GEORGETOWNE, LLC

AS LANDLORD

AND

CAPITAL SENIOR MANAGEMENT 2, INC.

AS TENANT

 

 

 

 

DATED AS OF OCTOBER 18, 2005

 

 

 

Georgetowne Place

 

 

TABLE OF CONTENTS

1.

Leased Property; Term; Joint and Several Liability; Limitation on Rights.

2

 

1.1

Leased Property

2

 

1.2

Term

3

 

1.3

Joint and Several Liability; Limitation on Rights

3

 

1.4

Potential Lease Combinations

3

 

2.

Definitions

4

 

3.

Rent.

4

 

 

3.1

Fixed Rent.

4

 

 

3.2

Additional Rent

7

 

 

3.3

Escrow Deposits.

9

 

 

3.4

Security Deposit.

11

 

3.5

Net Lease

13

 

3.6

Lease Guaranty

14

 

4.

Impositions.

14

 

4.1

Payment of Impositions

14

 

4.2

Notice of Impositions

14

 

4.3

Adjustment of Impositions

15

 

5.

No Affect or Impairment, etc

15

 

6.

Premises; Tenant’s Personal Property.

15

 

6.1

Ownership of the Premises

15

 

6.2

Tenant’s Personal Property

16

 

6.3

Landlord’s Personal Property

16

 

7.

Condition and Use of Each Leased Property.

16

 

7.1

Condition of Each Leased Property

16

 

7.2

Use of Each Leased Property.

16

 

7.3

Authorization Collateral

17

 

7.4

Granting of Easements, etc

17

 

8.

Negative and Affirmative Covenants of Tenant.

18

 

8.1

Negative Covenants

18

 

8.2

Affirmative Covenants

21

 

8.3

[Intentionally Omitted]

24

 

8.4

Fannie Mae Financing

24

 

8.5

Operations Transfer Agreement

24

 

9.

Maintenance of Facilities.

25

 

9.1

Maintenance and Repair.

25

 

9.2

Encroachments

26

 

 

 

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10.

Tenant’s Representations and Warranties

27

 

10.1

Organization and Good Standing

27

 

10.2

Power and Authority

27

 

10.3

Enforceability

27

 

10.4

Consents

27

 

10.5

No Violation

27

 

10.6

Reports and Statements

27

 

10.7

No Default

27

 

10.8

Adverse Matters

28

 

10.9

Certification

28

 

10.10

No Reimbursement Audits or Appeals

28

 

10.11

No Recoupments Efforts

28

 

10.12

Liability Reserves

28

 

10.13

Primary Intended Use

28

 

10.14

Compliance with Laws

28

 

10.15

Ownership of Authorizations

29

 

10.16

Third Party Payor Programs

29

 

11.

Alterations.

29

 

11.1

Alterations

29

 

11.2

Construction Requirements for all Alterations

30

 

11.3

Capital Expenditures Account.

31

 

11.4

Annual Capital Expenditure Budget

33

 

12.

Liens

34

 

13.

Permitted Contests

34

 

14.

Insurance.

35

 

14.1

General Insurance Requirements

35

 

14.2

Policies; Certificates

37

 

14.3

Blanket and Loss Limit Policies

37

 

14.4

Additional Insured; No Separate Insurance

37

 

14.5

Policy Requirements

38

 

14.6

Evidence of Compliance

38

 

14.7

Foreclosure; Transfer

38

 

14.8

Insurance Company

39

 

15.

Damage and Destruction.

39

 

15.1

Notice of Casualty

39

 

15.2

Substantial Destruction

39

 

15.3

Partial Destruction

40

 

15.4

Restoration.

40

 

15.5

Disbursement of Insurance Proceeds

41

 

15.6

Insufficient Proceeds/Risk of Loss

41

 

15.7

Excess Proceeds

42

 

15.8

Landlord’s Inspection

42

 

 

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15.9

Not Trust Funds

42

15.10

Waiver

42

15.11

Facility Mortgagee

42

 

16.

Condemnation.

43

 

16.1

Parties’ Rights and Obligations

43

 

16.2

Total Taking

43

 

16.3

Partial Taking

43

 

16.4

Restoration

43

 

16.5

Temporary Taking

44

 

17.

Default.

44

 

17.1

Events of Default

44

 

17.2

Remedy Election

48

 

17.3

Certain Remedies

49

 

17.4

Damages

49

 

17.5

Waiver; Mitigation; Limitation on Certain Tenant Remedies

50

 

17.6

Application of Funds

51

 

17.7

Nature of Remedies

51

 

17.8

No Mediation or Arbitration

51

 

17.9

Deletion of Properties

52

 

18.

Landlord’s Right to Cure Tenant’s Default

53

 

19.

Holding Over

53

 

20.

Subordination.

54

 

20.1

Subordination

54

 

20.2

Attornment

54

 

20.3

Mortgagee Cure Rights

54

 

20.4

Modifications

55

 

21.

Property and Accounts Collateral.

55

 

21.1

Landlord’s Security Interest

55

 

21.2

Accounts Receivable Financing

56

 

22.

Risk of Loss

56

 

23.

Indemnification

57

 

24.

Assignment; Sublease.

58

 

24.1

Prohibition

58

 

24.2

Permitted Assignments and Subleases

58

 

24.3

Rights of Landlord

59

 

25.

Financial Statements and Reporting.

59

 

25.1

Maintenance of Books and Records

59

 

 

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25.2

Annual Financial Information

59

25.3

Quarterly Financial Information

60

25.4

Certifications of Compliance

60

25.5

Annual Budgets

60

25.6

Monthly Financial Information

60

25.7

Authorizations

61

25.8

Actuarial Reports

61

25.9

Survey Deficiency Summary Reports

61

25.10

[Intentionally Omitted]

61

25.11

Financial Statements of Guarantor

61

25.12

Estoppel Certificates

61

25.13

SEC Reports

62

25.14

Supplemental Information

62

25.15

Facility Level Meetings and Reviews

62

25.16

Format

63

 

26.

Landlord’s Right to Inspect

63

 

27.

No Waiver

63

 

28.

Single Lease

63

 

29.

Acceptance of Surrender

64

 

30.

No Merger of Title

64

 

31.

Conveyance by Landlord

64

 

32.

Quiet Enjoyment

64

 

33.

Notices

65

 

34.

General REIT Provisions

66

 

35.

Transfer of Tenant’s Personal Property

66

 

36.

Compliance With Environmental Laws.

66

 

36.1

Hazardous Substances

66

 

36.2

Remediation; Notification

67

 

36.3

Indemnity

67

 

36.4

Environmental Inspection

68

 

36.5

Removal

68

 

37.

Operational Transfer.

68

 

37.1

Exercise; Transfer of Authorizations.

68

 

37.2

Reasonable Assistance

70

 

37.3

Facility Termination; Limited Term Contraction Right; Limited Extended

 

 

 

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Operation by Tenant.

70

37.4

Use of Tenant’s Names

72

 

38.

Non-Recourse

72

 

39.

Combination of Leases

72

 

39.1

Section 39 Lease

73

 

39.2

Additional Properties

73

 

39.3

Combination Lease

74

 

39.4

Section 39 Date

74

 

39.5

Additional Actions

74

 

40.

New Lease

75

 

40.1

New Lease Terms

75

 

40.2

Amendments to this Lease

76

 

40.3

Effective Date

77

 

40.4

Other Undertakings

77

 

41.

Restrictive Covenant

77

 

42.

Miscellaneous.

77

 

42.1

Survival

77

 

42.2

Non-Business Day Payments

77

 

42.3

Brokers

77

 

42.4

Headings

78

 

42.5

Counterparts

78

 

42.6

Integration; Modification; Interpretation; Relationship

78

 

42.7

Time of Essence

78

 

42.8

Force Majeure

78

 

42.9

Severability; Maximum Rate

79

 

42.10

Governing Law; Venue

79

 

42.11

Waiver of Trial by Jury

79

 

42.12

Waivers; Forbearance

79

 

42.13

Binding Character

80

 

43.

Renewal Options.

80

 

43.1

Exercise of Renewal Options

80

 

43.2

Renewal Terms

80

 

43.3

Fair Market Rental Determination

80

 

43.4

Extended Term Tenant’s Proportionate Shares

81

 

43.5

Other Leases

81

 

43.6

Rights Personal to Original Tenant

81

 

44.

Medicare; Medicaid

81

 

45.

Special Purpose Entity Obligations

82

 

 

 

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46.

State Specific Provisions

82

 

46.1

New York.

82

 

46.2

California.

82

 

46.3

Arizona

85

 

47.

Right of First Offer

85

 

47.1

Notices

86

 

47.2

Conditions of Sale

86

 

47.3

Right of First Offer Not Applicable to Certain Transfers

87

 

47.4

Assignment of Right of First Offer

88

 

47.5

Rights Personal to Original Tenant

88

 

47.6

Other Leases

88

 

48.

Fannie Mae; Fannie Mae Loan.

88

 

48.1

Fannie Mae Financing

88

 

48.2

Reserve Payments

88

 

48.3

Fannie Mae Reserve Deposits

89

 

48.4

Use of Reserves

89

 

48.5

Termination of Fannie Mae Financing

89

 

48.6

SPE; Reference to Leased Properties, Other Leases or Facilities

89

 

48.7

New/Additional Financing

90

 

49.

Authorizations

90

 

50.

Transaction Closing Costs

90

 

 

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Georgetowne Place

 

 

LIST OF SCHEDULES AND EXHIBITS

Schedule 1

-

Primary Intended Use

Schedule 2

-

Tenant’s Proportionate Shares

Schedule 3.1.1

-

Wiring Instructions for Rental Payment

Schedule 3.1.4

-

Examples of Fixed Rent Reduction

Schedule 3.3.1-2

-

Wiring Instructions for Insurance Premiums

Schedule 3.4.1

-

Wiring Instructions for Cash Security Deposit

Schedule 7.3

-

Authorization Collateral

Schedule 8.1.4

-

Employee Health Plans

Schedule 8.4

-

Assumed Indebtedness

Schedule 10.14

-

Permits

Schedule 17.1.13

-

Licensed Beds

Exhibit A

-

Description of the Leased Property

Exhibit A-1

-

Descriptions of Other Leased Properties

Exhibit B

-

Definitions

Exhibit C

-

Base Year Resident Revenues

Exhibit D

-

Officer’s Certificate

Exhibit E

-

Estoppel Certificates

Exhibit F

-

Restrictive Covenant

Exhibit G

-

Subordination of Management Agreement

Exhibit H

-

Appraisals

Exhibit I

-

Special Purpose Entity Obligations

 

 

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Georgetowne Place

 

 

MASTER LEASE AGREEMENT         

This MASTER LEASE AGREEMENT (this agreement, as it may be amended, renewed,
supplemented, extended or replaced by the parties hereto from time to time, this
“Lease”) is made and entered into as of October 18, 2005, between VENTAS
GEORGETOWNE, LLC, a Delaware limited liability company (together with its
successors and assigns, “Landlord”), and CAPITAL SENIOR MANAGEMENT 2, INC., a
Texas corporation (together with its permitted successors and assigns and any
other person or entity that becomes a Tenant under this Lease, individually and
collectively, “Tenant”).

RECITALS:

WHEREAS, Landlord owns the real property described by the common address(es) set
forth on Exhibit A attached hereto and legally described in Exhibit A attached
hereto; and

WHEREAS, Landlord desires to lease the Premises (as hereinafter defined) to
Tenant, and Tenant desires to lease the Premises from Landlord; and

WHEREAS, Landlord acquired the Premises pursuant to that certain Purchase and
Sale Agreement by and among Ventas Healthcare Properties, Inc., MGP XVIII, LLC
and Merrill Gardens L.L.C. (collectively, “Seller”), dated as of June 21, 2005,
as amended by that First Amendment to Purchase and Sale Agreement dated as of
August 5, 2005, as amended by that Second Amendment to Purchase and Sale
Agreement dated as of August 12, 2005, as amended by that certain Third
Amendment to Purchase and Sale Agreement dated as of August 16, 2005, as amended
by that certain Fourth Amendment to Purchase and Sale Agreement dated as of
September 14, 2005 and as amended by that certain Fifth Amendment to Purchase
and Sale Agreement dated as of September 23, 2005 (as may be amended, renewed,
supplemented, extended or replaced from time to time, the “P&S Agreement”); and

WHEREAS, Tenant’s obligations under this Lease are guaranteed pursuant to that
certain Guaranty of Lease (as may be amended, renewed, supplemented, extended or
replaced from time to time, the “Lease Guaranty”) bearing even date herewith
made by Capital Senior Living Properties, Inc., a Texas corporation (together
with its permitted successors and assigns, individually and collectively,
“Guarantor”); and

WHEREAS, various affiliates of Landlord and Tenant (respectively) have entered
into those certain Other Leases identified on Exhibit A-1 attached hereto,
pursuant to which certain affiliates of Landlord (collectively, and together
with their successors and assigns, “Landlord Lease Affiliates”) are leasing to
Tenant (collectively, and together with their successors and assigns, “Tenant
Lease Affiliates”) the properties identified on said Exhibit A-1, pursuant to
the terms and conditions of said Other Leases; and

WHEREAS, Landlord and Tenant desire that this Lease and (to the fullest extent
possible) the Other Leases be made the subject of one or more master leases
covering multiple

 

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Georgetowne Place

 

properties, if and when Landlord deems it appropriate to do so, in accordance
with Section 39 below (collectively, “Lease Combinations”); and

WHEREAS, Landlord and Tenant desire to enter into this Lease upon the terms and
conditions hereinafter set forth.

NOW, THEREFORE, Landlord and Tenant agree upon the leasing and demising of the
Premises by Landlord to Tenant, upon the terms and conditions of this Lease.

1.

Leased Property; Term; Joint and Several Liability; Limitation on Rights.

1.1        Leased Property. Effective as of the Commencement Date (as
hereinafter defined), upon and subject to Section 1.3 below and to the other
terms and conditions hereinafter set forth, Landlord hereby leases to Tenant,
and Tenant hereby leases from Landlord, all of the following:

1.1.1           Land. The parcel(s) of land more particularly described in
Exhibit A attached hereto, together with all easements and interests appurtenant
thereto (collectively, the “Land” each parcel of Land described in such
Exhibit A, as amended from time to time, together with such appurtenances with
respect to such parcel, being referred to herein as a “Leased Land”);

1.1.2           Leased Improvements. All buildings, structures, Fixtures (as
hereinafter defined) and other improvements of every kind, including, but not
limited to, alleyways, sidewalks, utility pipes, conduits and lines, parking
areas and roadways appurtenant to such buildings and structures situated upon
the Land as of the date hereof and Alterations upon the Land (collectively, the
“Leased Improvements”);

1.1.3           Intangible Property. The interest, if any, of Landlord in and to
any of the following intangible property owned by Landlord in connection with
the Land and the Leased Improvements (collectively, the “Intangibles”): (i) the
identity or business of the Facilities as a going concern, including, without
limitation, any names or trade names by which the Facilities or any part thereof
may be known, and all registrations for such names, if any; (ii) to the extent
assignable or transferable, the interest, if any, of Landlord in and to each and
every guaranty and warranty concerning the Leased Improvements, including,
without limitation, any roofing, air conditioning, heating, elevator and other
guaranty or warranty relating to the construction, maintenance, operation,
replacement or repair of the Leased Improvements or any portion thereof; and
(iii) the interest, if any, of Landlord in and to all Authorizations to the
extent the same were transferred to Landlord pursuant to the P&S Agreement and
can be assigned or transferred to Tenant in accordance with applicable law;
provided, however, that the foregoing shall not include any CON issued to or
transferred to or held by Landlord which shall only be licensed to Tenant on a
temporary basis, which license shall be revocable at any time by Landlord; and

 

 

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1.1.4           Landlord’s Personal Property. All tangible personal property
owned by Landlord and located at the Land or the Leased Improvements to the
extent the same were transferred to Landlord pursuant to the P&S Agreement
(together with any replacements thereof pursuant to Section 6.3 below, and any
and all other such tangible personal property, if any, acquired and leased
hereunder, the “Landlord’s Personal Property”).

SUBJECT, HOWEVER, to the Permitted Encumbrances (as hereinafter defined).

1.2        Term. Landlord hereby leases the Premises to Tenant for an initial
term (the “Initial Term”) of ten (10) years commencing as of October 18, 2005
(the “Commencement Date”) and expiring at midnight on September 29, 2015 (the
“Initial Expiration Date”). The parties intend that the Commencement Date shall
be deemed to have occurred contemporaneously with the Closing. If the
aforedescribed date is not the Closing date, then Landlord may, upon delivery of
written notice thereof to Tenant within five (5) business days after the Closing
Date, modify the aforedescribed Commencement Date to make it contemporaneous
with the Closing, which notice shall not affect the Initial Expiration Date. In
the event of any ambiguity or disagreement as to when the Closing shall have
occurred, the good faith determination of Landlord shall be binding and
conclusive. In such event, the foregoing change shall be memorialized in an
amendment to this Lease, in form reasonably prepared by Landlord. Landlord shall
have the limited right to contract the Initial Term (each, a “Landlord
Contraction”) as to one or more Leased Properties in order to facilitate an
Operational Transfer(s) pursuant to Section 37. Tenant shall have the right to
extend the Initial Term pursuant to Section 43 below. The Initial Term, as
revised as to one or more Leased Properties pursuant to any applicable Landlord
Contraction(s), or as the same may be extended pursuant to Section 43 below, is
referred to herein as the “Term”. The Initial Expiration Date, as revised as to
one or more Leased Properties pursuant to any applicable Landlord
Contraction(s), or as the same may be extended pursuant to Section 43 below, is
referred to herein as the “Expiration Date”. Landlord and Tenant acknowledge and
agree that (i) on account of any Landlord Contraction(s) as to a particular
Leased Property(ies), individual Leased Properties may have applicable thereto
different Expiration Dates and (ii) on account of Landlord’s exercise of its
rights under Section 37.3.3 below, Tenant may be obligated to operate a
particular Leased Property(ies) beyond the Expiration Date(s) applicable
thereto.

1.3        Joint and Several Liability; Limitation on Rights. Notwithstanding
anything contained herein to the contrary, if there is at any time more than one
person or entity constituting the “Tenant” hereunder, each such person or entity
shall be jointly and severally liable for the payment and performance of all
obligations and liabilities of Tenant hereunder, including, without limitation,
the obligations and liabilities of each other Tenant hereunder, including,
without limitation, each such other Tenant’s obligation to pay Rent hereunder;
provided, however, that, without limitation of the joint and several nature of
the obligations of each Tenant hereunder, the possessory and leasehold rights
that are created by this Lease shall be limited and confined in the case of each
Tenant to the applicable Facility(ies) identified as

 

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being leased to and to be operated by such Tenant on Schedule 1 attached hereto,
the Leased Land on which such Facility is located and the Intangibles and
Landlord’s Personal Property that specifically relate to such Leased Land.

1.4        Potential Lease Combinations. Because of the potential for one or
more Lease Combinations pursuant to Section 39 of this Lease and/or other
additions of leased properties hereunder, Landlord and Tenant have, in creating
this Lease, nevertheless retained in this Lease various references to multiple
Leased Properties, multiple Tenants and other provisions and terms that apply to
multiple Leased Properties and/or Tenants. Without limitation of and subject to
Section 39 of this Lease, for so long as this Lease relates to a single Leased
Property and/or Tenant, the aforesaid references to multiple Leased Properties
and/or Tenants, and the aforesaid provisions and terms applicable to multiple
Leased Properties and/or Tenants, shall, if the context so requires in light of
this Lease relating to only a single Leased Property or Tenant, be treated as
references to a single Leased Property or Tenant or as provisions and terms
applicable to a single Leased Property or Tenant. Similarly, there may be other
provisions in this Lease that relate to a specific Other Leased Property that,
consistent with the terms and conditions of that provision, shall only apply if
that property becomes a Leased Property pursuant to a Lease Combination
hereunder.

2.          Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (i) all accounting
terms not otherwise defined herein have the meanings assigned to them in
accordance with GAAP, (ii) all references in this Lease to designated
“Sections”, “Subsections” and other subdivisions are to the designated Sections,
Subsections and other subdivisions of this Lease, (iii) the words “herein”,
“hereof” and “hereunder” and other words of similar import mean and refer to
this Lease as a whole and not to any particular Section, Subsection or other
subdivision, (iv) the terms defined in Exhibit B attached hereto have the
meanings assigned to them in such exhibit and include the plural as well as the
singular, and the singular as well as the plural, and (v) without limitation of
the definition of “Unit” set forth in Exhibit B attached hereto, all references
in this Lease to “licensed beds” or words of similar import mean and refer, in
the case of each Leased Property, to licensed units or licensed beds, as
applicable depending upon the particular licensing measure used by the
responsible Governmental Authorities in regulating Facilities operated for the
Primary Intended Use that is applicable to such Leased Property (e.g.. in some
states, assisted living facilities are issued licenses for a specified number of
beds and in other states they are issued licenses for a specified number of
units).

3.

Rent.

 

 

3.1

Fixed Rent.

3.1.1           Rental Payments. Tenant shall pay to Landlord, in advance and
without demand, on or prior to the first (1st) day of each calendar month (and
if such first (1st) day is not a business day, then on the Business Day
immediately prior to said first (1st) day) during the Term, in lawful money of
the United States of America, by wire or ACH

 

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transfer of immediately available funds, and pursuant to the wiring instructions
attached hereto as Schedule 3.1.1, or at such place, by such other means or to
such other Person(s) as Landlord from time to time may designate in writing, the
Fixed Rent (and Additional Rent in those instances described in Section 3.2
below) payable in respect of such month. Landlord may, by written notice to
Tenant at any time and from time to time, elect to require that Rent (or
portions thereof designated by Landlord) owing hereunder be paid to a lock box.
Fixed Rent (and Additional Rent in those instances described in Section 3.2
below) shall be paid in equal, consecutive monthly installments; provided,
however, that the first payment of Fixed Rent (and the aforesaid Additional
Rent) shall be payable on the Commencement Date and shall be prorated for the
period from and including the Commencement Date through the last calendar day of
the month in which the Commencement Date occurs. Said first payment of Fixed
Rent and Additional Rent, and the last monthly payment of Fixed Rent and
Additional Rent shall be prorated on a per diem basis as to any partial month.
No Potential Default shall be deemed to exist under this Lease solely on account
of any failure by Tenant to have paid Landlord Fixed Rent (and Additional Rent
in those instances described in Section 3.2 below) within the first four (4)
calendar days of each month during the Term.

3.1.2           Rental Amounts. Fixed Rent for the First Lease Year shall be at
the rate of $1,560,000 per annum, payable in equal monthly installments of
$130,000 (which monthly installments of Fixed Rent shall be pro-rated for the
first and last months of the First Lease Year in accordance with Section 3.1.1
above). Without limitation of Section 28 below, each Tenant’s allocable share of
Fixed Rent shall be equal to the product of (i) the Tenant’s Proportionate Share
for such Tenant set forth on Schedule 2 attached hereto; and (ii) the Fixed Rent
due hereunder, as applicable. Commencing upon the commencement of the second
(2nd) Lease Year of the Initial Term, and upon the commencement of each Lease
Year thereafter during the Initial Term, the Fixed Rent for such Lease Year
shall be an amount equal to the sum of (x) the Prior Period Fixed Rent
applicable to such Lease Year, plus (y) the product of (a) the Prior Period
Fixed Rent applicable to such Lease Year and (b) provided the Rent Escalation
Condition has been satisfied with respect to such Lease Year, the amount equal
to the greater of (1) two percent (2%) (in the case of Lease Years 2 through 5)
and three percent (3%) (in the case of each Lease Year during the Initial Term
after Lease Year 5); or (2) seventy-five percent (75%) of the CPI Increase,
expressed as a percentage, for such Lease Year for which such calculation is
being performed. Notwithstanding anything contained herein to the contrary, if
the Rent Escalation Condition fails with respect to any one or more Lease Years
during the Term, the Fixed Rent determined for the next Lease Year with respect
to which the Rent Escalation Condition is satisfied shall be determined as if
the Rent Escalation Condition had been satisfied for all previous Lease Years
and the Fixed Rent had been escalated pursuant to, and in accordance with, the
terms of this Section 3.1.2 for all prior Lease Years. By way of illustration
only, if: (A) the Rent Escalation Condition has failed for both the second Lease
Year and the third Lease Year of the respective Term; but (B) the Rent
Escalation Condition is satisfied for the fourth Lease Year of the respective
Term, the Fixed Rent for the fourth Lease Year shall be determined as if the
Rent Escalation Condition for the two preceding Lease Years (and all other Lease
Years) had been satisfied such that the Fixed Rent for that fourth Lease Year
shall include, and be determined on the basis of, the

 

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escalations for all prior Lease Years which would have occurred pursuant to this
Section 3.1.2 had the Rent Escalation Condition for all prior Lease Years been
satisfied.

3.1.3           Fixed Rent Determinations. Promptly after the publication of the
Cost of Living Index for the month that is two (2) months prior to the month
containing the last day of a particular Lease Year (e.g., the month of October,
in the case of a Lease Year ending on December 31), Landlord shall calculate the
CPI Increase and the Fixed Rent for the next Lease Year and submit its
determination of Fixed Rent for the next Lease Year for Tenant’s approval, which
determination shall be deemed approved, absent written notice from Tenant
setting forth with reasonable specificity and detail any manifest errors in such
determination by Landlord within fifteen (15) days after its submission to
Tenant. In the event Landlord and Tenant are unable to determine Fixed Rent for
any Lease Year on or prior to the commencement of such Lease Year, Tenant shall
pay Fixed Rent for such Lease Year assuming a two percent (2%) (in the case of
each of Lease Years 2 through 5) or three percent (3%) (in the case of each
Lease Year after Lease Year 5, including, without limitation, each year of each
Extended Term) increase over the Prior Period Fixed Rent applicable to such
Lease Year until the correct Fixed Rent is determined for such Lease Year. If
the Fixed Rent ultimately determined for any such Lease Year exceeds the assumed
amount, Tenant shall pay any deficiency, with the first installment of Fixed
Rent owing after such determination is made. If the Fixed Rent ultimately
determined for any such Lease Year is less than the assumed amount, any excess
amounts paid by Tenant on account of the Fixed Rent for such Lease Year shall be
credited against the next installment(s) of Fixed Rent due and owing hereunder.
At either party’s written request, following the determination of Fixed Rent for
a particular Lease Year, both parties shall, not later than five (5) Business
Days after the non-requesting party’s receipt of such request, execute and enter
into a written instrument memorializing the amount of such Fixed Rent.

3.1.4           One-Time Conditional Fixed Rent Reduction. Provided no Event of
Default has occurred and no Potential Default is continuing, if, on or before
the end of the fifth Lease Year, Tenant furnishes Landlord notice and evidence
in form and substance reasonably satisfactory to Landlord (collectively,
“Tenant’s Exceptional Increase Notice”) that the annual general ad valorem real
estate taxes payable for any Lease Year in the period beginning with the First
Lease Year and ending with the fifth Lease Year shall have increased above the
corresponding amount of annual general ad valorem taxes payable during the
immediately preceding twelve-month period by more than five percent (that
portion of said annual general ad valorem tax increase that is in excess of 5%
over the immediately preceding year’s tax is referred to herein as the
“Exceptional Increase”), then the monthly installments of Fixed Rent otherwise
payable thereafter shall be reduced (effective commencing with the monthly
installments of Fixed Rent payable on the first day of the first full calendar
month following Landlord's receipt of Tenant's Exceptional Increase Notice, or
if not then feasible, as soon thereafter as is reasonably practicable) by an
amount equal to one-half (½) of the amount of the Exceptional Increase for the
Lease Year covered by Tenant’s Exceptional Increase Notice divided by twelve
(12); provided, however, the amount of the reduction of Fixed Rent under this
Lease shall in no event whatsoever exceed $75,000. In no event

 

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whatsoever shall Tenant be entitled to give more than one Tenant’s Exceptional
Increase Notice under this Lease or to give any Tenant’s Exceptional Increase
Notice under this Lease that does not otherwise strictly conform to all of the
terms and conditions of this Section. If Landlord timely receives the Tenant’s
Exceptional Increase Notice (including, without limitation, the aforedescribed
evidence of the Exceptional Increase) prior to the end of the Fifth Lease Year
and no Event of Default has occurred and no Potential Default is continuing,
then Landlord shall tender to Tenant an amendment to this Lease, in form and
substance reasonably prepared by Landlord, confirming the timing and the amount
of the Fixed Rent reduction under this Section 3.1.4, which amendment must be
executed and delivered by Tenant within five (5) Business Days after Tenant’s
receipt thereof. If at any time the Exceptional Increase for the Lease Year
covered by Tenant’s Exceptional Increase Notice is subsequently reduced by
refund, rebate, credit, payment or other successful contest or reduction of such
taxes (it being understood and agreed that any such contest may be pursued in
good faith by both Landlord and Tenant), then (a) Tenant shall promptly notify
Landlord thereof, (b) Landlord and Tenant shall recalculate the Fixed Rent
reduction hereunder utilizing such lower Exceptional Increase figure; and (c)
Tenant shall pay to Landlord a true-up payment equal to the difference between
the Fixed Rent that would have been paid had the lower Exceptional Increase
figure been utilized during all relevant periods (including all Lease Years) and
the Fixed Rent that was actually paid based on the higher Exceptional Increase
figure for said periods. Within ten (10) Business Days after receipt of any such
rebate, refund, credit or other payment, the parties shall also memorialize said
recalculation and increase to Fixed Rent and said true-up payment in a further
amendment to this Lease, in form reasonably prepared by Landlord. Schedule 3.1.4
attached hereto and made a part hereof contains illustrative examples showing
the manner in which adjustments to Fixed Rent shall be calculated pursuant to
this Section. The potential rent reduction provided for in this Section 3.1.4 of
this Lease is in addition to (and not covered by) any potential rent reduction
provided for in the Other Leases.

3.2        Additional Rent. In addition to Fixed Rent, Tenant shall pay and
discharge as and when due and payable the following (collectively “Additional
Rent”) (any costs or expenses paid or incurred by Landlord on behalf of Tenant
that constitute Additional Rent shall be reimbursed by Tenant to Landlord within
fifteen (15) days after the presentation by Landlord to Tenant of invoices
therefor):

3.2.1           Impositions. Subject to the escrow provisions contained in
Section 3.3 below, Tenant shall pay all Impositions before delinquent, and
regardless of the period to which they relate, and in any event before any fine,
penalty interest or cost may be added for non-payment, such payments to be made
directly to the taxing authorities where feasible. Tenant shall, promptly upon
request, furnish to Landlord copies of official receipts or other satisfactory
evidence of such payments. If any such Imposition may, at the option of the
taxpayer, lawfully be paid in installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Tenant may exercise the option to pay
same (and any accrued interest on the unpaid balance of such Imposition) in
installments (provided no such installments shall extend beyond the Term) and,
in such event, shall pay such installments

 

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during the Term before any fine, penalty, premium, further interest or cost may
be added thereto.

3.2.2           Utility Charges. Tenant shall pay (before the same are
delinquent) any and all charges for electricity, power, gas, oil, water,
sanitary and storm sewer, refuse collection, medical waste disposal and other
utilities used or consumed in connection with each Leased Property during the
Term. In the event Landlord is billed directly by any utility company for any
utilities or services supplied to Tenant during the Term, Landlord shall send
Tenant the bill and Tenant shall pay the same before it is delinquent. Landlord
shall have no obligation or liability with respect to any interruption or
failure in the supply of any such utilities.

3.2.3           Insurance Premiums. Tenant shall pay or cause to be paid all
premiums for the insurance coverage required to be maintained pursuant to
Section 14 hereof.

3.2.4           Other Charges. Tenant shall pay all other amounts, liabilities,
obligations, costs and expenses (of any kind or nature whatsoever) paid or
incurred with respect to the ownership, repair, replacement, restoration,
maintenance and operation of the Premises, irrespective of whether the same are
ordinary or extraordinary or expected or unexpected, except that Tenant shall
not be obligated to pay any of Landlord’s franchise, gift, or inheritance taxes
or taxes based on the net income or net profit of Landlord derived from rents
hereunder, except that if and to the extent that a change occurs in the method
of taxation resulting, in whole or in part, in the substitution of any such
taxes, or any other assessment, for any Impositions, then such substituted taxes
or assessments shall be included in the Impositions and shall be the
responsibility of Tenant hereunder.

3.2.5           Late Payment of Rent. If any installment of Fixed Rent or
Additional Rent (but only as to those Additional Rent payments that are payable
directly to Landlord or Landlord’s agent or assignee) shall not be paid within
four (4) days after its due date, Tenant shall pay to Landlord for such overdue
installment, on demand, interest computed at the Overdue Rate on the amount of
such installment, from the due date of such installment to the date of payment
thereof. In addition, if any installment of Fixed Rent or Additional Rent (but
only as to those Additional Rent payments that are payable directly to Landlord
or Landlord’s agent or assignee) shall not be paid within seven (7) days after
its due date, Tenant shall pay to Landlord, an administrative fee of Five
Thousand Dollars ($5,000.00) in addition to the Fixed Rent or Additional Rent
that has not been paid. In the event of any failure by Tenant to pay any
Additional Rent when due, Tenant shall in addition promptly pay and discharge,
as Additional Rent, every fine, penalty, interest and cost that may be added for
non-payment or late payment of such items.

3.2.6           Consent Expenses. Tenant shall pay, as Additional Rent, on
behalf of Landlord, or reimburse Landlord for, any and all reasonable
out-of-pocket costs and expenses paid or incurred by Landlord, including,
without limitation, reasonable attorneys’

 

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fees, in connection with any of the following activities undertaken by or on
behalf of Landlord under this Lease, if and to the extent that the following
costs or expenses are incurred as a result of (a) any default or other breach by
Tenant under or in connection with this Lease; (b) any actual or alleged
violation of any governmental or quasi-governmental requirement pertaining to
the Leased Property, which Landlord, in its good faith judgment, deems material
or potentially material; (c) any costs or expenses that are expressly designated
under this Lease as Tenant’s responsibility; or (d) to the extent not otherwise
described above and are not part of the routine administration of this Lease,
such activities are otherwise directly or indirectly initiated or caused by
Tenant, any Tenant Party or any other Person claiming by, through or under
Tenant: (i) the review by Landlord or Landlord’s Representatives of any notices,
reports or other information required to be re-submitted to Landlord by Tenant
pursuant to the terms hereof because any initial submissions were inaccurate,
incomplete or otherwise not conforming to the requirements of this Lease,
including, without limitation, Financial Statements, Annual Capital Expenditure
Budgets, Officer’s Certificates, Estoppel Certificates, Annual Budgets and
Operator Reports: (ii) any inspection performed by Landlord or any of Landlord’s
Representatives of one or more Leased Properties pursuant to any inspection
rights granted hereunder, including, without limitation, any inspection rights
relative to any restoration work performed on account of any Casualty or
Condemnation; (iii) the review, execution, negotiation or delivery of any
consent, waiver, estoppel, subordination agreement or approval requested of
Landlord by Tenant hereunder, including, without limitation, any request for
consent to Alterations, any so-called “landlord’s waiver”, or the negotiation or
approval of the terms of, or any instruments associated with, any AR Financing;
(iv) the review by Landlord or Landlord’s Representatives of any Plans and
Specifications or Restoration Plans and Specifications; (v) the review by
Landlord or Landlord’s Representatives of any request by Tenant for any other
approval or consent hereunder, or any waiver of any obligation of Tenant
hereunder; (vi) any assistance provided by Landlord in connection with a
permitted contest pursuant to Section 13; (vii) any review by Landlord of
invoices, bills, receipts and other documents required to be reviewed by
Landlord, in its reasonable discretion, to monitor Tenant’s compliance with the
terms of this Lease in respect of Impositions, utility charges, insurance
premiums or any other provisions hereunder requiring Tenant to make payments to
any third party; and (viii) any other negotiation, request or other activity
comparable to any of the foregoing that Tenant has requested of Landlord or that
has been requested of or presented to Landlord as a result of Tenant’s lack of
action (collectively, such expenses, “Consent Expenses”). Tenant shall reimburse
Landlord for (or pay on behalf of Landlord) any Consent Expenses within fifteen
days after the presentation by Landlord to Tenant of invoices therefor.

3.2.7           Further Obligations. Without limitation of Tenant’s other
obligations under this Section 3.2, Tenant shall pay and discharge, or cause to
be paid and discharged, as and when due and payable any Impositions, utility
charges of the nature referenced in Section 3.2.2 above, insurance premiums
and/or other amounts, liabilities, obligations (excluding payment of principal
and interest under the Assumed Indebtedness), costs and expenses relating to the
Premises, in each of the foregoing cases to the extent the same relate to
periods prior to the Commencement Date.

 

 

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3.3

Escrow Deposits.

3.3.1           Escrow. Tenant shall, on the Commencement Date and on the first
(1st) day of each calendar month thereafter during the Term (or the next
Business Day, if such 1st day is not a Business Day), pay to and deposit with
Landlord a sum equal to (i) one twelfth (1/12th) of the Impositions to be
levied, charged, filed, assessed or imposed upon or against the Premises during
the twelve (12) months from and after the Commencement Date (the “Escrow
Commencement Date”) (or any subsequent twelve (12) month period), plus (ii)
one-twelfth (1/12th) of the premiums for the insurance policies required
pursuant to Section 14 hereof that are payable during such twelve (12) month
period. If the amount of the Impositions to be levied, charged, filed, assessed
or imposed, or the insurance premiums to be paid, during the twelve (12) months
following the Escrow Commencement Date (or any subsequent twelve (12) month
period hereunder) cannot be determined as of the Escrow Commencement Date (or
the commencement of any subsequent twelve (12) month period), such amount for
the purpose of computing the deposit to be made by Tenant hereunder shall be
estimated by Landlord with an appropriate adjustment to be promptly made between
Landlord and Tenant as soon as such amount becomes determinable. Landlord may,
at its option, from time to time require that any particular deposit be greater
than one-twelfth (1/12th) of the estimated Imposition and/or insurance premium
amount payable during the twelve (12) months after the Escrow Commencement Date
(or during any subsequent twelve (12) month period), if such additional deposit
is required to provide a sufficient fund from which to make payment of all
Impositions on or before the next due date of any installment thereof, or to
make payment of any required insurance premiums not later than the due date
thereof. Tenant shall deliver to Landlord copies of all notices, demands,
claims, bills and receipts in relation to the Impositions and insurance premiums
promptly upon receipt thereof by Tenant. The actual or estimated amounts on
account of Impositions and insurance premiums shall be adjusted annually.
Attached hereto as Schedule 3.3.1-2 are Landlord’s current wire transfer
instructions for escrow payments under this Lease. Landlord may, upon advance
written notice thereof to Tenant, designate alternative means of payment and
payees from time to time.

3.3.2           Landlord’s Deposit. The escrow deposits made by Tenant pursuant
to this Section 3.3 shall be deposited by Landlord in an account (the “Escrow
Account”) of Landlord or (if required under the Fannie Mae Loan Documents or any
other applicable loan documents) with any Facility Mortgagee, and may be
commingled with other assets of Landlord or such Facility Mortgagee. Landlord
shall not be liable to Tenant or any other Person for any consequent loss of
principal or interest on funds held in the Escrow Account if the Escrow Account
is an Investment Account. Furthermore, neither Landlord nor any Facility
Mortgagee shall bear responsibility for the financial condition of, nor any act
or omission by, any Lending Institution at which the Escrow Account is located.
Any and all interest from deposits into the Escrow Account shall be retained in
the Escrow Account to be applied in accordance with the terms of this
Section 3.3.

3.3.3           Use of Deposits. Tenant shall pay or cause to be paid any and
all Impositions and insurance premiums when due and regardless of whether or not
the

 

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funds then held in the Escrow Account are sufficient to reimburse Tenant
therefor. The sums deposited by Tenant under this Section 3.3 shall be held by
Landlord or any Facility Mortgagee, and, provided that no default or Event of
Default has occurred and no Potential Default is continuing, shall be used to
reimburse Tenant for any Impositions and/or insurance premiums, as applicable,
paid by Tenant, upon delivery by Tenant to Landlord or such Facility Mortgagee,
as applicable, of documentation evidencing the payment of such Impositions
and/or insurance premiums, which reimbursement shall be provided within five (5)
Business Days after the presentation of such evidence (if Landlord is holding
the Escrow Account) or within five (5) Business Days after Landlord’s receipt of
the appropriate reimbursement funds from the Facility Mortgagee that is holding
the Escrow Account (if a Facility Mortgagee is holding the Escrow Account). If
Tenant fails to pay any Impositions or insurance premiums when due and owing
hereunder to the applicable taxing authority or insurance carrier, Landlord or
any Facility Mortgagee may, but shall not be obligated to, pay such Impositions
or insurance premiums from any funds in the Escrow Account. Upon the occurrence
of any Event of Default, Landlord or any Facility Mortgagee may apply any funds
held in the Escrow Account to cure such Event of Default or on account any
damages suffered or incurred by Landlord in connection therewith.

3.3.4           Deficits. Landlord shall have no liability whatsoever to Tenant
if any deposits held by Landlord under this Section 3.3 are not sufficient to
reimburse Tenant for any Imposition or insurance premium paid by Tenant.
Landlord may change its estimate of any Imposition or insurance premium for any
period on the basis of a change in an assessment or tax rate or of a prior
miscalculation or for any other good faith reason. In such event, Tenant shall
deposit with Landlord the amount in excess of the sums previously deposited with
Landlord for the applicable period within ten (10) days after Landlord’s request
therefor.

3.3.5           Transfers; Refund, etc.. In connection with any assignment of
the Landlord’s interest under this Lease, the assigning Landlord or any
predecessor shall have the right to transfer all amounts deposited pursuant to
the provisions of this Section 3.3 and still in its possession to such assignee
and, upon such transfer, the assigning Landlord or any such predecessor, as the
case may be, transferring the deposits shall thereupon be completely released
from all liability with respect to such deposits so transferred, and Tenant
shall look solely to said assignee in reference thereto. As of the Expiration
Date, any sums held by Landlord under this Section 3.3 shall be promptly
returned to Tenant, only as and when the conditions of Section 3.4.3 for the
return of the Security Deposit have been met and provided that any and all
Impositions (including, without limitation, any and all real estate taxes that
have accrued during the Term, but are not due or payable until after the end of
Term or are otherwise unpaid) or insurance premiums due and owing hereunder have
been paid (or caused by Tenant to be paid) in full. Notwithstanding anything
contained herein to the contrary, Tenant shall remain responsible for the timely
payment of all real estate taxes that shall have accrued during the Term, and
with respect to any and all such real estate taxes that are due and payable
after the end of the Term, Tenant shall, within ten (10) Business Days after
Landlord's written request therefor, pay an amount equal to such real estate
taxes (as

 

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reasonably prorated through the end of the Term) to Landlord or Landlord's
designee. The provisions of this Section shall survive the expiration or sooner
termination of this Lease.

3.4

Security Deposit.

3.4.1           Cash Security Deposit; Application. Tenant shall pay to Landlord
upon the delivery of this Lease, for immediate deposit with a strict joint order
escrow established by Landlord and Tenant with First American Title Insurance
Company (the “Security Deposit Escrow”) an amount equal to three (3) months of
Fixed Rent (subject to increase as described in Section 3.4.3 below, the
“Security Amount”) as security (the “Security Deposit”) for the full and
faithful performance by Tenant of each and every term, provision, covenant and
condition of this Lease. The Security Deposit shall be immediately released and
paid to Landlord upon Landlord’s sole order upon the sooner of (i) any Event of
Default, or (ii) the Commencement Date. Upon the occurrence of an Event of
Default, Landlord may, but shall not be required to, use, apply or retain the
whole or any part of the Security Deposit (whether by drawing upon any Letter of
Credit or applying any cash Security Deposit held by it) for the payment of any
Rent in default or for any other sum that Landlord may expend or be required to
expend by reason of Tenant’s default, including any damages or deficiency in the
reletting of the Premises, whether such damages or deficiency accrue before or
after summary proceedings or other re-entry by Landlord. If and for so long as
Landlord holds the cash Security Deposit hereunder, Landlord shall not commingle
the Security Deposit with Landlord’s other funds (other than, at Landlord’s
election, any security deposits under the Other Leases), and Landlord shall hold
the cash Security Deposit (subject to the provisions of this Lease pertaining to
Landlord’s permitted disbursement and application of such funds) in an
Investment Account established by and for Landlord. Unless a different rate is
specifically required under applicable law, no interest shall be due or owing
with respect to any Security Deposit other than the interest thereon that is
actually paid by the depository to Landlord under the aforedescribed Investment
Account, if any. Any such interest shall (to the extent not prohibited by
applicable law) be retained by Landlord and treated as additional deposits on
the Security Deposit. Landlord shall not be liable to Tenant or any other Person
for any consequent loss of principal or interest on funds held by Landlord as
the Security Deposit if Landlord has deposited such funds in an Investment
Account or for any other loss not caused by Landlord’s willful misconduct. In
case of a sale or transfer of the Premises by Landlord, or any cessation of
Landlord’s interest therein, whether in whole or in part, Landlord may pay over
or refund to Tenant any unapplied part of the Security Deposit (or, in the case
of any such partial transfer or cessation, such portion as Landlord allocates to
such part of the Premises, in its reasonable discretion) or transfer any Letter
of Credit if the LC Election has been made, with any fees incident to such
transfer being paid by Tenant (which transfer, in the case of any such partial
transfer or cessation, shall require Tenant to cause any Letter of Credit to be
reissued as separate Letters of Credit satisfying the requirements of
Section 3.4.2 as to the remaining Leased Properties) to the successor owner of
the Premises, and from and after such payment or refund, Landlord shall be
relieved of all liability with respect thereto. The provisions of the preceding
sentence shall apply to every subsequent sale or transfer of the Premises or any
part thereof. Attached hereto as Schedule 3.4.1 are Landlord’s current wire

 

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transfer instructions for payments of the Security Deposit. Landlord may, upon
advance written notice thereof to Tenant, designate alternative means of payment
and payees from time to time.

3.4.2           LC Election. At any time after Tenant’s payment to Landlord of
the first month’s rent pursuant to Section 3.1 hereof, Tenant may elect (such
election, a “LC Election”), in its sole discretion and by written notice to
Landlord, to post the Security Deposit in the form of an irrevocable, standby
Letter of Credit with a face value of the full Security Amount (the “Letter of
Credit”). Within ten (10) days after notice of an LC Election, Tenant shall
deliver to Landlord a Letter of Credit satisfying the requirements of this
Section 3.4.2 in the place and stead of the cash Security Deposit, whereupon
Landlord shall return (or cooperate with Tenant to cause the escrowee under the
Security Deposit Escrow to return) any unapplied portion of a cash Security
Deposit then held by Landlord. The Letter of Credit shall: (i) be in form and
substance acceptable to Landlord in its sole discretion; (ii) name Landlord as
its sole beneficiary; (iii) expressly allow Landlord to draw upon it at any
time, or from time to time, in whole or in part, by delivering to the issuer, at
an office of the issuer located in New York, New York, Louisville, Kentucky or
Chicago, Illinois, a written notice that Landlord is entitled to draw thereon
pursuant to the terms of this Lease; (iv) be issued by an FDIC-insured Lending
Institution that is reasonably satisfactory to Landlord, but shall in all events
have a credit rating of “AA” (or the equivalent) or higher from one of the
Rating Agencies (provided, however, that if and for so long as they maintain a
credit rating of at least “A” or the equivalent from one of the Rating Agencies,
then Tenant may also utilize JP Morgan Chase Bank or Bank of America or any
legal successors thereto for purposes hereof) and (v) be expressly
unconditional, irrevocable and fully transferable. The Letter of Credit (and any
renewals or replacements thereof) shall be for a term of not less than one (1)
year. Tenant agrees that it shall from time to time, as necessary, renew or
replace the original and any subsequent Letter of Credit not less than
thirty-five (35) days prior to its stated expiration date so that it will remain
in full force and effect until the later of sixty (60) days after the last day
of the Term or the date on which Tenant’s obligations under this Lease are
satisfied in full. If Tenant fails to furnish such renewal or replacement at
least 30 days prior to the stated expiration date of the Letter of Credit,
Landlord may immediately draw upon such Letter of Credit. If the credit ratings
test set forth in subsection (iv) above shall at any time cease to be satisfied
as to the issuer of the Letter of Credit, Landlord may immediately draw upon
such Letter of Credit. Without limitation of Landlord’s right thereafter to make
a LC Election, Landlord shall hold the proceeds of any such draw upon the Letter
of Credit as a portion of the Security Deposit pursuant to the terms of this
Lease. Any renewal of or replacement for the original or any subsequent Letter
of Credit shall be in an amount not less than the Security Amount and shall
otherwise meet the requirements for the original Letter of Credit as set forth
above.

3.4.3           Increase; Restoration of Security Deposit. Tenant, within five
(5) days after any increase in Fixed Rent hereunder, shall deposit with Landlord
cash in, or increase the face amount of the Letter of Credit by, the amount
necessary to ensure that the Security Deposit hereunder then equals three (3)
months’ annual Fixed Rent based upon the

 

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increased Fixed Rent due hereunder during such Lease Year. Any failure by Tenant
to make any required deposit of cash or increased face amount pursuant to the
immediately preceding sentence shall not constitute an Event of Default
hereunder unless and until Tenant fails to cure such failure within five (5)
Business Days after written notice thereof from Landlord to Tenant. In the event
the Security Deposit (or any portion thereof) is applied (or drawn upon from
time to time in full or partial amounts in the case of the Letter of Credit and
any renewals or replacements thereof) by Landlord on account of any Event(s) of
Default by Tenant hereunder or as otherwise expressly provided in this
Section 3.4, Tenant shall replenish said Security Deposit in full, within ten
(10) days after demand therefor, by paying to Landlord the amount so applied or,
in the case of the Letter of Credit, restoring the Letter(s) of Credit to its
(their) full amount. Tenant’s failure to timely increase the Security Deposit,
or to timely replenish and restore the Security Deposit, after demand as
aforesaid shall be an Event of Default. If: (i) no Event of Default has occurred
and no Potential Default is continuing hereunder and (ii) Tenant has fully
performed and satisfied all of its obligations under the Lease (including,
without limitation and as applicable, its obligations relative to any
Operational Transfer(s)), then the Security Deposit, or the remaining unapplied
portion thereof, shall be paid or returned to Tenant within sixty (60) days
after the expiration or termination of this Lease and the surrender of the
Premises to Landlord in the condition required hereunder; provided, however,
that Landlord may retain an amount, as it shall reasonably determine, to secure
the payment of any Rent, the amount of which Landlord is then unable to
determine finally (and Landlord shall return any such retained amount to Tenant
promptly following the final determination of such Rent amount and the full
payment to Landlord of such Rent). The Security Deposit shall not be deemed an
advance payment of Rent or a measure of Landlord’s damages for any default
hereunder by Tenant, nor shall it be a bar or defense to any action that
Landlord may at any time commence against Tenant.

3.5        Net Lease. Tenant's obligations to pay Rent under this Lease (i) are
absolute and unconditional, (ii) constitute independent covenants, (iii) shall
not require any notice from Landlord and (iv) shall be free of any offset,
defense or counterclaim whatsoever. Without limiting the generality or efficacy
of the foregoing, Tenant's obligations to pay Rent under this Lease shall not be
subject to any condition that (a) Tenant or Landlord have obtained any Permit or
Authorization, (b) Tenant be entitled (or otherwise able) to use the Leased
Property for the Primary Intended Use or for any other purpose, or (c) any other
condition precedent other than the occurrence of the Commencement Date. The Rent
shall be paid absolutely net to Landlord, free of all Impositions, utility
charges, operating expenses, insurance premiums or any other charges or expenses
in connection with the Premises, without any rights of deduction, set-off or
abatement, so that this Lease shall yield to Landlord the full amount of the
installments of Fixed Rent, throughout the Term. This Lease is intended to be
and shall be construed as an absolutely net lease pursuant to which Landlord
shall not, under any circumstances or conditions, whether presently existing or
hereafter arising, and whether foreseen or unforeseen by the parties, be
required to make any payment or expenditure of any kind whatsoever or be under
any other obligation or liability whatsoever, except as expressly set forth
herein.

 

 

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3.6        Lease Guaranty. On the date hereof, Tenant shall cause to be
delivered to Landlord the Lease Guaranty made by Guarantor guaranteeing all of
Tenant’s obligations under this Lease.

4.

Impositions.

4.1        Payment of Impositions. Subject to Section 13 relating to permitted
contests, Tenant shall pay all Impositions payable during the Term as set forth
in Section 3.2.1 and for any tax period occurring during the Term, irrespective
of whether the Impositions for such tax period are due and payable after the
Term. Tenant’s obligation to pay such Impositions shall be deemed absolutely
fixed upon the date such Impositions become a lien upon the Leased Property or
any part thereof. If any refund shall be due from any taxing authority in
respect of any Imposition paid by Tenant during the Term, the same shall be paid
over to or retained by Tenant but only if no Event of Default shall have
occurred hereunder and no Potential Default shall be continuing. If an Event of
Default shall have occurred or a Potential Default shall be continuing
hereunder, such refund shall be paid over to and retained by Landlord. If Tenant
nevertheless receives such refund, Tenant shall, upon receipt, promptly and
without notice or demand, pay such refund over to Landlord in full. Any such
funds retained by Landlord due to an Event of Default or Potential Default shall
be applied as Landlord shall determine in its sole discretion, and if such funds
are held due to a Potential Default, then the balance thereof (net of any costs
incurred or paid by Landlord in connection with such Potential Default) shall be
promptly refunded to Tenant if Tenant cures such Potential Default within the
applicable cure period (if any) set forth in this Lease. In the event any
Governmental Authority classifies any property covered by this Lease as personal
property, Tenant shall file any personal property tax returns that are required
with respect thereto. Subject to the terms of Section 13, Tenant may, upon
notice to Landlord, at Tenant’s option and at Tenant’s sole cost and expense,
protest, appeal, or institute tax contests to effect a reduction of real estate
or personal property assessments and Landlord, at Tenant’s expense as aforesaid,
shall cooperate with Tenant in such protest, appeal, or other action to the
extent required by law and reasonably requested by Tenant.

4.2        Notice of Impositions. Landlord or Landlord’s designee shall use
reasonable efforts to give prompt written notice to Tenant of all Impositions
payable by Tenant hereunder of which Landlord has received a written invoice or
similar statement, provided, however, that any failure by Landlord to provide
such notice to Tenant shall in no way relieve Tenant of its obligation to timely
pay the Impositions. Tenant shall deliver to Landlord, not more than five (5)
days prior to the due date of each Imposition, copies of the invoice for such
Imposition, the check delivered for payment thereof and (if reasonably
available) an original receipt evidencing such payment or other proof of payment
satisfactory to Landlord.

4.3        Adjustment of Impositions. Any Imposition imposed in respect of the
tax-fiscal period during which the Term terminates or expires shall be adjusted
and prorated between Landlord and Tenant, whether or not such Imposition is
imposed before or after such

 

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termination or expiration, and Tenant’s obligation to pay its prorated share
thereof shall survive such termination or expiration.

5.          No Affect or Impairment, etc. The respective obligations of Landlord
and Tenant shall not be affected or impaired by reason of (i) any damage to, or
destruction of, any Leased Property or any portion thereof, from whatever cause,
or any Condemnation of any Leased Property or any portion thereof (except as
otherwise expressly and specifically provided in Section 15 or Section 16), (ii)
the interruption or discontinuation of any service or utility servicing any
Leased Property, (iii) the lawful or unlawful prohibition of, or restriction
upon, Tenant’s use of any Leased Property, or any portion thereof, due to the
interference with such use by any Person or eviction by paramount title, (iv)
any claim that Tenant has or might have against Landlord on account of any
breach of warranty or default by Landlord under this Lease or any other
agreement by which Landlord is bound, (v) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Landlord or any assignee or transferee of
Landlord, (vi) the revocation, suspension or non-renewal of any license, permit,
approval or other Authorization, (vii) any withholding, non-payment, reduction
or other adverse change respecting any Facility Provider Agreement or any Third
Party Payor Program, (viii) any admissions hold under any Third Party Payor
Program, or (ix) for any other cause whether similar or dissimilar to any of the
foregoing other than a discharge of Tenant from any such obligations as a matter
of law. Tenant hereby specifically waives all rights, arising from any
occurrence whatsoever, which may now or hereafter be conferred upon it by law
(x) to modify, surrender or terminate this Lease or quit or surrender any Leased
Property or any portion thereof, or (y) that would entitle Tenant to any
abatement, reduction, suspension or deferment of the Rent or other sums payable
by Tenant hereunder. The obligations of Landlord and Tenant hereunder shall be
separate and independent covenants and agreements and the Rent and all other
sums payable by Tenant hereunder shall continue to be payable in all events
unless and to the extent the obligations to pay the same shall be terminated by
termination of this Lease as to any Leased Property other than by reason of an
Event of Default.

6.

Premises; Tenant’s Personal Property.

6.1        Ownership of the Premises. Tenant acknowledges that the Premises are
the property of Landlord and that Tenant has only the right to the possession
and use of the Premises upon and subject to the terms and conditions of this
Lease. Notwithstanding anything to the contrary contained in this Lease, in the
case of any easement or other rights that are appurtenant to any Leased
Property, Tenant agrees that Landlord does not make any representation or
warranty relative to Landlord’s title thereto or whether such appurtenances are
encumbered, and Landlord shall not be obligated to discharge any liens or
encumbrances with respect to, or otherwise to defend, Landlord’s right, title
and interest, if any, in any such appurtenances. Tenant agrees that such
appurtenances shall constitute Permitted Encumbrances, as to which Tenant shall
have the obligations set forth in Section 8.2.6 and Section 23.

 

 

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6.2        Tenant’s Personal Property. Tenant shall provide and maintain during
the entire Term all such Tenant’s Personal Property and Landlord’s Personal
Property as shall be necessary to maintain the Authorizations in effect and to
operate each Facility in compliance with all licensure and certification
requirements, in compliance with all applicable Legal Requirements and Insurance
Requirements and otherwise in accordance with customary practice in the industry
for the Primary Intended Use of each Leased Property. Except as otherwise agreed
in writing by Landlord in its sole discretion, upon the expiration or earlier
termination of this Lease as it applies to any Leased Property, (i) Tenant’s
Personal Property that is to be transferred to Landlord pursuant to Section 35
below shall include all of the foregoing required Tenant’s Personal Property,
and any other Tenant’s Personal Property, in the Required Condition and (ii)
Landlord’s Personal Property shall be returned to Landlord, and left at or in
such Leased Property, in the Required Condition.

6.3        Landlord’s Personal Property. Tenant may, from time to time, in
Tenant’s reasonable discretion, without notice to or approval of Landlord, sell
or dispose of any item of Landlord’s Personal Property; provided, however, that,
unless such item is unnecessary for the operation of the Leased Property or is
otherwise functionally obsolete (as determined by Tenant in its reasonable
judgment), Tenant shall promptly replace such item with an item of similar
quality, use and functionality, and any such replacement item (other than items
that, by the terms of Section 35 below, are to be retained by Tenant upon the
expiration or termination of this Lease) shall, for purposes of this Lease,
continue to be treated as part of “Landlord’s Personal Property.” Tenant shall,
promptly upon Landlord’s request from time to time, provide such information as
Landlord may reasonably request relative to any sales, dispositions or
replacements of Landlord’s Personal Property pursuant to this Section 6.3.

7.

Condition and Use of Each Leased Property.

7.1        Condition of Each Leased Property. Tenant acknowledges receipt and
delivery of possession of each Leased Property. Tenant is leasing each Leased
Property “AS IS” “WHERE IS” and Tenant waives any claim or action against
Landlord in respect of the condition of each Leased Property. LANDLORD MAKES NO
WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF ANY LEASED
PROPERTY OR ANY PART THEREOF, EITHER AS TO ITS FITNESS, DESIGN OR CONDITION FOR
ANY PARTICULAR USE OR PURPOSE OR THE QUALITY OF THE MATERIAL OR WORKMANSHIP
THEREIN, LATENT OR PATENT, OR OTHERWISE, IT BEING AGREED THAT ALL SUCH RISKS ARE
TO BE BORNE BY TENANT. TENANT HEREBY WARRANTS AND ACKNOWLEDGES THAT TENANT HAS
EXAMINED AND INVESTIGATED, TO TENANT’S FULL SATISFACTION, THE CONDITION OF THE
LEASED PROPERTY.

 

 

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7.2

Use of Each Leased Property.

7.2.1           Primary Intended Use. During the entire Term, Tenant shall use
each Facility (including, without limitation, the Leased Improvements thereon)
solely for its Primary Intended Use (and shall not change, or consent to or
acquiesce in the change of, such Primary Intended Use) and shall operate each
Facility in the same manner as required for those substantially similar
facilities (i.e., those facilities with both assisted living and independent
living components) under the Other Leases and, if any Third Party Payor Programs
apply to such Facility, sound reimbursement principles under any such Third
Party Payor Programs. No use shall be made or permitted to be made of any Leased
Property, and no acts shall be done, that would knowingly cause the cancellation
of any insurance policy covering such Leased Property or any part thereof (and
if any such insurance policy be canceled, Tenant shall immediately replace the
same with an insurance policy satisfying all applicable requirements of this
Lease), nor shall Tenant sell or otherwise provide to occupants or residents
therein, or permit to be kept, used or sold in or about such Leased Property,
any article that may be prohibited by any Legal Requirements or by the standard
form of fire insurance policies, or any other insurance policies required to be
carried hereunder, or fire underwriters’ regulations.

7.2.2           Authorizations Appurtenant. The Authorizations for any Facility
shall, to the maximum extent permitted by law, relate and apply exclusively to
such Facility, and Tenant acknowledges and agrees that, subject to all
applicable Legal Requirements, the Authorizations are appurtenant to the
Facilities to which they apply, both during and following the termination or
expiration of the Term. In jurisdictions where any other Authorization(s) is/are
issued to a Tenant or its subtenant, as the Facility operator, Tenant agrees
that (i) such other Authorizations shall nevertheless remain the property of
Landlord and be held by Tenant or such subtenant, in trust for the benefit of
Landlord pursuant to a revocable, temporary license that may be revoked by
Landlord at any time after an Event of Default or Potential Default, and (ii) in
connection with an Operational Transfer or as otherwise required by Landlord,
Tenant shall cooperate with Landlord, in accordance with Section 37.1 hereof, to
turn over all of Tenant’s rights to the extent transferable in connection with
such other Authorizations to Landlord or Successor Operator, as applicable. This
Section 7.2.2 shall survive the expiration or earlier termination of this Lease.

7.3        Authorization Collateral. To the fullest extent permitted by
applicable law, Tenant hereby grants to Landlord a first priority security
interest in, and lien upon, all Authorizations issued to, leased or licensed to,
or held by, Tenant, including, but not limited to, Tenant’s interest in and
rights under all Facility Provider Agreements, with respect to the Facilities
(collectively, the “Authorization Collateral”) to secure the performance of all
of Tenant’s obligations under this Lease, including, but not limited to, its
obligation to engage in, assist with and facilitate any Operational Transfer.
Tenant represents and warrants to Landlord that attached hereto on Schedule 7.3
is a detailed list and description of all of the Authorization Collateral.
Notwithstanding anything contained herein to the contrary, Tenant shall not
(under any circumstances) grant any lien upon, security interest in and to or
otherwise

 

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pledge, encumber, hypothecate, transfer or assign, in whole or in part, the
Authorization Collateral to any Person, irrespective of the priority of such
security interest, pledge or hypothecation. The security interest and lien
granted by this Section 7.3 shall be in addition to any lien of Landlord that
may now or at any time hereafter be provided by law. The provisions of
Section 21.1.1.1 below shall be applicable to the security interest and lien
referenced in this Section 7.3.

7.4        Granting of Easements, etc. Landlord may, from time to time, with
respect to any Leased Property: (i) grant easements, covenants and restrictions,
and other rights in the nature of easements, covenants and restrictions, (ii)
release existing easements, covenants and restrictions, or other rights in the
nature of easements, covenants or restrictions, that are for the benefit of such
Leased Property, (iii) dedicate or transfer unimproved portions of such Leased
Property for road, highway or other public purposes, (iv) execute petitions to
have such Leased Property annexed to any municipal corporation or utility
district, (v) execute amendments to any easements, covenants and restrictions
affecting such Leased Property and (vi) execute and deliver to any Person any
instrument appropriate to confirm or effect such grants, releases, dedications
and transfers (to the extent of its interests in such Leased Property) without
the necessity of obtaining Tenant’s consent provided that such easement or other
instrument or action contemplated by this Section 7.4 does not unreasonably
interfere with the conduct of the business of Tenant on such Leased Property. If
any easement or other instrument or action contemplated by this Section 7.4
unreasonably interferes with the conduct of business by the applicable Tenant(s)
at a Leased Property, Landlord shall obtain Tenant’s prior written consent to
such proposed easement, instrument or action, which consent may be granted or
withheld by Tenant in its sole discretion (and which consent shall be deemed
given if not expressly given or denied by Tenant, in writing, within five (5)
Business Days of Tenant’s receipt of such written request).

8.

Negative and Affirmative Covenants of Tenant.

 

 

8.1

Negative Covenants. Tenant covenants and agrees with Landlord that:

8.1.1           Issuance of Equity Interests. No Tenant shall issue or allow to
be created any stocks, shares, partnership or membership interests or other
ownership interests in any Tenant, other than the stocks, shares, partnership or
membership interests and other ownership interests that are outstanding on the
date hereof or any security or other instrument that is outstanding on the date
hereof and by its terms is convertible into or exchangeable for stock, shares,
partnership or membership interests or other ownership interests in any Tenant.

8.1.2           Change in Business or Organizational Status. No Tenant shall
make any material change in the scope or nature of its business objectives or
operations, or undertake or participate in activities other than in continuance
of its present business. No Tenant shall amend, modify or alter its Tenant Org
Docs or allow itself to be dissolved, voluntarily or involuntarily.

 

 

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8.1.3           Affiliate Transactions and Payments. No Tenant shall enter into,
or be a party to, any transaction with an Affiliate of any Tenant or any of the
partners, members or shareholders of any Tenant except in the ordinary course of
business and on terms that are no less favorable to any Tenant or such Affiliate
than would be obtained in a comparable arm’s-length transaction with an
unrelated third party; provided, however, Tenant may enter into management
agreements with respect to each Facility with any Affiliate of any Tenant or any
Guarantor which provide for management fees of up to five percent (5%) of the
gross revenues of such Facility and provided further that any such Affiliate, as
manager, as well as any other property manager of a Facility, shall enter into a
subordination agreement relative thereto and in favor of Landlord on the terms
set forth in Exhibit G attached hereto. After the occurrence of an Event of
Default or Potential Default and until such Potential Default is cured, no
Tenant shall make any payments or distributions (including, without limitation,
salaries, bonuses, fees, principal, interest, dividends, liquidating
distributions, management fees, cash flow distributions or lease payments) to
any Guarantor or any Affiliate of any Tenant or any Guarantor, or any
shareholder, member, partner or other equity interest holder of any Tenant, any
Guarantor or any Affiliate of any Tenant or any Guarantor (excluding employees
located at the Premises).

8.1.4           ERISA. No Tenant shall engage in any transaction that would
cause any obligation, or action taken or to be taken, hereunder (or the exercise
by Landlord of any of its rights under this Lease) to be a non-exempt (under a
statutory or administrative class exemption) prohibited transaction under ERISA.
Each Tenant shall deliver to Landlord such certifications or other evidence from
time to time throughout the Term, as requested by Landlord in its sole
discretion, that (i) except as provided on Schedule 8.1.4, such Tenant is not
and does not maintain an “employee benefit plan”, as defined in Section 3(3) of
ERISA, that is subject to Title I of ERISA, or a “governmental plan” within the
meaning of Section 3(3) of ERISA; (ii) such Tenant is not subject to state
statutes regulating investments and fiduciary obligations with respect to
governmental plans; and (iii) one or more of the following circumstances is
true: (x) equity interests in such Tenant are publicly offered securities,
within the meaning of 29 C.F.R. §2510.3-101(b)(2); (y) less than twenty-five
percent (25%) of each outstanding class of equity interests in such Tenant are
held by “benefit plan investors” within the meaning of 29 C.F.R.
§2510.3-101(f)(2); or (z) such Tenant qualifies as an “operating company” or a
“real estate operating company” within the meaning of 29 C.F.R. §2510.3-101(c)
or (e).

8.1.5           Debt Cancellation; Other Indebtedness; Guaranties. No Tenant
shall cancel or otherwise forgive or release any claim or debt owed to any
Tenant by any Person, except reasonable and customary write-offs of
non-collectible accounts owed by residents or their estates and other
cancellations made in the ordinary course of such Tenant’s business. No Tenant
shall create, incur, assume, or permit to exist any indebtedness other than (i)
trade debt incurred in the ordinary course of Tenant’s business (which shall not
include so-called “accounts receivable” financing, which shall be governed by
the terms of Section 21.2); or (ii) any AR Financing pursuant to Section 21.2.
No Tenant shall create, incur, assume, or

 

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permit to exist any guarantee of any loan or other indebtedness except for the
endorsement of negotiable instruments for collection in the ordinary course of
business.

8.1.6           Assets; Investing. No Tenant shall purchase or own any property
other than property necessary for, or incidental to, the operation of the
applicable Facility(ies) for its/their Primary Intended Use(s). No Tenant shall
purchase or otherwise acquire, hold, or invest in securities (whether capital
stock or instruments evidencing indebtedness) of any Person. No Tenant shall
make loans or advances to any Person, except for cash balances temporarily
invested in short-term or money market securities pursuant to Tenant’s cash
management system approved by Landlord or such other customary investments as
may be approved by Landlord.

8.1.7           Liens; Waste. No Tenant shall create, incur, assume or suffer to
exist any lien (subject to any applicable right of Tenant to contest mechanic's
liens under Section 13 below), charge, encumbrance, easement or restriction on
any portion of any of the Leased Properties or the Lease Collateral other than a
lien upon the Accounts Collateral that is consented to by Landlord in accordance
with Section 21.2 below. No Tenant shall commit or suffer to be committed any
waste on any Leased Property, nor shall any Tenant cause or permit any nuisance
thereon. Tenant shall not take or omit to take any action, the taking or
omission of which may materially impair the value or the usefulness of any
Leased Property or any part thereof for its Primary Intended Use.

8.1.8           Zoning. No Tenant shall initiate or consent to any zoning
reclassification of any portion of any of the Leased Properties or seek any
variance under any existing zoning ordinance or use (or permit the use of) any
portion of any of the Leased Properties in any manner that could result in such
use becoming a non-conforming use under any zoning ordinance or any other
applicable land use law, rule or regulation.

8.1.9           Contracts. Except as may otherwise be expressly permitted under
this Lease, no Tenant shall execute or modify any material contracts or
agreements with respect to any Facility except for contracts and modifications
approved by Landlord (which approval shall not be unreasonably withheld).
Contracts made in the ordinary course of business and that do not require
aggregate payments in an amount in excess of $75,000.00 per Facility per annum
or are cancelable upon thirty (30) days written notice or less without penalty
shall not be considered “material” for purposes of this Section.

8.1.10         No Joint Assessment. No Tenant shall suffer, permit or initiate
the joint assessment of any Leased Property (i) with any other real property
constituting a tax lot separate from such Leased Property, or (ii) with any
portion of such Leased Property that may be deemed to constitute personal
property, or any other procedure whereby the lien of any taxes that may be
levied against any such personal property shall be assessed or levied or charged
to such Leased Property.

 

 

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8.1.11

Use-Specific Negative Covenants. No Tenant shall:

8.1.11.1      Transfer any Authorizations to any location other than the
Facility operated by such Tenant or as otherwise required by the terms of this
Lease nor pledge any Authorizations as collateral security for any loan or
indebtedness except as required by the terms of this Lease.

8.1.11.2      Rescind, withdraw, revoke, amend, supplement, or otherwise alter
the nature, tenor or scope of (i) any Authorization for any Facility or (ii)
except in the ordinary course of business, any applicable Facility Provider
Agreement for any Facility.

8.1.11.3      Amend or otherwise change, by consent, acquiescence or otherwise,
any Facility’s licensed unit capacity and/or the number or type of units,
licensed or otherwise, and/or the licensing category or type and/or the number
of units, licensed or otherwise, participating in governmental payment programs,
in each case as the same exist on the Commencement Date, or apply for approval
of any of the foregoing amendments or changes, provided, however, that,
notwithstanding the foregoing, Tenant may, without the prior approval of
Landlord, (i) remove from service units at a particular Facility so long as the
number of units in service at such Facility is not less than a number equal to
ninety five percent (95%) of the number of licensed units for such Facility set
forth in Schedule 17.1.13 attached hereto and further so long as any such
removal from service does not impair the continued licensure of any such
out-of-service units and (ii) make amendments or changes of the nature
referenced in this Section so long as Tenant may, without the necessity of any
governmental or other regulatory approval, consent of application, revoke or
otherwise unwind any such amendments or changes and return to the pre-amendment
and pre-change status quo.

8.1.11.4      Replace or transfer all or any part of any Facility’s licensed
units to another location or apply for approval of any such replacement or
transfer.

8.1.11.5      Jeopardize in any manner any Tenant’s participation in any
material Third Party Payor Program to which any Tenant is subject at any time
during the Term.

8.1.11.6      Enter into any resident or resident care agreements with residents
or with any other Persons that deviate in any material respect from the standard
form customarily used by any Tenant at the applicable Facility.

8.1.11.7      Change the terms of any Facility Provider Agreement, any Third
Party Payor Program or its normal billing, payment or reimbursement policies and
procedures with respect thereto (including, without limitation, the amount and
timing of finance charges, fees and write-offs); provided that a Tenant may
enter into changes that do not have a material adverse effect on (i) the
business or financial position or results of operations of such Tenant, (ii) the
ability of such Tenant to perform, or of Landlord to enforce, the terms of this
Lease or (iii) the value of the Leased Properties taken as a whole.

 

 

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8.1.11.8      Assign or transfer any of its interest in any Authorization or
assign, pledge, hypothecate, transfer or remove, or permit any other Person to
assign, transfer, pledge, hypothecate or remove, any records pertaining to any
Facility, including, without limitation, resident records and medical and
clinical records (except for removal of such resident records as directed by the
residents owning such records).

8.2        Affirmative Covenants. Until all of Tenant’s obligations hereunder
have been performed and discharged in full, Tenant covenants and agrees as
follows:

8.2.1           Perform Obligations. Tenant shall perform or cause to be
performed, as and when due, all of its obligations under this Lease and the
Other Leases. In addition, Tenant shall perform or cause to be performed, as and
when due, all of its material obligations (or any other obligations so required
by Landlord) under the Authorizations (including, but not limited to, any
Facility Provider Agreements), any Permitted Encumbrances, any Insurance
Requirements, the Operations Transfer Agreement and any Legal Requirements.
Tenant has taken all necessary action to obtain all Authorizations (including,
but not limited to, the Facility Provider Agreements) required for the operation
of each of the Facilities for its Primary Intended Use and shall take all
necessary action to maintain such Authorizations (including, but not limited to,
the Facility Provider Agreements) during the Term.

8.2.2           Proceedings to Enjoin or Prevent Construction. If any
proceedings are filed seeking to enjoin or otherwise prevent or declare invalid
or unlawful Tenant’s construction, occupancy, maintenance, or operation of any
Facility or any portion thereof for its Primary Intended Use, Tenant shall cause
such proceedings to be vigorously contested in good faith, and shall, without
limiting the generality of the foregoing, use all reasonable commercial efforts
to bring about a favorable and speedy disposition of all such proceedings and
any other proceedings.

8.2.3

Documents and Information.

8.2.3.1        Furnish Information. Tenant shall (i) promptly supply Landlord
with such information concerning its financial condition, licensing, affairs and
property as Landlord may reasonably request from time to time hereafter and in
the format reasonably designated by Landlord and, without limitation of the
foregoing, promptly, and in any event within fifteen (15) days, after a request
from Landlord, Tenant shall provide to Landlord such additional information
regarding Tenant, Tenant’s financial condition or the Facilities as Landlord
(including, without limitation, any existing or proposed lender or investor of
Landlord or Ventas, Inc. or any existing or proposed Facility Mortgagee, or any
auditor or underwriter of Landlord or Ventas, Inc.), may require from time to
time; and (ii) promptly notify Landlord in writing of any Event of Default, any
Potential Default and any other condition or event that constitutes a breach of
any material term, condition, warranty, representation or provision of any other
agreement between Landlord or its Affiliates and any Tenant, any Guarantor or
any of their Affiliates, and of any adverse change in the financial

 

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condition of any Tenant, any Guarantor or ParentCo. Tenant shall notify
Landlord, in writing and within five (5) Business Days, if any Tenant is
advised, in writing, formally or informally, by its insurance carrier,
reinsurance provider, accountants, actuary, any Governmental Authority, or any
Third Party Payor Program provider of any actual, pending, threatened or
contemplated increase in its reserves for expenses relating to malpractice or
professional liability claims or any material increase in the premium costs for
malpractice or professional liability insurance (any of the foregoing, a
“Reserve Event”).

8.2.3.2        Further Assurances. Tenant shall, upon request of Landlord from
time to time, execute, deliver, and furnish such documents as may be necessary
or appropriate to consummate fully the transactions contemplated under this
Lease.

8.2.3.3        Material Communications. Tenant shall transmit to Landlord,
within three (3) Business Days after receipt thereof (or immediately with
respect to any correspondence related to any Jeopardy Event), any Actuarial
Correspondence or any material and adverse communication (regardless of form)
relating to (i) Tenant; (ii) any Guarantor; (iii) the ownership or operation of
any Premises or any Other Leased Properties, including, without limitation, any
Third Party Payor Program relating to the Leased Property or any Other Leased
Properties, any Legal Requirements relating to the Leased Property or any Other
Leased Properties, any Insurance Requirements relating to the Leased Property or
any Other Leased Properties, any Facility Provider Agreements relating to the
Leased Property or any Other Leased Properties, or any Authorizations relating
to the Leased Property or any Other Leased Properties; or (iv) to the extent not
otherwise described above, any of the respective rights, duties or obligations
of Landlord or Tenant under this Lease. Tenant shall promptly respond to
inquiries by Landlord with respect to such information. Tenant shall notify
Landlord in writing promptly after any Tenant obtains knowledge of any
potential, threatened or existing litigation or proceeding against, or
investigation of, any Tenant, any Guarantor, any Affiliate of any Tenant or any
Guarantor or any Facility that may affect the right to operate one or more of
the Facilities, any Facility Provider Agreements, any of the Authorizations, the
right to receive regular reimbursement under any Third Party Payor Program or
Landlord’s title to any Facility or any Tenant’s interest therein.

8.2.3.4        Operator Reports; Actuarial Reports. Tenant shall provide
Landlord with accurate and complete copies of any and all of the census
information concerning the number of licensed units occupied by bona fide
residents, all cost reports, surveys, survey deficiency reports, monthly
financial statements and other reports, materials and information concerning any
Tenant, the Facilities and each Tenant’s business operations and compliance with
material laws, ordinances, rules or regulations, any material Authorizations
(including, without limitation, any assisted living licenses) and any material
Facility Provider Agreements that are submitted by Tenant to any Governmental
Authorities or any provider pursuant to any Third Party Payor Program (including
any Health Department), for any of the Facilities (the “Operator Reports”)
promptly, and in any event, within five (5) Business Days, after the submission
thereof. All Operator Reports shall be accurate in all material respects as of
the date of such Operator Reports. Tenant shall provide Landlord with

 

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any and all Actuarial Reports received by, or prepared by or on behalf of, any
Tenant within ten (10) Business Days after the receipt or submission thereof by
or to any Tenant.

8.2.4           Compliance With Laws. Tenant shall comply with all applicable
Insurance Requirements and all applicable Legal Requirements (and Landlord shall
have no responsibility for such compliance). Tenant shall keep all applicable
Authorizations and Facility Provider Agreements in full force and effect.

8.2.5           Financial Covenants. The following financial covenants shall be
met throughout the Term of this Lease:

8.2.5.1        Net Worth. Each Guarantor shall maintain for each fiscal quarter
a Net Worth of not less than $45,000,000. Tenant shall maintain during each
fiscal quarter an aggregate Net Worth of not less than $0.

8.2.5.2

[Intentionally Omitted]

8.2.5.3        Coverage Ratio. Tenant shall maintain for each fiscal quarter a
Coverage Ratio with respect to each Facility of not less than .50 to 1.0.

8.2.5.4        Portfolio Coverage Ratio. Tenant shall maintain, as of the end of
each fiscal quarter commencing with the fiscal quarter ending on June 30, 2005,
a Portfolio Coverage Ratio of not less than 1.00 to 1.00 calculated for all
periods on a trailing twelve month basis. It shall be an Event of Default under
this Lease if Tenant shall fail to maintain as of the end of each fiscal quarter
a Portfolio Coverage Ratio of not less than 1.00 to 1.00; provided, however,
that it shall not be an Event of Default hereunder, if (i) the Portfolio
Coverage Ratio is greater than or equal to .75 to 1.00, and (ii) within fifteen
(15) days following the date on which Tenant was required to deliver its
computation of the Portfolio Coverage Ratio for such fiscal quarter, Tenant
deposits with Landlord cash or a Letter of Credit in an amount that, had such
amount been added to the Cash Flow for such 12-month period, the Portfolio
Coverage Ratio for such period would have been equal to 1.00 to 1.00 (the
“Difference”). The Difference will be held by Landlord as an addition to the
Security Deposit and applied, held and returned by Landlord in accordance with
the provisions of Section 3.4; provided, however, that if after the payment by
Tenant to Landlord of the Difference, the Portfolio Coverage Ratio of 1.00 to
1.00 is satisfied for the two (2) most recent consecutive fiscal quarters and no
Event of Default has occurred and no Potential Default is continuing, then
Landlord shall, upon Tenant’s written request, promptly return to Tenant any
unapplied Difference then held by Landlord. Notwithstanding the foregoing,
Tenant shall not have the ability to cure a breach of the Portfolio Coverage
Ratio by depositing the Difference for more than three (3) consecutive fiscal
quarters.

8.2.6           Permitted Encumbrances. Tenant shall, at its own cost, fully
observe, perform and comply with all Permitted Encumbrances as the same apply to
or bind Landlord or the Premises. No Tenant shall cause, or permit its
respective Tenant Parties

 

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to cause, whether by act or omission, any breach of, default under or
termination of any Permitted Encumbrance applicable to or binding upon Landlord
or the Premises.

8.3

[Intentionally Omitted]

8.4        Fannie Mae Financing. Tenant shall comply with all of the covenants
and obligations of Landlord and the owner and/or the tenant of the Leased
Property set forth in the Fannie Mae Financing as described on Schedule 8.4,
other than obligations that are solely under the control of Landlord such as the
making of principal and interest payments to Fannie Mae thereunder (it being
understood that Tenant shall not be deemed in default under this Section 8.4
solely on account of Landlord’s failure to remit to Fannie Mae any Fannie Mae
Reserve Payments (as defined below) that Tenant shall have fully and timely paid
to Landlord pursuant to Section 48.2 below). Tenant shall deliver copies of any
documents or correspondence it may receive or deliver relating to the Fannie Mae
Financing, promptly following Tenant’s receipt or delivery thereof. Provided
that no Event of Default or Potential Default exists, Landlord will endeavor to
deliver to Tenant copies of all notices of default under the Fannie Mae
Financing from Fannie Mae to Landlord that are not also addressed (by “cc” or
otherwise) to Tenant. If it is impossible for Tenant, using good faith
reasonable efforts, to comply with any obligation relating to the Fannie Mae
Financing, Tenant shall so notify Landlord and cooperate and assist Landlord in
complying with any such obligation, as may be reasonably requested by Landlord
from time to time.

8.5        Operations Transfer Agreement. Tenant acknowledges and agrees that
the Operations Transfer Agreement must be in full force and effect, and in form
and substance satisfactory to Landlord, as of the Closing. Tenant agrees not to
modify, waive or otherwise change any of the terms or conditions of the
Operations Transfer Agreement after the same shall have been approved by
Landlord, without in each instance the express prior written consent of
Landlord. Tenant shall timely and fully perform, at Tenant's sole cost and
expense, all of Tenant's obligations under the Operations Transfer Agreement,
and Tenant shall take (or cause to be taken), at Tenant's sole cost and expense,
any and all actions thereunder as may be reasonably requested by Landlord from
time to time.

9.

Maintenance of Facilities.

 

 

9.1

Maintenance and Repair.

9.1.1           Facility Repair. Tenant, at its sole expense, shall keep each
Leased Property (and Tenant’s Personal Property) in good and safe order and
repair, except for ordinary wear and tear and damage by Casualty and
Condemnation (whether or not the need for such repairs occurs as a result of
Tenant’s use, any prior use, the elements or the age of such Leased Property,
Tenant’s Personal Property, or any portion thereof). Without limitation of the
foregoing, Tenant shall promptly make (at Tenant’s sole expense) all necessary
and appropriate repairs and replacements (capital and otherwise) to each
Facility, of every kind and nature, whether interior or exterior, structural or
non-structural, ordinary or

 

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extraordinary, foreseen or unforeseen or arising by reason of a condition
existing prior to the commencement of the Term (concealed or otherwise),
including, but not limited to, any roof repairs or replacements or parking lot
repairs or replacements, such that each Leased Property is maintained in the
Required Condition for use for its Primary Intended Use. In addition, Tenant
shall (at Tenant’s sole expense) (i) maintain, repair and replace each Facility
such that at all times during the Term, the Required Condition is satisfied and
(ii) periodically replace the furnishings, fixtures and equipment of each
Facility such that each Facility is refurbished not less frequently than that
which is required from time to time in order to comply with general industry
refurbishment standards for substantially similar facilities. Any and all such
replacements shall constitute part of the Leased Property hereunder. Landlord
may from time to time as to any one or more Leased Properties, and at Tenant’s
sole expense (but no more than once every two (2) years at Tenant’s expense,
when more frequent inspections are required under the Fannie Mae Financing),
cause an engineer designated by Landlord, in its sole discretion, to inspect one
or more Leased Properties and issue a report (a “Leased Property Condition
Report”) with respect to the condition of any such Leased Properties. Tenant
shall, at its own expense, make any and all repairs or replacements reasonably
recommended by such Leased Property Condition Report to meet the Required
Condition. All repairs shall be made in a good and workmanlike manner and in
accordance with all Legal Requirements relating to such work. Landlord shall not
under any circumstances be required to repair, replace, build or rebuild any
improvements on any Leased Property, or to make any repairs, replacements,
alterations, restorations or renewals of any nature or description to any Leased
Property, whether ordinary or extraordinary, structural or non-structural,
foreseen or unforeseen, or to make any expenditure whatsoever with respect
thereto, or to maintain any Leased Property in any way. Tenant hereby waives, to
the extent permitted by law, the right to make repairs at the expense of
Landlord pursuant to any law currently in effect or hereafter enacted. In
addition, if any Leased Property Condition Report indicates that any Leased
Property has not been properly serviced and maintained, then Landlord may
require that Tenant procure and maintain, at Tenant’s sole expense, service and
maintenance contracts with duly licensed contractors or repair services (which
contractors or repair services shall be acceptable to Landlord in its sole
discretion) providing for regular maintenance and repair of any and all major
systems serving that Leased Property, including, but not limited to, the HVAC
systems, life safety systems, plumbing systems and elevator systems.

9.1.2           Notice of Non-Responsibility. Except as expressly set forth in
this Lease, nothing contained in this Lease and no action or inaction by
Landlord shall be construed as: (i) constituting the consent or request of
Landlord, express or implied, to any contractor, subcontractor, laborer,
materialman or vendor to, or for the performance of, any labor or services or
the furnishing of any materials or other property for the construction,
alteration, addition, repair or demolition of or to any Leased Property or any
part thereof; or (ii) giving Tenant any right, power or permission to contract
for or permit the performance of any labor or services or the furnishing of any
materials or other property in such fashion as would permit the making of any
claim against Landlord in respect thereof or to make any agreement that might
create, or in any way be the basis for, any right, title, interest, lien, claim
or other encumbrance upon the estate of Landlord in any Leased Property, or any

 

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portion thereof. Landlord may post, at Tenant’s sole cost, such notices of
non-responsibility upon, or of record against, any Leased Property to prevent
the lien of any contractor, subcontractor, laborer, materialmen or vendor
providing work, services or supplies to Tenant from attaching against the
Premises. Tenant agrees to promptly execute and record any such notice of
non-responsibility at Tenant’s sole cost.

9.1.3           Vacation and Surrender. Tenant shall, upon the expiration or
sooner termination of the Term as to any Leased Property, vacate and surrender
the applicable Leased Property to Landlord in the Required Condition consistent
with the requirements of Section 9.1.1, except as repaired, rebuilt, restored,
altered or added to as permitted or required by the provisions of this Lease and
except for damage from Casualty or Condemnation. Each Leased Property so
returned to Landlord shall include any and all Alterations, which shall be and
remain the property of Landlord as part of such Leased Property (except for
Alterations that Landlord requests, in writing, that Tenant remove, which
Alterations shall be promptly and completely removed by Tenant). Tenant shall
repair, at Tenant’s sole cost, any damage to a Leased Property resulting from
Tenant’s vacation from or surrender of such Leased Property and/or the removal
of any Alterations therefrom, whether effected by Tenant or Landlord.

9.2        Encroachments. If any of the Leased Improvements on any Leased
Property shall, at any time during the Term, encroach upon any property, street
or right-of-way adjacent to such Leased Property, then, promptly upon the
request of Landlord, Tenant shall, at its expense, subject to its right to
contest the existence of any encroachment and, in such case, in the event of any
adverse final determination, either (i) obtain valid waivers or settlements of
all claims, liabilities and damages resulting from each such encroachment,
whether the same shall affect Landlord or Tenant, or (ii) make such changes in
the Leased Improvements, and take such other actions, as Tenant, in the good
faith exercise of its judgment deems reasonably practicable, to remove such
encroachment, including, if necessary, the alteration of any of the Leased
Improvements, and in any event take all such actions as may be necessary in
order to be able to continue the operation of the Leased Improvements for the
Primary Intended Use substantially in the manner and to the extent the Leased
Improvements were operated prior to the assertion of such encroachment. Landlord
hereby agrees not to direct Tenant to take any action pursuant to the
immediately preceding sentence with respect to any encroachments that constitute
Permitted Exceptions under the P&S Agreement and/or the deeds of conveyance
delivered pursuant thereto, unless a governmental authority or other third party
has threatened or commenced any legal action or other proceeding with respect
thereto. Any such alteration shall be made in conformity with the applicable
requirements of Section 11. Tenant’s obligations under this Section 9.2 shall be
in addition to and shall in no way discharge or diminish any obligation of any
insurer under any policy of title or other insurance and Tenant shall not be
entitled to a credit for any sums recovered by Landlord under any such policy of
title or other insurance.

10.        Tenant’s Representations and Warranties. Tenant hereby makes the
following representations and warranties to Landlord and acknowledges that
Landlord is

 

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granting the Lease in reliance upon such representations and warranties.
Tenant’s representations and warranties shall survive the expiration or
termination of this Lease and, except to the extent otherwise specifically
limited, shall continue in full force and effect, and remain true and correct,
until Tenant’s obligations hereunder have been performed in full.

10.1      Organization and Good Standing. Tenant is a Texas corporation, duly
organized, validly existing and in good standing under the laws of the State of
Texas. Each Tenant is qualified to do business in and is in good standing under
the laws of the State in which each Facility operated by such Tenant is located.
Tenant has delivered true and complete copies of the documents, certificates and
agreements pursuant to which each Tenant is organized to do business (the
“Tenant Org Docs”).

10.2      Power and Authority. Each Tenant has the power and authority to
execute, deliver and perform this Lease and to make itself jointly and severally
liable for the obligations of each other Tenant. Each Tenant has taken all
requisite action necessary to authorize the execution, delivery and performance
of such Tenant’s obligations under this Lease.

10.3      Enforceability. This Lease constitutes a legal, valid, and binding
obligation of each Tenant enforceable in accordance with its terms.

10.4      Consents. The execution, delivery and performance of this Lease will
not require any consent, approval, authorization, order, or declaration of, or
any filing or registration with, any court, any Governmental Authority, or any
other Person.

10.5      No Violation. The execution, delivery and performance of this Lease
(i) do not and will not conflict with, and do not and will not result in a
breach of, any Tenant Org Docs; and (ii) do not and will not violate any order,
writ, injunction, decree, statute, rule or regulation applicable to any Tenant
or (to Tenant’s knowledge) any of the Facilities.

10.6      Reports and Statements. To Tenant’s knowledge, all reports, statements
(financial or otherwise), certificates and other data furnished by or on behalf
of Tenant or any Guarantor to Landlord in connection with this Lease, and all
representations and warranties made herein or in any certificate or other
instrument delivered in connection herewith, are true and correct in all
material respects and (to Tenant’s knowledge) do not omit to state any material
fact or circumstance necessary to make the statements contained herein or
therein, in light of the circumstances under which they are made, not misleading
as of the date of such report, statement, certificate or other data.

10.7      No Default. There is no existing Event of Default and there is no
Potential Default.

10.8      Adverse Matters. No Tenant nor (to Tenant’s knowledge) any Tenant
Parties have been disqualified from participating in either the Medicare or
Medicaid programs. Without limitation of the foregoing, no Tenant nor (to
Tenant’s knowledge) any of their

 

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respective officers, directors, members or managing employees or other
contractors, subcontractors, employees or agents has engaged in any activities
that are prohibited under criminal law, or are cause for civil penalties or
mandatory or permissive exclusion from any Third Party Payor Program or any
governmental health care program. There is no, and there shall continue to be
no, to Tenant’s knowledge threatened, existing or pending revocation,
suspension, termination, probation, restriction, limitation or non-renewal
affecting any Tenant or any Facility with regard to participation in any Third
Party Payor Program or the applicable Authorizations to which any Tenant or
Facility presently or at any time hereafter is/are subject.

10.9      Certification. Each Tenant has obtained on or before the Commencement
Date, and shall at all times thereafter keep and maintain, any and all
Authorizations necessary or advisable to operate its Facility(ies) for its
Primary Intended Use and to be, and to continue to be, validly licensed and
certified to operate its applicable Facility in accordance with all applicable
governmental rules and regulations and the requirements of all applicable
Governmental Authorities.

10.10    No Reimbursement Audits or Appeals. To Tenant’s knowledge there are no
current, pending or outstanding reimbursement audits regarding any Third Party
Payor Program nor any appeals pending at any Facility.

10.11    No Recoupments Efforts. To Tenant’s knowledge, there are no current or
pending recoupment efforts regarding any Third Party Payor Program at (or with
respect to) any Facility. Tenant is not a participant in any federal program
whereby any Governmental Authority may have the right to recover funds by reason
of the advance of federal funds.

10.12    Liability Reserves. For each Facility, the applicable Tenant or
Guarantor will periodically (on an annual basis and upon any Reserve Event)
accrue reserves for expenses relating to malpractice and professional liability
claims if and to the extent not covered by Tenant’s insurance coverages, which
reserves (if any) must be adequate and complete in the exercise of commercially
reasonable judgment and normal commercial practice, and, if applicable, which
reserves have been, and will be, approved by its independent actuary.

10.13    Primary Intended Use. To Tenant’s knowledge, each Facility is being
operated for its Primary Intended Use and contains the number of licensed and
operational units described on Schedule 1 attached hereto.

10.14    Compliance with Laws. To Tenant’s knowledge, Tenant is in substantial
compliance with all applicable federal, state and local laws, regulations and
guidelines (including, without limitation, any government payment program
requirements and disclosure of ownership and related information requirements),
quality and safety standards, accepted professional standards and principles
that apply to professionals providing services to assisted or independent living
facilities, in each case, as applicable, accreditation standards, and
requirements of applicable Governmental Authorities, including, without
limitation, those

 

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requirements relating to the physical structure and environment of each Leased
Property, licensing, quality and adequacy of medical care, distribution of
pharmaceuticals, rate setting, equipment, personnel, operating policies,
additions to facilities and services and fee splitting including those permits
listed on Schedule 10.14. To Tenant’s knowledge, neither Tenant nor any Tenant
Party has committed any act that may give any Governmental Authority the right
to cause Tenant to lose any applicable Authorizations.

10.15    Ownership of Authorizations. The Authorizations: (i) are not, and have
not been, transferred to any location other than the Facility to which such
Authorizations relate; (ii) are not, and have not been, pledged as collateral
security for any loan or indebtedness other than pursuant to the terms of this
Lease; (iii) are held free from restrictions or conflicts that would materially
impair the use or operation of each Facility for its Primary Intended Use; and
(iv) are not provisional, probationary or restricted in any way.

10.16    Third Party Payor Programs. To Tenant’s knowledge, there is no
threatened or pending revocation, suspension, termination, probation,
restriction, limitation, fine, civil monetary penalty, recoupment or non-renewal
affecting any Tenant or any Leased Property in respect of any Third Party Payor
Programs to which Tenant or any Facility is subject. All cost reports and
financial reports, if any, submitted by any Tenant pursuant to any Third Party
Payor Program have been and will continue to be materially accurate and complete
and have not been and will not be misleading in any material respects.

11.

Alterations.

11.1      Alterations. Tenant shall not (i) make any Capital Alterations on or
to any Leased Property, (ii) enlarge or reduce the size of any Facility and/or
(iii) make any Capital Alterations or other Alterations that would tie in or
connect with any improvements on property adjacent to the Land. Tenant may,
without Landlord’s consent, make any alterations, additions, or improvements
(collectively, with the alterations described in items (i) – (iii) of the
preceding sentence, “Alterations”) to any Leased Property if such Alterations
are not of the type described in clause (i), (ii) or (iii) above, so long as in
each case: (w) the same do not (A) decrease the value of the Leased Property,
(B) affect the exterior appearance of the Leased Property, or (C) affect the
structural components of the Leased Property or the main electrical, mechanical,
plumbing, elevator or ventilating and air conditioning systems for any Facility,
(x) the same are consistent in terms of style, quality and workmanship to the
original Leased Property and Fixtures, (y) the same are constructed and
performed in accordance with the provisions of Section 11.2 below and (z) the
cost thereof does not exceed, in the aggregate, $250,000.00 for any consecutive
twelve (12) month period with respect to any single Facility. Except for those
limited Alterations that expressly do not require Landlord’s consent pursuant to
the preceding sentence, all Alterations shall be subject to Landlord’s prior
written consent, in Landlord’s discretion. To the extent Landlord’s prior
written consent shall be required in connection with any Alterations, Landlord
may impose such conditions thereon in connection with its approval thereof as
Landlord deems appropriate. Notwithstanding the foregoing, Landlord agrees that
painting, landscaping, and replacement of floor coverings, wall coverings

 

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and window coverings shall be deemed Alterations that do not require Landlord’s
consent and do not need to meet the requirements set forth in Sections 11.2.1,
11.2.4 and 11.2.7 below, so long as the same meet the requirements of clauses
(x) and (y) above, and the cost thereof shall not be counted towards the
above-referenced $250,000 threshold.

11.2      Construction Requirements for all Alterations. Whether or not
Landlord’s consent is required, for all Alterations of any Leased Property, the
following shall apply and shall be in addition to and not in lieu of any other
requirements that Landlord may impose on Tenant in connection with the making of
any Alterations and the following shall apply whether or not Landlord’s consent
to the subject Alteration is required:

11.2.1         Plans and Specifications. Prior to commencing any Alterations,
Tenant shall have submitted to Landlord a written proposal describing in
reasonable detail such proposed Alteration and shall provide to Landlord for
approval (or information, in the case of Alterations that do not require
Landlord’s consent) such plans and specifications, permits, licenses,
construction budgets and other information (collectively, the “Plans and
Specifications”) as Landlord shall request, showing in reasonable detail the
scope and nature of the proposed Alteration.

11.2.2         Permits. Such construction shall not commence until Tenant shall
have procured and paid for all municipal and other governmental permits and
authorizations required therefor (as well as any permits or approvals required
in connection with any Permitted Encumbrance), and Landlord shall join in the
application for such permits or authorizations whenever such action is
necessary; provided, however, that (i) any such joinder shall be at no
liability, cost or expense to Landlord; and (ii) any Plans and Specifications
required to be filed in connection with any such application that require the
approval of Landlord shall have been so approved by Landlord.

11.2.3         No Impairment. Such construction shall not, and prior to
commencement of such construction Tenant’s licensed architect or engineer, if
any, shall certify to Landlord that such construction shall not, impair the
structural strength of any component of the applicable Facility or overburden or
impair the operating efficiency of the electrical, water, plumbing, HVAC or
other building systems of any such Facility.

11.2.4         Compliance Certification. Prior to commencing any Alterations,
Tenant’s licensed architect or engineer, if any, shall certify to Landlord that
the Plans and Specifications conform to and comply with all applicable building,
subdivision and zoning codes, laws, ordinances, regulations and other Legal
Requirements.

11.2.5         Parking. During and following completion of such construction,
the parking that is located on the Land adjoining the applicable Facility shall
remain adequate for the operation of such Facility for its Primary Intended Use
and in no event shall such parking be less than is required by any applicable
Legal Requirements or was located on the Land adjoining such Facility prior to
such construction.

 

 

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11.2.6         Materials; Quality. All work done in connection with such
construction shall be done promptly and in a good and workmanlike manner using
good quality materials and in conformity with all Legal Requirements built to
the standards of the Required Condition.

11.2.7         As-Builts. Promptly following the completion of the construction
of any Alterations, Tenant shall deliver to Landlord: (i) “as built” drawings of
any Capital Alterations included therein, certified as accurate by the licensed
architect or engineer, if any, selected by Tenant to supervise such work; and
(ii) a certificate from Tenant’s licensed architect or engineer, if any,
certifying to Landlord that such Alterations have been completed in compliance
with the Plans and Specifications and all applicable Legal Requirements.

11.2.8         Certificate of Occupancy. If, by reason of the construction of
any Alteration, a new or revised certificate of occupancy for any component of
the applicable Facility is required, Tenant shall obtain such certificate in
compliance with all applicable Legal Requirements and furnish a copy of the same
to Landlord promptly upon receipt thereof.

11.2.9         Lien Waivers. Upon completion of any Alteration, Tenant shall
promptly deliver to Landlord final lien waivers from each and every general
contractor and subcontractor that provided goods or services in connection with
such Alteration indicating that such contractor or subcontractor has been paid
in full for such goods or services, together with such other evidence as
Landlord may reasonably require to satisfy Landlord that no liens have been
created in connection with such Alteration.

11.3

Capital Expenditures Account.

11.3.1         Required Capital Expenditures. In order to assure the maintenance
of the Premises in the Required Condition, Tenant agrees to expend, during each
Lease Year, an amount (the “Required Capital Expenditures Amount”) equal to the
product of (i) the Required Per Unit Annual Capital Expenditures Amount times
(ii) the aggregate number of licensed units at the Facilities (subject to
Section 11.3.4 below, prorated for any partial Lease Year and adjusted in the
event of any mid-Lease Year change in the number of licensed units at the
Facilities) on repairs, replacements and improvements to the Premises (other
than any part of Landlord’s Personal Property or Tenant’s Personal Property)
that (x) in accordance with GAAP, constitute capital expenditures, (y) are
contemplated by the Annual Capital Expenditure Budget approved by Landlord or
have otherwise been reasonably approved by Landlord and (z) have been completed
in a good, workmanlike and lien free fashion and in compliance with all Legal
Requirements and the terms Sections 11.1 and 11.2 applicable to any Alterations
(herein, “Capital Expenditures”). Within forty-five (45) days following the end
of each Lease Year (and within forty-five (45) days following the expiration or
termination of this Lease), Tenant shall deliver to Landlord a report (a
“Capital Expenditures Report”), certified as true, correct and complete by
Tenant pursuant to an Officer’s Certificate,

 

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summarizing and describing in reasonable detail all of the Capital Expenditures
made by Tenant during the preceding Lease Year (or partial Lease Year, if
applicable), on both an aggregate basis and broken down for each Facility, and
such receipts and other information as Landlord may reasonably request relative
to the Capital Expenditures made by Tenant during the applicable Lease Year (or
partial Lease Year, if applicable). If the amount of the Capital Expenditures so
made and reported by Tenant during a particular Lease Year (or partial Lease
Year, if applicable) (the “Actual Capital Expenditures Amount”) is less than the
Required Capital Expenditures Amount applicable to such period, Tenant shall, on
or prior to the due date of the Capital Expenditures Report for such period,
deposit (herein, a “Capital Expenditures Deposit”) into an interest bearing
account (the “Capital Expenditures Account”) under the sole dominion and control
of Landlord (or any Facility Mortgagee) an amount equal to the amount by which
the Required Capital Expenditures Amount for the applicable period exceeds the
Actual Capital Expenditures Amount for such period. If the Actual Capital
Expenditures Amount so made and reported by Tenant during a particular Lease
Year (or partial Lease Year, if applicable) is greater than the Required Capital
Expenditures Amount applicable to such period, then, provided no default or
Event of Default has occurred and no Potential Default is continuing, within
five (5) Business Days after Tenant’s presentation of its Capital Expenditures
Report reflecting such greater expenditure (if Landlord is holding the Capital
Expenditures Account) or within five (5) Business Days after Landlord’s receipt
of the necessary funds from the Facility Mortgagee that is holding the Capital
Expenditures Account (if a Facility Mortgagee is holding the Capital
Expenditures Account), Landlord shall pay to Tenant the lesser of (x) the amount
by which the Actual Capital Expenditures Amount so made and reported by Tenant
during a particular period exceeds the Required Capital Expenditures Amount for
such period or (y) the amount of funds in the Capital Expenditures Account.

11.3.2         Capital Expenditures Account. The Capital Expenditures Account
shall be maintained with a Lending Institution reasonably satisfactory to
Landlord or with any Facility Mortgagee. Except for losses resulting solely and
directly from any negligence or willful misconduct of Landlord, Landlord shall
not be liable to Tenant or any other Person for any decline in the value of the
funds held in the Capital Expenditures Account. Furthermore, neither Landlord
nor any Facility Mortgagee shall bear responsibility for the financial condition
of, nor any act or omission by, any Lending Institution at which the Capital
Expenditures Account is located. The interest from deposits into the Capital
Expenditures Account shall be retained in the Capital Expenditures Account to be
applied in accordance with the terms of this Section 11.3. Tenant hereby grants
to Landlord a first priority security interest in the Capital Expenditures
Account pursuant to the Uniform Commercial Code (the “UCC”) of the State whose
laws govern the perfection of such security interest, and the provisions of
Section 21.1.1.1 below shall be applicable to such security interest. Upon the
occurrence of any Potential Default or any Event of Default, Landlord or any
Facility Mortgagee may apply any funds held in the Capital Expenditures Account
to cure such Potential Default or Event of Default or on account of any damages
suffered or incurred by Landlord in connection therewith. In connection with any
assignment of Landlord’s interest under this Lease, the assigning Landlord or
any predecessor shall have the right, to transfer all

 

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amounts in the Capital Expenditures Account and still in its possession or
control to such assignee and, upon such transfer, the assigning Landlord or any
such predecessor, as the case may be, transferring any such amounts shall
thereupon be completely released from all liability with respect to such amounts
so transferred, and Tenant shall look solely to said assignee in reference
thereto.

11.3.3         Disposition of Capital Expenditures Account. As described above,
within forty-five (45) days following the expiration or termination of this
Lease, Tenant shall deliver to Landlord a Capital Expenditures Report with
respect to the Lease Year or partial Lease Year immediately preceding such
expiration or termination, and, if applicable, make a deposit into the Capital
Expenditures Account. If, on the basis of such Capital Expenditures Report,
Tenant is entitled to a payment as described in Section 11.3.1 above, then,
notwithstanding anything to the contrary contained in such Section 11.3.1, such
payment shall be due and payable to Tenant only as and when the conditions of
Section 3.4.3 for the return of the Security Deposit have been met. Except as
provided in the preceding sentence, upon the expiration or termination of this
Lease, all funds in the Capital Expenditures Account (including, without
limitation, any funds that are required to be deposited therein by Tenant with
respect to the Lease Year or partial Lease Year immediately preceding such
expiration or termination) shall automatically and without further action of the
parties become the property of Landlord, without any obligation on Landlord’s
part to credit Tenant in any manner therefor. The obligations of Landlord and
Tenant under this Section 11.3 shall survive the expiration or termination of
this Lease.

11.3.4         Certain Divisions and Calculations. In the event that this Lease
is terminated as to one or more Leased Properties (but not all of the Premises)
on account of any event, circumstance or transaction to which Section 17.9 or
Section 40 is applicable, then, for purposes of dividing any amounts then held
in the Escrow Account or the Capital Expenditures Account between the amounts
that will continue to be held under this Lease and the amounts that will be
transferred to corresponding accounts under a New Lease entered into pursuant to
Section 40 hereof or for any other purpose under this Lease, any such amounts so
held in the Escrow Account or the Capital Expenditures Account shall be
allocated to and among each terminated, and each non-terminated, Leased Property
as determined by Landlord, in its sole discretion if any such termination
results from an Event of Default and otherwise in its reasonable discretion. In
addition, in the event of (i) any termination of this Lease as to one or more
Leased Properties (but not all of the Premises) on account of any New Lease
under Section 40 or (ii) any combination of leases pursuant to Section 39,
calculations of the applicable amounts of the Required Capital Expenditures
Amount, Actual Capital Expenditures Amount, required Capital Expenditures
Deposits and similar items shall be made with respect to the Transferred
Premises (in the case of Section 40) or the combined properties under the
Section 39 Lease (in the case of Section 39) the same as if all of such
Transferred Premises or combined properties, as applicable, had been under the
New Lease or Section 39 Lease relating thereto, as applicable, during any
partial Lease Year preceding the Property Transfer Date (in the case of
Section 40) or Section 39 Date (in the case of Section 39) applicable thereto.

 

 

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11.4      Annual Capital Expenditure Budget. Within thirty (30) days prior to
the commencement of each calendar year, Tenant shall deliver to Landlord, at
Tenant’s expense, a budget (the “Annual Capital Expenditure Budget”) setting
forth Tenant’s reasonable estimate of the capital repairs, replacements and
improvements to the Premises that Tenant anticipates will be necessary in such
calendar year to comply with the maintenance, repair and replacement obligations
contained in Section 9 hereof and maintain the Leased Properties in the Required
Condition. The Annual Capital Expenditure Budget shall be subject to Landlord’s
approval (which approval shall not be unreasonably withheld) for purposes of
determining and confirming that the capital repairs, replacements and
improvements are sufficient to satisfy Tenant’s obligations pursuant to
Section 9 hereof; provided, however, that the grant by Landlord of its approval
to any Annual Capital Expenditure Budget shall not be deemed a consent,
acknowledgement or agreement on Landlord’s part that such capital repairs,
replacements or improvements are sufficient to satisfy Tenant’s obligations
pursuant to Section 9 hereunder. Tenant shall perform any and all capital
repairs, replacements or improvements contemplated by the Annual Capital
Expenditure Budget within twenty-four (24) months after the commencement of the
Lease Year to which such Annual Capital Expenditure Budget relates. If Tenant
has not completed such capital repairs, replacements or improvements within such
twenty-four (24) month period, Landlord may, but shall not be obligated to,
complete such capital repairs, replacements or improvements, in which case
Landlord may reimburse itself for the cost of any such work by withdrawing funds
from the Capital Expenditures Account sufficient to pay for such capital
repairs, replacements or improvements, and Tenant shall, within ten (10) days
following demand therefor by Landlord, (i) restore to the Capital Expenditures
Account any amount so withdrawn therefrom and paid to Landlord and (ii) to the
extent there were insufficient funds in the Capital Expenditures Account fully
to reimburse Landlord for the cost of such work, pay to Landlord any remaining
unreimbursed amount. In the event of any payment by Tenant pursuant to
subsection (i) and/or (ii) above, Tenant shall be entitled to include the amount
thereof in its next Capital Expenditures Report.

12.        Liens. Subject to the provisions of Section 13 below governing a
permitted contest by Tenant, Tenant will not, directly or indirectly, create or
allow to remain, and will promptly discharge at its expense, any lien,
encumbrance, attachment, title retention agreement or claim upon any Leased
Property or any attachment, levy, claim or encumbrance in respect of the Rent,
not including, however, (i) liens for those taxes of Landlord that Tenant is not
required to pay hereunder, (ii) liens for Impositions or for sums resulting from
noncompliance with Legal Requirements, so long as (1) the same are not yet
payable or (2) such liens are in the process of being contested as permitted by
Section 13, (iii) liens of mechanics, laborers, materialmen, suppliers or
vendors for sums either disputed in good faith or not yet due, provided that (1)
such lien and such reserve or other appropriate provisions as shall be required
by law or generally accepted accounting principles shall have been made therefor
and (2) any such liens are in the process of being contested as permitted by
Section 13, and (iv) any liens that are expressly the responsibility of Landlord
hereunder. Notwithstanding the foregoing, Tenant shall bond over any lien
affecting the applicable Leased Property if Landlord shall request or if any
applicable Facility Mortgagee shall so require.

 

 

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13.        Permitted Contests. Tenant, on its own or on Landlord’s behalf (or in
Landlord’s name), but at Tenant’s expense, may contest, by appropriate legal
proceedings, conducted in good faith and with due diligence, the amount,
validity or application, in whole or in part, of any Imposition or any lien,
attachment, levy, encumbrance, charge or claim not otherwise permitted by
Section 12, provided that (i) in the case of an unpaid Imposition, lien,
attachment, levy, encumbrance, charge, or claim, the commencement and
continuation of such proceedings shall suspend the collection thereof from
Landlord and from the applicable Leased Property, (ii) neither the applicable
Leased Property nor any Rent therefrom nor any part thereof or interest therein
would be reasonably likely to be in danger of being sold, forfeited, attached or
lost, (iii) Tenant shall indemnify and hold harmless Landlord and the Landlord
Indemnified Parties from and against any Losses incurred by Landlord or the
Landlord Indemnified Parties in connection with any such contest or as a result
thereof, (iv) Tenant shall give such security as may be reasonably demanded by
Landlord to insure ultimate payment of, or compliance with, the same and to
prevent any sale or forfeiture of the affected Leased Property or the Rent by
reason of such non-payment or non-compliance; provided, however, the provisions
of this Section 13 shall not be construed to permit Tenant to contest the
payment of Rent or any other sums payable by Tenant to Landlord hereunder, (v)
in the case of the contest of an Insurance Requirement, the coverage required by
Section 14 shall be maintained, and (vi) if such contest is resolved against
Landlord or Tenant, Tenant shall, as Additional Rent due hereunder, pay to the
appropriate payee the amount required to be paid, together with all interest and
penalties accrued thereon, within ten (10) days after such determination (or
within such shorter period as may be required by the terms of such
determination), and comply, within any cure period allowed therefor by the
applicable agency or authority (or if no such cure period shall be allowed or
specified by the applicable agency or authority, promptly and diligently
following the effective date of such determination); provided, however, that
this subsection (vi) is not intended, and shall not be construed, to afford
Tenant any cure or grace period beyond the effective date of any final
unappealable determination. Landlord, at Tenant’s expense, shall execute and
deliver to Tenant such authorizations and other documents as may reasonably be
required in any such contest, and, if reasonably requested by Tenant or if
Landlord so desires, shall join as a party therein. The terms of this Section 13
shall survive the expiration or sooner termination of this Lease.

14.

Insurance.

14.1      General Insurance Requirements. Tenant shall obtain and maintain, or
cause to be maintained, insurance for Tenant and the Leased Properties providing
insurance coverages of such types, against such risks, in such amounts, with
such deductibles and self-insurance retentions and with such endorsements as (i)
Landlord, in its reasonable discretion, from time to time deems (1) commercially
reasonable (in light of such factors, including, without limitation, the
availability and cost of particular types and amounts of coverages) and/or (2)
consistent with the insurance coverages that are maintained by owners of
properties similar to the Leased Properties or (ii) as may be required from time
to time by any Facility Mortgagee, but with such insurance coverages at all
times to include (without limitation of the preceding provisions for greater
coverages) at least the following minimum coverages:

 

 

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14.1.1         Coverage for loss or damage by fire, lightning, wind and such
other perils as are included in a standard “all risk” or “special causes of
loss” endorsement and against loss or damage by other risks and hazards covered
by a standard property insurance policy, including, but not limited to, riot,
civil commotion, vandalism, malicious mischief, burglary and theft, relative to
each Leased Property, in each case (i) in an amount equal to one hundred percent
(100%) of the Full Replacement Cost of such Leased Property; (ii) containing an
agreed amount endorsement with respect to the Leased Improvements and Tenant’s
Personal Property at such Leased Property waiving all co-insurance provisions;
and (iii) containing (a) an “Ordinance or Law Coverage” or “Enforcement”
endorsement and (b) “demolition” insurance and “increased cost of construction”
insurance, if any of the Leased Improvements at, or the use of, such Leased
Property shall at any time constitute legal non-conforming structures or uses.
In addition, each Tenant shall at a minimum obtain: (y) flood hazard insurance,
in the event that any portion of the Leased Improvements at any Leased Property
is currently or at any time in the future located in a federally designated
“special flood hazard area”, and (z) earthquake insurance, in the event that any
Leased Property is located in an area with a high degree of seismic activity,
provided that the insurance pursuant to clauses (y) and (z) hereof shall be on
terms consistent with the comprehensive all risk insurance policy required under
this Section 14.1.1.

14.1.2         Commercial general liability insurance against claims for
personal injury, bodily injury, death or damage to the Leased Properties
occurring upon, in or about each Leased Property, such insurance (i) to be for a
combined limit, excluding umbrella coverage, of not less than One Million and
No/100 Dollars ($1,000,000.00) per occurrence with not less than a Three Million
and No/100 Dollars ($3,000,000.00) general aggregate limit and (ii) to cover at
least the following: (1) premises and operations; (2) products and completed
operations on an “if any” basis; (3) independent contractors; (4) blanket
contractual liability for legal contracts; (5) contractual liability covering
indemnities, if any, given by Tenant contained in the Facility Mortgage, if any,
applicable to the Leased Property, to the extent the same is available; (6)
broad form property damage; (7) personal injury (including death resulting
therefrom); (8) healthcare professional liability, as to any facility with
assisted living operations, and (9) a liquor liability endorsement if alcoholic
beverages are sold at any Leased Property.

14.1.3         Business interruption insurance (i) with loss payable to
Landlord; (ii) covering all risks required to be covered by the insurance
provided for in Section 14.1.1 above; (iii) in an amount sufficient to avoid any
co-insurance penalty and to provide proceeds that will, in Landlord’s sole
discretion, cover a period of not less than twelve (12) months from the date of
casualty or loss; and (iv) containing an extended period of indemnity
endorsement that provides that, after the physical loss to the applicable Leased
Property has been repaired, the continued loss of income will be insured until
such income returns to the same level it was prior to the loss or the expiration
of not less than eighteen (18) months from the date of the loss, whichever first
occurs, and notwithstanding that the policy may expire prior to the end of such
period.

 

 

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14.1.4         At all times during which Alterations or structural construction
or repairs are being made with respect to any of the Leased Improvements, and
only if the Leased Properties’ coverage form does not otherwise apply, (i)
owner’s contingent or protective liability insurance covering claims not covered
by or under the terms or provisions of the above mentioned commercial general
liability insurance policy; and (ii) the insurance provided for in
Section 14.1.1 above written in a so-called builder’s risk completed value form
(1) on a non-reporting basis, (2) against all risks insured against pursuant to
Section 14.1.1 above, (3) including permission to occupy the Leased Properties,
and (4) with an agreed amount endorsement waiving co-insurance provisions.

14.1.5         Workers’ compensation insurance, subject to the statutory limits
of the State in which the applicable Leased Property is located, and employer’s
liability insurance with limits of at least One Hundred Thousand and No/100
Dollars ($100,000.00) per accident and per disease, per employee, and at least
Five Hundred Thousand and No/100 Dollars ($500,000.00) aggregate in respect of
any work or operations on or about any Leased Property, or in connection with
any Leased Property or its operation (if applicable).

14.1.6         Broad form boiler and machinery insurance (without exclusion for
explosion) covering all boilers or other pressure vessels, machinery, and
equipment located in, on or about any Leased Property (including “system
breakdown coverage”) and insurance against loss of occupancy or use arising from
any breakdown of such equipment.

14.1.7         Umbrella liability insurance in addition to primary coverage in
an amount not less than Fifteen Million and No/100 Dollars ($15,000,000.00) per
occurrence on terms consistent with the commercial general liability insurance
policy required under Section 14.1.2 above and covering all claims typically
covered by an umbrella liability policy.

14.1.8         Motor vehicle liability coverage for all owned and non-owned
vehicles, including, but not limited to, rented and leased vehicles, containing
limits per occurrence, including umbrella coverage, of not less than One Million
and No/100 Dollars ($1,000,000.00).

14.1.9         If alcoholic beverages are sold at any Leased Property, so-called
“dramshop” insurance or other liability insurance required in connection with
the sale of alcoholic beverages.

14.1.10

Insurance against employee dishonesty.

14.2      Policies; Certificates. All insurance provided for in Section 14.1
above shall be obtained under valid and enforceable policies (individually, a
“Policy” and, collectively, the “Policies”) and shall be subject to the approval
of Landlord. Not less than two (2) Business Days (provided that if such
insurance renewal or expiration dates coincide with the commencement of any
Extended Term, than said two Business Day period shall

 

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automatically increase to fourteen days) prior to the expiration date of each
Policy, a certificate of insurance or other binder in form and substance
acceptable to Landlord, evidencing the renewal of such Policy, accompanied by
evidence satisfactory to Landlord of payment of the premiums then due thereunder
(the “Insurance Premiums”), shall be delivered by Tenant to Landlord. Tenant
shall deliver certified copies of the Policies to Landlord prior to the date
hereof and thereafter upon Landlord’s written request. All Policies must have a
term of not less than one (1) year.

14.3      Blanket and Loss Limit Policies. If, as to any Leased Property, the
amount of coverage from time to time required hereunder is reduced or diminished
on account of claims pertaining to other premises or otherwise, then Tenant
shall immediately replenish and supplement such coverages to the limits required
under Section 14.1.

14.4      Additional Insured; No Separate Insurance. All Policies provided for
or contemplated by Section 14.1 above, except for the Policy referenced in
Section 14.1.5, shall name each applicable Tenant as the insured and Landlord
and any Facility Mortgagee(s) and its/their successors and/or assigns as
additional insureds, as its/their interests may appear, and, in the case of
property damage, loss of rent, business interruption, terrorism, boiler and
machinery, flood and earthquake insurance, shall contain a so-called New York
standard non-contributing mortgagee clause in favor of Landlord or any Facility
Mortgagee, as applicable, providing that the loss thereunder shall be payable to
Landlord or such Facility Mortgagee, as applicable. Tenant shall not, on
Tenant’s own initiative or pursuant to the request or requirement of any third
party, (i) take out separate insurance concurrent in form or contributing in the
event of loss with that required in this Section 14 to be furnished by Tenant or
(ii) increase the amounts of any then existing insurance by securing an
additional policy or policies, unless all parties having an insurable interest
in the subject matter of the insurance, including in all cases Landlord and all
Facility Mortgagees, are included therein as additional insureds and the loss is
payable under such insurance in the same manner as losses are payable under this
Lease. Tenant shall immediately notify Landlord of the taking out of any such
separate insurance or of the increasing of any of the amounts of the then
existing insurance by securing an additional policy or policies.

14.5      Policy Requirements. All Policies of insurance provided for in
Section 14.1 shall contain clauses or endorsements to the effect that, or
otherwise operate such that:

(i)         no act or negligence of Tenant or any Tenant Party, or failure to
comply with the provisions of any Policy, that might otherwise result in a
forfeiture or impairment of the insurance or any part thereof, shall in any way
affect the validity or enforceability of the insurance insofar as Landlord or
any Facility Mortgagee is concerned;

(ii)         the Policy shall not be materially amended (other than to increase
the coverage provided thereby) or canceled without at least thirty (30) days’
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to Landlord, any Facility Mortgagee and any other party named therein as an
additional insured or loss payee;

(iii)        neither Landlord nor any Facility Mortgagee shall be liable for any
Insurance Premiums thereon or subject to any assessments thereunder; and

(iv)        a customary waiver of subrogation rights under all property
insurance policies (including, without limitation, the coverages described in
Sections 14.1.1, 14.1.3 and 14.1.6 above) and commercial general liability
insurance policies (including, without limitation, the coverages described in
Sections 14.1.2 and 14.1.7 above) as to Landlord and any Facility Mortgagee.

14.6      Evidence of Compliance. If at any time Landlord is not in receipt of
written evidence that all insurance required hereunder is in full force and
effect, Landlord shall have the right, without notice to Tenant (except as may
be expressly required below), to take such action as Landlord deems necessary to
protect its interest in the Leased Properties, including, but not limited to,
the obtaining of such insurance coverages as Landlord in its sole discretion
deems appropriate (it being understood that Landlord shall endeavor to give
Tenant at least one (1) Business Days' oral or written notice thereof, unless
such coverage shall have already expired, in which case no such notice shall be
required), and all out-of-pocket premiums incurred by Landlord in connection
with any such action or in obtaining any such insurance and keeping it in effect
shall be paid by Tenant to Landlord upon demand and shall bear interest at the
Overdue Rate until paid.

14.7      Foreclosure; Transfer. In the event of foreclosure of any Facility
Mortgage or other transfer of title to any Leased Property, all right, title and
interest of the applicable Tenant in and to the Policies then in force
concerning the Leased Properties and all proceeds payable thereunder shall
thereupon vest in the purchaser at such foreclosure or in Landlord, Facility
Mortgagee or other transferee in the event of such other transfer of title.

14.8      Insurance Company. The Policies shall be issued by one or more
insurance companies, duly qualified to do business in the jurisdictions where
the Leased Properties are located and rated A-: VII or better by A.M. Best and
having a claims-paying ability of at least “A” or its equivalent by each of the
Rating Agencies, or by a syndicate of insurers through which at least
seventy-five percent (75%) of the coverage (if there are four (4) or fewer
members of the syndicate) or at least sixty percent (60%) of the coverage (if
there are five (5) or more members of the syndicate) is with carriers having
such claims-paying ability ratings (provided that all such carriers shall have
claims-paying ability ratings of not less than “A” or the equivalent by each of
the Rating Agencies).

15.

Damage and Destruction.

15.1      Notice of Casualty. If any Leased Property shall be destroyed, in
whole or in part, or damaged by Casualty, Tenant shall give prompt written
notice thereof to Landlord and any Facility Mortgagee, in no event more than
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occurrence of a Casualty, but immediately with respect to any material Casualty.
Within fifteen (15) days after the occurrence of a Casualty, or as soon
thereafter as such information is reasonably available to Tenant, Tenant shall
provide the following information to Landlord: (i) the date of the Casualty;
(ii) the nature of the Casualty; (iii) a description of the damage or
destruction caused by the Casualty, including, but not limited to, the type of
Leased Property damaged, the area of the Leased Improvements damaged and the
general extent of such damage; (iv) a preliminary estimate of the cost to
repair, rebuild, restore or replace the Leased Property; (v) a preliminary
estimate of the schedule to complete the repair, rebuilding, restoration or
replacement of the Leased Property; (vi) a description of the anticipated
property insurance claim, including, but not limited to, the name of the
insurer, the insurance coverage limits, the deductible amounts, the expected
settlement amount (if and when known) and the expected settlement date (if and
when known); and (vii) (if and when known) a description of the business
interruption claim, including, but not limited to, the name of the insurer, the
insurance coverage limits, the deductible amounts, the expected settlement
amount and the expected settlement date. Tenant shall provide Landlord with
copies of any and all material correspondence to and from the insurance provider
within five (5) Business Days after Tenant’s receipt or submission thereof and
provide any other information reasonably requested by Landlord.

15.2      Substantial Destruction. Except as otherwise set forth herein, if a
Facility is substantially destroyed or rendered Unsuitable For Its Primary
Intended Use by a Casualty at any time during the Term, Landlord may elect to
terminate this Lease with respect to the Leased Property on which such Facility
is located by providing written notice to Tenant within ninety (90) days of the
date upon which Tenant notifies Landlord of the Casualty, which termination
shall be effective as of the date of Tenant’s receipt of such notice. If
Landlord elects to terminate, then Landlord shall receive any and all of the
insurance proceeds payable by reason of the Casualty (the “Casualty Insurance
Proceeds”) and Tenant shall within five (5) Business Days pay to Landlord an
amount equal to any uninsured deductible, and as of the date of such
termination, the applicable Leased Property shall be deleted from this Lease and
the provisions of Section 17.9 governing a deletion of a Leased Property after
Casualty shall be applicable. If Landlord does not elect to terminate, then
Tenant shall promptly rebuild and restore the Leased Property in accordance with
Section 15.4 below and Landlord shall make the Casualty Insurance Proceeds
available to Tenant for such restoration only pursuant to, and in accordance
with, Section 15.5 below. The term “substantially destroyed” means any Casualty
resulting in the loss of use of fifty percent (50%) or more of the total units
at the Facility located on the relevant Leased Property or that would require
more than fifty percent (50%) of the value of the Leased Improvements to
restore.

15.3      Partial Destruction. If a Leased Property is damaged by a Casualty but
the Facility(ies) located on such Leased Property is not substantially destroyed
or rendered Unsuitable For Its Primary Intended Use, then, subject to the
requirements of any Facility Mortgage binding upon, or secured by, the Leased
Property, Tenant shall restore the Leased Property in accordance with the
requirements of Section 15.4 below and Landlord shall make the Casualty
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Section 15.5 below. Notwithstanding the foregoing, if such Casualty shall occur
during the final Lease Year of the Term and the repair and restoration resulting
from the same would cost, according to the Landlord’s reasonable estimate, more
than $200,000 per Facility, then Landlord shall have the right to terminate this
Lease with respect to such Leased Property and retain any Casualty Insurance
Proceeds, by delivering notice of such election to Tenant within ninety (90)
days of its receipt of notice from Tenant of such Casualty, which termination
shall be effective as of the date such notice of termination from Landlord is
received by Tenant, whereupon Tenant shall immediately pay to Landlord the
amount of any uninsured deductible and the applicable Leased Property shall be
deleted herefrom pursuant to Section 17.9 below governing the deletion of a
Leased Property in connection with a Casualty.

15.4

Restoration.

15.4.1         Commencement of Restoration. Within forty-five (45) days after
the earliest to occur of (i) Tenant’s receipt of notice from Landlord directing
Tenant to restore a Leased Property damaged or destroyed by a Casualty, (ii) in
the case of a Casualty that results in Landlord having the option to terminate
this Lease as to the affected Leased Property pursuant to Section 15.2 or
Section 15.3, the expiration of the period in which Landlord may exercise such
option to terminate if Landlord fails to affirmatively elect to terminate this
Lease with respect to such Leased Property, or (iii) in the case of damage to a
Leased Property by Casualty that does not result in the substantial destruction
or the rendering Unsuitable For Its Primary Intended Use of the applicable
Facility(ies), and that does not occur during the final Lease Year of the Term,
the date of such Casualty, Tenant shall furnish to Landlord complete plans and
specifications (the “Restoration Plans and Specifications”) describing the work
Tenant intends to undertake to restore the applicable Leased Property (the
“Work”) for Landlord’s approval, which approval shall not be unreasonably
withheld. The Restoration Plans and Specifications shall be prepared in
accordance with good and customary construction and design practices and bear
the signed approval thereof by an architect licensed to do business in the State
where the applicable Leased Property is located and shall be accompanied by a
written estimate from the architect containing the projected cost of completing
the Work. The Restoration Plans and Specifications shall contemplate Work of
such nature, quality and extent that, upon the completion thereof, the Leased
Property shall be at least equal in value and general utility to its value and
general utility prior to the Casualty and shall be adequate to operate the
applicable Facility(ies) for its Primary Intended Use. Tenant shall satisfy all
of the terms and conditions set forth in Sections 11.2.1 through 11.2.4 hereof
relative to Alterations as to the Work and the Restoration Plans and
Specifications.

15.4.2         Permits. Prior to the commencement of the Work, Tenant shall
furnish to Landlord certified or photostatic copies of all permits and contracts
required by any and all applicable Legal Requirements or Insurance Requirements
in connection with the commencement and conduct of the Work.

15.4.3         Conduct of Work. Upon satisfaction of the requirements set forth
in Section 15.4.1 and Section 15.4.2 above, Tenant shall perform the Work
diligently

 

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and in a good, workmanlike and lien-free fashion, in accordance with (i) the
Restoration Plans and Specifications; (ii) the permits and contracts referred to
in Section 15.4.2 above; and (iii) all applicable Legal Requirements and other
requirements of this Lease.

15.5      Disbursement of Insurance Proceeds. Tenant shall use commercially
reasonable efforts to complete the Work on or prior to the estimated completion
date provided by its architect. If Landlord is required or elects to apply any
Casualty Insurance Proceeds toward repair or restoration of the applicable
Facility, provided Tenant is diligently performing the Work in accordance with
this Lease, Landlord shall disburse such Casualty Insurance Proceeds as and when
required by Tenant in accordance with normal and customary practice for the
payment of a general contractor in connection with construction projects similar
in scope and nature to the Work, including, at Landlord’s option, the
withholding of 10% of each disbursement of such Casualty Insurance Proceeds
until the Work is completed as evidenced by a certificate of occupancy or
similar evidence issued upon an inspection by the applicable Governmental
Authority and proof has been furnished to Landlord that no lien or liability has
attached or will attach to the applicable Leased Property or to Landlord in
connection with the Work. Upon the completion of the Work and the furnishing of
such proof, the balance of the Casualty Insurance Proceeds payable to Tenant on
account of the Work shall be paid to Tenant as and when the terms of
Sections 15.4.1 through 15.4.3 have been complied with. Prior to any final
disbursement of Casualty Insurance Proceeds, Tenant shall satisfy all of the
conditions set forth in Sections 11.2.5 through 11.2.9 relative to Alterations
as to the Work, as well as provide evidence reasonably satisfactory to Landlord
that any amounts required to be paid by Tenant in connection with such Work
pursuant to Section 15.6 below have been paid in full. Notwithstanding anything
contained herein to the contrary, any Facility Mortgagee may retain and disburse
the Casualty Insurance Proceeds and Tenant shall comply with the requests and
requirements of such Facility Mortgagee in connection with the Work and the
disbursement of Casualty Insurance Proceeds.

15.6      Insufficient Proceeds/Risk of Loss. If the Casualty Insurance Proceeds
are not sufficient to pay the costs of the Work in full, Tenant shall
nevertheless remain responsible, at its sole cost and expense, to complete the
Work. Tenant expressly assumes all risk of loss, including, but not limited to,
a decrease in the use, enjoyment or value of the Leased Property from any
Casualty whatsoever, whether or not insurable or insured against. Tenant shall
pay any insurance deductible and any other uninsured Losses.

15.7      Excess Proceeds. Provided no Event of Default has occurred and no
Potential Default is continuing and this Lease is not terminated pursuant to
Section 15 with respect to the Leased Property on which the applicable Facility
is located, any amount by which the Casualty Insurance Proceeds exceed the
amount necessary to complete the Work shall be promptly paid by Landlord to
Tenant, provided, however, that any such excess Casualty Insurance Proceeds
shall be paid by Landlord to Tenant only following the disbursement of Casualty
Insurance Proceeds necessary to complete the Work in accordance with
Section 15.5.

 

 

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15.8      Landlord’s Inspection. During the progress of the Work, Landlord and
Landlord’s Representatives may, from time to time, inspect the Work and the
Leased Property. If, during such inspection or otherwise, Landlord and
Landlord’s Representatives determine that the Work is not being done in
accordance with the Restoration Plans and Specifications, this Lease or any
Legal Requirements, upon receipt by Tenant from Landlord of a written notice
setting forth in reasonable specificity and detail any defect in the Work,
Tenant will cause corrections to be made to any such defect.

15.9      Not Trust Funds. Notwithstanding anything herein or at law or in
equity to the contrary, none of the Casualty Insurance Proceeds, or Award on
account of any Condemnation, that may be paid to Landlord as herein provided
shall be deemed trust funds, and Landlord shall be entitled to dispose of such
Casualty Insurance Proceeds or Award as provided in this Section 15 or in
Section 16 or Section 17.6 below, as applicable.

15.10    Waiver. Tenant waives any statutory rights of termination that may
arise by reason of any Casualty or Condemnation.

15.11    Facility Mortgagee. Notwithstanding anything contained herein to the
contrary, in the event that any Facility Mortgagee elects to require that any
Casualty Insurance Proceeds in connection with any Casualty, or the Award in
connection with any Condemnation, be applied by Landlord to reduce the
outstanding principal balance of any loan secured by any Leased Property,
Landlord may elect, in its sole discretion and by written notice to Tenant,
delivered promptly after the receipt by Landlord of written notice of such
election from Facility Mortgagee, to terminate this Lease as to the Leased
Property affected by such Casualty or Condemnation, in which event the
provisions of Section 17.9 governing a deletion of one or more Leased Properties
from this Lease after a Casualty or Condemnation shall apply. Notwithstanding
anything contained in Section 15 or Section 16 hereof, Tenant shall remain
liable for any uninsured portion of any Casualty or the cost of any restoration
not covered by an Award in the event this Lease is terminated as to the
applicable Leased Property pursuant to Section 15 or Section 16 hereof. In the
event a Facility Mortgagee so elects to apply any Casualty Insurance Proceeds or
Award in reduction of a loan secured by a particular Leased Property and
Landlord elects not to exercise its above-described termination right as to such
Leased Property, Landlord shall be obligated to disburse its own funds in
replacement for any Casualty Insurance Proceeds or Award so applied by the
Facility Mortgagee, and, in such event, Landlord’s own funds shall be disbursed
to Tenant from time to time as, when and subject to the satisfaction of the same
terms, conditions and requirements as would have governed the disbursement of
the Casualty Insurance Proceeds or Award that Landlord’s funds replace (e.g.,
the requirements of Section 15.5 shall continue to be required to be satisfied
as a pre-condition to any disbursement of Landlord’s funds).

 

 

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16.

Condemnation.

16.1      Parties’ Rights and Obligations. If during the Term there is any
Condemnation of all or any part of any Leased Property, the rights and
obligations of the parties shall be determined by this Section 16.

16.2      Total Taking. If any Leased Property is totally taken by Condemnation,
this Lease shall terminate as to such Leased Property on the Date of Taking, in
which event the provisions of Section 17.9 governing the deletion of one or more
Leased Properties from this Lease upon a Condemnation shall apply. In the event
of a total taking by Condemnation of any Leased Property, the Award shall be
solely the property of Landlord, whether such damages shall be awarded as
compensation for diminution in value of the leasehold or the fee estate of the
Premises; provided, however, Tenant shall be entitled to any damages
specifically attributable to reasonable removal and relocation costs included in
the Award.

16.3      Partial Taking. If any portion of any Leased Property is taken by
Condemnation, this Lease shall remain in effect as to such Leased Property if
the Facility(ies) located thereon is not thereby rendered Unsuitable For Its
Primary Intended Use as reasonably determined by Landlord, but if the
Facility(ies) is/are thereby rendered Unsuitable For Its Primary Intended Use,
this Lease shall terminate as to such Leased Property on the Date of Taking, in
which event the provisions of Section 17.9 governing the deletion of one or more
Leased Properties from this Lease upon a Condemnation shall apply. If, as a
result of any such partial taking by Condemnation, this Lease is not terminated
as provided above, Tenant’s obligation to make payments of Rent and to pay all
other charges required under this Lease shall remain unabated during the Term
notwithstanding such Condemnation. In the event of any partial taking by
Condemnation of any Leased Property, the entire Award shall belong to and be
paid to Landlord, except that, subject to the rights of any Facility Mortgagees,
Tenant shall be entitled to receive from the Award, if and to the extent such
Award specifically includes such item, the following: (i) a sum specifically
attributable to Tenant’s Personal Property and any reasonable removal and
relocation costs included in the Award; and (ii) a sum specifically attributable
to the cost of restoring the Leased Property in accordance with Section 16.4
hereof; and (iii) a sum specifically attributable to the interruption of
business operations, which sum, if and to the extent received by Landlord, shall
be credited against payments of Rent and other charges due from Tenant to
Landlord under this Lease unless the taking permanently removes from operation a
material number of units in the Facility on any Leased Property, in which event,
from and after such taking, the Fixed Rent hereunder for such Leased Property
shall be equitably abated, as determined by Landlord, in its reasonable
discretion, provided that in no event shall any such abatement exceed (on an
annual basis) an amount in excess of eight percent of the condemnation award
retained by Landlord with respect to such taking and not applied to repair or
restore such Facility.

16.4      Restoration. If there is a partial taking by Condemnation of any
Leased Property and this Lease remains in full force and effect pursuant to
Section 16.3, Tenant at its

 

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cost shall accomplish all necessary restoration, which restoration activities
shall be performed in accordance with the terms and conditions applicable to
Work under Section 15.

16.5      Temporary Taking. The taking of any Leased Property, or any part
thereof, by military or other public authority shall constitute a taking by
Condemnation only when the use and occupancy by the Condemnor has continued for
longer than four (4) months. During any such four (4) month period, all the
provisions of this Lease shall remain in full force and effect and Rent shall
continue without abatement or reduction.

17.

Default.

17.1      Events of Default. The occurrence of any one or more of the following
events shall constitute an “Event of Default” under this Lease:

17.1.1         Payment Default. Tenant fails to make payment of the Rent or any
other sum payable under or pursuant to the terms of this Lease when the same
becomes due and payable and such failure is not cured within four (4) days after
such due and payable date.

17.1.2         Certain Covenant Defaults. Tenant fails to observe or perform any
term, covenant or agreement on its part to be performed or observed in the time
and manner set forth in Section 3.4.3, Section 8.1.11, Section 8.2.5, (subject
to any express cure rights set forth in Section 8.2.5.4), Section 12 (subject to
any express contest rights set forth in Section 13), item (vi) of Section 13,
Section 14.1, Section 14.2, Section 14.5, Section 20.1 (i.e., delivery of the
subordination agreement set forth therein within the relevant time period
described therein), Section 24, Section 25.2 or Section 25.12.

17.1.3         Reporting Obligations. Any Tenant fails to observe or perform any
term, covenant or other obligation of Tenant set forth in Section 25 hereof and
such failure is not cured within a period of five (5) days after receipt of
written notice thereof from Landlord.

17.1.4         General Covenant Defaults. Tenant fails to observe or perform any
term, covenant or condition of this Lease not specifically provided for in this
Section 17.1 and such failure is not cured within a period of thirty (30) days
after receipt of written notice from Landlord, provided that if such default is
not reasonably susceptible of cure within said initial thirty (30) day period,
but Tenant has diligently and continuously attempted to cure such failure within
said initial thirty (30) day period, then said initial thirty (30) day period
may be extended one-time only, by up to thirty (30) additional days (for a total
of sixty (60) days), provided that during such extension Tenant diligently and
continuously pursues such cure.

17.1.5         Representations and Warranties. Any representation or warranty
made by or on behalf of Tenant under or in connection with this Lease or any
document, financial statement, certificate or agreement delivered by or on
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connection with this Lease (including, but not limited to, any Officer’s
Certificate or Estoppel Certificate) proves to have been false or misleading in
any material respect on the day when made or deemed made. In addition, with
respect to any representation or warranty made by or on behalf of Tenant under
or in connection with this Lease or any document, financial statement,
certificate or agreement delivered by or on behalf of Tenant in connection with
this Lease (including, but not limited to, any Officer’s Certificate or Estoppel
Certificate) that would have been false or misleading in any material respect on
the day when made or deemed made but for a qualification based on Tenant's
knowledge (or any similar qualification) and such matter (in Landlord’s
reasonable judgment) is material and adverse with respect to Tenant, any
Guarantor and/or the Leased Property then, such matter shall constitute an Event
of Default hereunder unless such matter is fully cured within thirty (30) days
(but immediately with respect to any Jeopardy Event) after Tenant first obtains
knowledge of such matter.

17.1.6         Lease Guaranty Defaults. Any Guarantor shall fail to observe or
perform any term, covenant or condition of any Lease Guaranty and such failure
is not cured within any applicable cure period provided for in such Lease
Guaranty.

17.1.7         Bankruptcy. Any Tenant, any Guarantor or any ParentCo: (i) admits
in writing its inability to pay its debts generally as they become due; (ii)
files a petition in bankruptcy or a petition to take advantage of any
bankruptcy, reorganization or insolvency act; (iii) makes an assignment for the
benefit of its creditors; (iv) consents to the appointment of a receiver for
itself or for the whole or any substantial part of its property; or (v) files a
petition or answer seeking reorganization or arrangement under the federal
bankruptcy laws or any other applicable law or statute of the United States of
America or any state thereof.

17.1.8         Bankruptcy Petition. Any petition is filed by or against any
Tenant, any Guarantor or any ParentCo under federal bankruptcy laws, or any
other proceeding is instituted by or against any Tenant, any Guarantor or any
ParentCo seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, reorganization, arrangement, adjustment or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, custodian or other similar official for any
Tenant, any Guarantor or any ParentCo, or for any substantial part of the
property of any Tenant, any Guarantor or any ParentCo, and such proceeding is
not dismissed within sixty (60) days after institution thereof, or any Tenant,
any Guarantor or any ParentCo shall take any action to authorize or effect any
of the actions set forth above in this Section 17.1.8.

17.1.9         Liquidation. Any Tenant, any Guarantor or any ParentCo is
liquidated or dissolved, or shall begin proceedings toward such liquidation or
dissolution.

17.1.10       Levy. The estate or interest of any Tenant in any Leased Property
or any part thereof is levied upon or attached in any proceeding and the same
shall not be vacated or discharged within the later of sixty (60) days after
commencement thereof or

 

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thirty (30) days after receipt by such Tenant of notice thereof from Landlord or
any other Person (unless such Tenant shall be contesting such lien or attachment
in good faith in accordance with Section 13 hereof).

17.1.11       Receiver. Any receiver, trustee, custodian or other similar
official is appointed for any Tenant, any Guarantor or any of the Facilities and
any such appointment is not dismissed within sixty (60) days after the date of
such appointment and prior to the entry of a final, unappealable order approving
such appointment.

17.1.12       Licensure, Authorization or Facility Provider Agreement Defaults.
The receipt by Tenant of written notice of any (i) determination by applicable
Governmental Authorities of Tenant’s non-compliance with Legal Requirements
affecting the Properties in any material way applicable to any Leased Property,
or (ii) revocation of any license, permit, approval or other Authorization
required for the lawful operation of a Leased Property in accordance with its
Primary Intended Use, or (iii) other circumstances under which (a) a Tenant is
required by a determination of any Governmental Authority to cease operation of
a Facility in accordance with its Primary Intended Use or (b) any Facility
Provider Agreement or reimbursement agreement, or certification of Tenant under
Medicare or Medicaid pursuant thereto, is terminated, in whole or in part, prior
to the expiration of the term thereof or, without the prior written consent of
Landlord in each instance (which consent may be withheld in Landlord’s sole and
absolute discretion), is not renewed or extended, in whole or in part, upon the
expiration of the stated term thereof. Notwithstanding the foregoing, Tenant
shall not be deemed to be in default under this Section 17.1.12 with respect to
any event or circumstance resulting from the MG EEOC Claims, except if such
event or circumstance results from any act or omission of Tenant or any Tenant
Party where such Tenant or Tenant Party was required to act or not act. Tenant
may, however, upon prior written notice to Landlord, (i) fully satisfy within
any applicable time frame set forth therein, all payments and other actions
required under the applicable determination described above, or (ii) contest the
legality or applicability of any determination described above, if Tenant, at
Tenant’s own expense, maintains such action in good faith, by appropriate
proceedings and with due diligence, and on a regular basis fully informs
Landlord of the status of, and material developments in, any such contest and
furnishes Landlord with such additional documents and information concerning
such contest as Landlord may reasonably request from time to time, and if Tenant
subsequently fully complies within any applicable time from set forth therein
with any final, non-appealable determination. If compliance with any such
determination pending the prosecution of any such proceeding may legally be
delayed (x) without the incurrence of any lien, charge or liability of any kind
against the applicable Facility or Landlord’s interest therein, (y) without any
loss of licensure, certification or other Authorization that would materially
and adversely impair Tenant’s ability to continue to operate the affected
Facility in accordance with its Primary Intended Use during Tenant’s contest,
and (z) without subjecting Landlord to any liability, civil or criminal, for
failure so to comply therewith, Tenant may delay compliance therewith until the
final unappealable determination of such proceeding, provided, however, if any
such lien, charge or civil or criminal liability would be incurred by reason of
any such delay, Tenant may nonetheless

 

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contest as aforesaid and delay as aforesaid provided that such delay would not
subject Landlord to criminal liability and Tenant (i) furnishes to Landlord
security reasonably satisfactory to Landlord against any loss or injury by
reason of such contest or delay, (ii) prosecutes the contest with due diligence
and in good faith, and (iii) keeps Landlord informed, and provides additional
documentation and information, relative to such contest as described above.

17.1.13       Reduction in Number of Licensed Units. There is a reduction in the
number of licensed units, at the appropriate facility, as set forth on
Schedule 17.1.13 attached hereto or a change in the type of licensed units for
any Facility in violation of the requirements of this Lease.

17.1.14

[Intentionally Omitted]

17.1.15       Adverse Regulatory Actions. With respect to any Facility, any
Governmental Authority (i) makes a material substandard quality of care
determination regarding such Facility and the underlying conditions that
resulted in such determination are not corrected within ninety (90) days (or
such lesser period as may be permitted by the applicable Governmental Authority
or applicable Legal Requirement); (ii) makes a determination that such Facility
is not in material substantial compliance with any applicable regulatory
requirements and the underlying conditions that resulted in such determination
are not corrected within ninety (90) days (or such lesser period as may be
permitted by the applicable Governmental Authority or applicable Legal
Requirement); (iii) designates any portion of such Facility or the entirety of
such Facility as part of a “poor performing chain” and the underlying conditions
that resulted in such designation are not corrected within ninety (90) days (or
such lesser period as may be permitted by the applicable Governmental Authority
or applicable Legal Requirement); (iv) takes materially adverse regulatory
action with respect to such Facility, including, without limitation, the
imposing of civil money penalties, with such adverse regulatory action
continuing unremedied for a period of ninety (90) days (or such lesser period as
may be permitted by the applicable Governmental Authority or applicable Legal
Requirement) following the commencement of such adverse regulatory action; (v)
commences procedures to impose a ban on new admissions generally or on the
admission of residents otherwise qualifying for reimbursement under any
applicable governmental reimbursement program and the underlying conditions that
resulted in the commencement of such procedures are not corrected on or prior to
the earlier of ninety (90) days (or such lesser period as may be permitted by
the applicable Governmental Authority or applicable Legal Requirement) or the
imposition of such a ban; or (vi) imposes a ban of the nature described in
clause (v) above. Notwithstanding the foregoing, Tenant shall not be deemed to
be in default under this Section 17.1.15 with respect to any event or
circumstance resulting from the MG EEOC Claims, except if such event or
circumstance results from any act or omission of Tenant or any Tenant Party
where such Tenant or Tenant Party was required to act or not act. Tenant may,
however, upon prior written notice to Landlord, (i) fully satisfy within any
applicable time frame set forth therein, all payments and other actions required
under the applicable determination described above, or (ii) contest the legality
or applicability of any determination described above, if Tenant, at Tenant’s
own expense, maintains such action in good faith, by

 

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appropriate proceedings and with due diligence, and on a regular basis fully
informs Landlord of the status of, and material developments in, any such
contest and furnishes Landlord with such additional documents and information
concerning such contest as Landlord may reasonably request from time to time,
and if Tenant subsequently fully complies within any applicable time frame set
forth therein with any final, non-appealable determination. If compliance with
any such determination pending the prosecution of any such proceeding may
legally be delayed (x) without the incurrence of any lien, charge or liability
of any kind against the applicable Facility or Landlord’s interest therein, (y)
without any loss of licensure, certification or other Authorization that would
materially and adversely impair Tenant’s ability to continue to operate the
affected Facility in accordance with its Primary Intended Use during Tenant’s
contest, and (z) without subjecting Landlord to any liability, civil or
criminal, for failure so to comply therewith, Tenant may delay compliance
therewith until the final unappealable determination of such proceeding,
provided, however, if any such lien, charge or civil or criminal liability would
be incurred by reason of any such delay, Tenant may nonetheless contest as
aforesaid and delay as aforesaid provided that such delay would not subject
Landlord to criminal liability and Tenant (i) furnishes to Landlord security
reasonably satisfactory to Landlord against any loss or injury by reason of such
contest or delay, (ii) prosecutes the contest with due diligence and in good
faith, and (iii) keeps Landlord informed, and provides additional documentation
and information, relative to such contest as described above.

17.1.16       Cessation of Services. Except in connection with restoration of
any Casualty or Condemnation or on account of any Alteration permitted by the
terms of this Lease, any cessation of operations at all or any material part of
any Facility.

17.1.17       Reserve Event. The occurrence of any Reserve Event following
notice and thirty (30) days to cure said Reserve Event.

17.1.18       Default Under Other Leases or Guaranties. Any default by any
Tenant Lease Affiliate or guarantor that continues beyond any applicable grace
or cure period shall occur under the terms of (i) any of the Other Leases or
(ii) any guaranty(ies) of any of the leases referenced in subsection (i) above
by Guarantor, any other guarantor or any of their respective successors and
assigns.

No cure period set forth in this Section 17.1 shall be duplicative of, or
otherwise in addition to, any express cure period or other period for
performance of the subject event or circumstance set forth in this Lease or any
other applicable instrument referenced in this Lease.

17.2      Remedy Election. Upon the occurrence of any Event of Default, Landlord
may, at its option and by written notice to Tenant, terminate this Lease (i) as
to the Premises and/or (ii) if such Event of Default is a Facility Default, as
to any one or more of the Leased Property(ies) (selected in Landlord’s sole
discretion and by written notice to Tenant) to which such Facility Default
relates (a termination of this Lease as to less than all of the Premises as
provided in this subsection (ii) is herein referred to as a “Limited Termination

 

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Election”) (the Leased Property(ies) as to which Landlord elects to terminate
this Lease as provided in subsection (i) or subsection (ii) above are herein
referred to as “Terminated Lease Properties”). Upon receipt of a termination
notice as provided in this Section 17.2, Tenant shall have no right to cure the
Event of Default in question, all rights of Tenant under this Lease shall cease
as to the Leased Property(ies) so specified, and, if the Leased Property(ies) so
specified is/are less than all of the Premises, the provisions of Section 17.9
shall apply. Without limitation of the foregoing, if Landlord makes a Limited
Termination Election, the deletion of the applicable Terminated Lease Properties
from this Lease shall be absolutely without limitation of each Tenant’s
continuing obligation (on a joint and several basis) for the damages and other
amounts owing on account of the Event of Default giving rise to the deletion
herefrom of such Terminated Lease Properties and/or the termination of this
Lease as to such Terminated Lease Properties. Notwithstanding any Limited
Termination Election, Tenant shall pay, as Additional Rent, all Litigation Costs
as a result of any Event of Default hereunder.

17.3      Certain Remedies. If an Event of Default shall have occurred, Tenant
shall, if and to the extent required by Landlord so to do, immediately surrender
to Landlord the Leased Property(ies) specified by Landlord and as to which the
Lease has been or may be terminated pursuant to Section 17.2 or otherwise, and
Landlord may enter upon and repossess such Leased Property(ies) by reasonable
force, summary proceedings, ejectment or otherwise, and may remove Tenant and
all other Persons and all personal property from such Leased Property(ies)
subject to the rights of any occupants or residents and to any requirement of
law. The provisions of this Section are subject to the terms of Section 46.2.8
below. Any action by Landlord to recover possession of the Premises, any attempt
by Tenant to surrender the Premises and any acceptance of possession by Landlord
shall not be deemed a termination of this Lease unless Landlord specifically
notifies Tenant in writing that this Lease is terminated and that Tenant's
liability for rent thereafter accruing has been released.

17.4      Damages. To the extent permitted by law, neither (i) the termination
of this Lease pursuant to Section 17.2, (ii) the repossession of any or all of
the Leased Properties or any portion thereof, (iii) the failure of Landlord to
relet any or all of the Leased Properties or any portion thereof, (iv) the
reletting of any or all of the Leased Properties or any portion thereof, (v) the
failure of Landlord to collect or receive any rentals due upon any such
reletting, nor (vi) the election by Landlord not to terminate the Lease but
rather to seek all damages provided at law or in equity, shall relieve Tenant of
any of its liabilities or obligations hereunder, all of which shall survive any
such termination, repossession or reletting. In the event of any such
termination of this Lease (or any termination of this Lease as to less than all
of the Leased Properties in the event of a Limited Termination Election or the
election by Landlord not to terminate this Lease as to such Leased Properties,
but rather to pursue its damages at law or in equity), without limitation of
Section 17.5 and Section 19 below, Tenant shall forthwith pay to Landlord, at
Landlord’s option, as liquidated damages with respect to Rent for the Premises
(or the Terminated Lease Properties in the event of any Limited Termination
Election), either:

 

 

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(A)       the sum of: (1) the unpaid Rent that had been earned at the time of
termination (or the unpaid Rent as to the Terminated Lease Properties in the
event of a Limited Termination Election), which Rent shall bear interest at the
Overdue Rate from the date of such termination until paid; and (2) the then net
present value (computed using a discount rate equal to 8%) of the amount of
unpaid Rent (or the unpaid Rent as to the Terminated Lease Properties in the
event of a Limited Termination Election) for the balance of the Term not
previously collected pursuant to clause (B) below following the date of
termination (excluding, however, any period following termination on account of
which Landlord previously collected Rent pursuant to clause (B) below) without,
subject to Section 17.5 below, any obligation or deemed obligation on the part
of Landlord to mitigate damages, or

(B)        each installment of Rent hereof and other sums payable hereunder (or
such Rent and other sums as to the Terminated Lease Properties in the event of a
Limited Termination Election) as the same become due and payable, to the extent
that such Rent and other sums exceed the rent and other sums actually collected
by Landlord for the corresponding period pursuant to any reletting (without
subject to Section 17.5 below, any obligation or deemed obligation on the part
of Landlord to mitigate damages) of the Premises (or the Terminated Lease
Properties in the event of a Limited Termination Election).

Notwithstanding anything contained herein to the contrary, in the event that
Landlord elects to collect damages pursuant to clause (A) or clause (B) above,
Landlord may subsequently elect to collect damages pursuant to the other of
clause (A) and clause (B) above, in each case so long as Landlord does not
collect, and provided that Landlord may not collect, any damages pursuant to
clause (A) or clause (B) above, as applicable, with respect to any period as to
which Landlord has theretofore actually collected damages from Tenant pursuant
to the other of clause (A) and clause (B) above, as applicable. In case of any
Event of Default, Landlord may, with or without terminating this Lease, (x)
relet any or all of the Premises or any part or parts thereof, either in the
name of Landlord or otherwise, for a term or terms that may, at Landlord’s
option, be equal to, less than or exceed the period that would otherwise have
constituted the balance of the Term and may grant concessions or free rent to
the extent that Landlord considers advisable or necessary to relet the same, and
(y) make such reasonable alterations, repairs and decorations in the applicable
Leased Property(ies) or any portion thereof as Landlord, in its sole judgment,
considers advisable or necessary for the purpose of reletting the applicable
Leased Property(ies); and such reletting and the making of such alterations,
repairs and decorations shall not operate or be construed to release Tenant from
liability hereunder as aforesaid. Landlord shall in no event be liable in any
way whatsoever for failure to relet any Leased Property, or, in the event that
any Leased Property is relet, for failure to collect the rent under such
reletting. To the fullest extent permitted by law, Tenant hereby expressly
waives any and all rights of redemption granted under any present or future laws
in the event of Tenant’s being evicted or dispossessed, or in the event of
Landlord’s obtaining possession of any Leased Property, by reason of the
violation by Tenant of any of the covenants and conditions of this Lease or any
other Event of Default. The provisions of this Section are subject to the terms
of Section 46.2.8 below.

 

 

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17.5      Waiver; Mitigation; Limitation on Certain Tenant Remedies. If this
Lease is terminated pursuant to this Section 17, whether in whole or, in the
case of any Limited Termination Election, in part, Tenant waives, to the maximum
extent permitted by applicable law, (i) any right of redemption, re-entry or
repossession granted under any present and future laws in the event Landlord
obtains the right to possession of the Leased Property(ies) by reason of the
violation by Tenant of any of the covenants and conditions of this Lease or
otherwise, (ii) any right to a trial by jury in the event of proceedings to
enforce the remedies set forth in this Section 17, and (iii) the benefit of any
moratorium laws or any laws now or hereafter in force exempting property from
liability for rent or for debt. In addition, Tenant waives, to the maximum
extent permitted by applicable law, (x) any duty on the part of Landlord to
mitigate the damages recoverable from Tenant on account of any breach or Event
of Default, except that, notwithstanding the foregoing or anything to the
contrary contained in this Lease, Landlord agrees to comply with any
non-waivable duty to mitigate the aforesaid damages that may be imposed by
applicable law, and (y) the right to interpose any counterclaim (other than
compulsory counterclaims) in any summary proceeding instituted by Landlord
against Tenant in any court or in any action instituted by Landlord in any court
for unpaid Rent under this Lease. In the event that Tenant claims or asserts
that Landlord has violated or failed to perform a covenant of Landlord not to
unreasonably withhold, delay or condition Landlord’s consent or approval
hereunder, or in any case where Landlord’s reasonableness in exercising its
judgment is in issue, Tenant’s sole remedy shall be an action for specific
performance, declaratory judgment or injunction, and in no event shall Tenant be
entitled to any monetary damages for a breach of any such covenant or
unreasonable exercise of judgment, and Tenant hereby specifically waives the
right to any monetary damages or other remedies in connection with any such
breach or unreasonable exercise of judgment. Without limitation of the foregoing
and notwithstanding anything to the contrary contained in this Lease, Tenant
agrees that no breach or default by Landlord hereunder or by any Landlord Lease
Affiliate other than any Other Lease shall excuse Tenant from performing, or
constitute a defense to Tenant’s performance of, any duty, liability or
obligation of Tenant under this Lease and in no event shall any breach or
default by Landlord hereunder or by any Landlord Lease Affiliate other than any
Other Lease entitle Tenant to terminate this Lease, or abate Rent, in whole or
in part.

17.6      Application of Funds. Notwithstanding anything to the contrary
contained in this Lease, any and all security deposits, letters of credit,
collateral, payments, deposits, escrows, Casualty Insurance Proceeds or Awards
received or held by Landlord or any Landlord Lease Affiliate under any of the
provisions of this Lease or any Other Lease may, during the existence of any
Potential Default or any Event of Default and at Landlord’s option, in its sole
discretion, be drawn upon and applied to Tenant’s obligations in the order that
Landlord in its sole discretion may determine.

17.7      Nature of Remedies. Landlord shall have all rights at law and in
equity available to Landlord as a result of an Event of Default or Tenant’s
breach of this Lease, including, without limitation, to the extent permitted by
law (but subject, in the case of any Leased Property located in California, to
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Lease will be deemed terminated as to any Leased Property as to which Tenant’s
right to possession is terminated by Landlord due to an Event of Default), the
right to dispossess Tenant from a Leased Property without terminating this Lease
as it applies to such Leased Property and thereafter, unless and until Landlord
terminates this Lease as it applies to such Leased Property, collect Rent and
other sums payable hereunder as to such Leased Property as the same become due
and payable, to the extent such Rent and other sums exceed the rent and other
sums actually collected by Landlord for the corresponding period pursuant to any
reletting (without, subject to Section 17.5 above, any obligation or deemed
obligation on the part of Landlord to mitigate damages) of such Leased Property.
To the extent permitted by law, the rights and remedies of Landlord under this
Lease, at law and in equity shall be cumulative and may be exercised
concurrently or successively, on one or more occasions, as Landlord deems
appropriate in its sole discretion, as often as occasion therefor arises. To the
extent permitted by law, each such right and remedy shall be in addition to all
other such rights and remedies, and the exercise by Landlord of any one or more
of such rights and remedies shall not preclude the simultaneous or subsequent
exercise of any or all other such rights and remedies. Without limiting the
generality of the foregoing, the liquidated damages in respect of Rent provided
for in clauses (A) and (B) of Section 17.4 hereof, and in Section 19 hereof,
shall be payable by Tenant in addition to, and not in lieu of, any other damages
suffered by Landlord in connection with any default or Event of Default by
Tenant (including, without limitation, Litigation Costs and costs of reletting).

17.8      No Mediation or Arbitration. Upon any Event of Default by Tenant,
Landlord shall be entitled to proceed immediately to enforce its rights and
remedies pursuant to this Section 17 and the other terms of this Lease, and
neither any Event of Default, nor the rights and obligations of Tenant and
Landlord under this Lease, shall be subject to mediation or arbitration of any
kind.

17.9      Deletion of Properties. In the event that this Lease is terminated as
to one or more Deleted Properties (but not all of the Premises) pursuant to
Section 17.2 or as to one or more Leased Properties (but not all of the
Premises) in connection with a Casualty or Condemnation, the provisions of this
Section 17.9 shall be applicable. Without necessity of any further action of the
parties, this Lease shall terminate as to the Deleted Property(ies), and the
Deleted Property(ies) shall be separated and removed herefrom, at such time
(such date, the “Property Removal Date”) as Landlord delivers written notice to
Tenant exercising its termination rights pursuant to Section 15, Section 16 or
Section 17.2 (any of the foregoing, a “Deletion Notice”). As of the applicable
Property Removal Date, this Lease shall be automatically and ipso facto amended
to:

(i)

delete and eliminate the Deleted Property(ies) herefrom;

(ii)         exclude the applicable Deleted Properties from the definition of
Premises;

 

 

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(iii)        reduce the Fixed Rent payable hereunder by an amount equal to the
product of: (x) the aggregate Tenant’s Proportionate Share(s) applicable to all
of the Deleted Properties; and (y) the aggregate Fixed Rent in effect under this
Lease as of the Property Removal Date;

(iv)        amend and reduce, respectively, Exhibit C attached hereto and the
Base Year Resident Revenues to delete and eliminate the Deleted Property(ies)
therefrom and reduce the Base Year Resident Revenues applicable to the remaining
Leased Property(ies) by the amount of the Allocated Base Year Resident Revenues
applicable to the Deleted Properties for the purposes of determining whether the
Rent Escalation Condition has been satisfied and otherwise; and

(v)        revise Schedule 2 attached hereto to remove the Tenant’s
Proportionate Share(s) for all of the Deleted Property(ies), and to recalculate
the Tenant’s Proportionate Shares applicable to the remaining Facilities set
forth on Schedule 2 attached hereto so that each Tenant of a remaining Facility
shall have a Tenant’s Proportionate Share equal to the percentage that the
Tenant’s Proportionate Share for the Facility(ies) operated by such Tenant
comprises of the aggregate Tenant’s Proportionate Shares, prior to such revision
of Schedule 2, for all of the Facilities remaining under this Lease such that
the aggregate of all of such recalculated Tenant’s Proportionate Shares equals
one hundred percent (100%).

With respect to any Terminated Lease Property(ies), the terms of items (i)
through (v) above shall be without limitation upon the liability of Tenant
(joint and several) for the rental amounts allocated to the Terminated Lease
Property(ies), and (a) in case of any termination of this Lease as a result of
any Event of Default, for any damages resulting from the Event of Default that
resulted in the deletion of such Terminated Lease Property(ies) herefrom and (b)
in case of any termination of this Lease pursuant to Section 15 or Section 16
hereof, for any obligations owed by Tenant to Landlord on account of such
termination under Section 15 or Section 16 hereof. Promptly (and in any event
within ten (10) days) after receipt of Landlord’s request therefor, Tenant shall
execute and deliver to Landlord such instrument(s) as Landlord may from time to
time request reflecting the elimination of any Deleted Property(ies) herefrom on
the terms described above.

18.        Landlord’s Right to Cure Tenant’s Default. If an Event of Default
shall have occurred and shall be continuing, Landlord, without waiving or
releasing any obligation of Tenant or the Event of Default, may (but shall be
under no obligation to) at any time thereafter make such payments or perform
such acts for the account and at the expense of Tenant, and may, to the extent
permitted by law, enter upon any or each Leased Property or any portion thereof
for the purpose of curing such Potential Default or Event of Default and take
all such action thereon as, in Landlord’s opinion, may be necessary or
appropriate in connection with curing such Event of Default. No such entry shall
be deemed an eviction of Tenant. All sums so paid or advanced by Landlord and
all costs and expenses (including, without limitation, reasonable attorneys’
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maximum extent permitted by law) as Additional Rent hereunder at the Overdue
Rate from the date on which such sums or expenses are paid or incurred by
Landlord, shall be paid by Tenant to Landlord on demand. The obligations of
Tenant and rights of Landlord contained in this Section 18 and in Section 17
above shall survive the expiration or earlier termination of this Lease.

19.        Holding Over. If Tenant shall, for any reason, remain in possession
of any Leased Property after the expiration or earlier termination of the Term
as to such Leased Property, such possession shall, at the option of Landlord, in
its sole discretion as to each such Leased Property, be as a month-to-month
tenant during which time Tenant shall pay as rental each month (which rental
constitutes liquidated damages with respect to Fixed Rent, and not a penalty,
for the period to which it relates), one and one-half (1½) times the aggregate
of the Fixed Rent payable by Tenant pursuant to the provisions of this Lease, in
each case, with respect to the Leased Property(ies) in question (determined on
the basis of the aggregate Tenant’s Proportionate Share of each applicable
Tenant for the affected Leased Properties without adjustment or removal of the
Tenant’s Proportionate Share for such Leased Property pursuant to Section 17.9
hereof). During such period of month-to-month tenancy, Tenant shall be obligated
to perform and observe all of the terms, covenants and conditions of this Lease
with respect to the Leased Property(ies) in question (including, but not limited
to, its obligation to pay Additional Rent), but shall have no rights hereunder
other than the right, to the extent given by law to month-to-month tenancies, to
continue its occupancy and use of the applicable Leased Property(ies). Landlord
shall have the right to terminate Tenant’s month-to-month tenancy at any time
after giving Tenant ten (10) days’ prior written notice, and at any time
thereafter, Landlord may re-enter and take possession of the Premises. Nothing
contained herein shall constitute the consent, express or implied, of Landlord
to the holding over of Tenant after the expiration or earlier termination of
this Lease. The terms of this Section 19 shall be without limitation upon any
other right Landlord may have hereunder, at law or in equity, on account of any
holdover with respect to the applicable Leased Property(ies). The obligations of
Tenant and the rights of Landlord contained in this Section 19 shall survive the
expiration or earlier termination of this Lease.

20.

Subordination.

20.1      Subordination. This Lease and all rights of Tenant hereunder are
subject and subordinate to all Facility Mortgages that may now or hereafter
affect Landlord’s interest in any Leased Property, and to all renewals,
modifications, consolidations, replacements and extensions of all Facility
Mortgages, provided, however, that, in the case of any Facility Mortgage that is
not currently in existence, Tenant’s aforesaid subordination shall be
conditioned on Tenant’s receipt of a so-called “non-disturbance” agreement in
favor of Tenant from the Facility Mortgagee under any such Facility Mortgage on
such Facility Mortgagee’s commercially reasonable standard form. This Section
shall be self-operative and no further instrument of subordination shall be
required. In confirmation of such subordination, Tenant also agrees to execute
and deliver promptly (and in any event within ten (10) Business Days) any
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form, if requested) that Landlord or any Facility Mortgagee may request to
evidence such subordination. Landlord agrees to use reasonable efforts to obtain
a so-called “non-disturbance” agreement in favor of Tenant from each Facility
Mortgagee under each currently existing Facility Mortgage on such Facility
Mortgagee’s commercially reasonable standard form.

20.2      Attornment. If the interests of Landlord under this Lease are
transferred by reason of, or assigned in lieu of, foreclosure or other
proceedings for enforcement of a Facility Mortgage, then Tenant shall, at the
option of such purchaser or assignee, as the case may be, (i) attorn to such
party and perform for its benefit all the terms, covenants and conditions of
this Lease on Tenant’s part to be performed with the same force and effect as if
such party were the landlord originally named in this Lease, or (ii) enter into
a New Lease with such party, as landlord, pursuant to Section 40 hereof for the
remaining Term and otherwise on the same terms and conditions as this Lease,
except that such successor landlord shall not be (w) liable for any previous
act, omission, breach, default or negligence of Landlord under this Lease; (x)
subject to any counterclaim, defense or offset that theretofore shall have
accrued to Tenant against Landlord; (y) bound by any previous modification or
amendment of this Lease or by any previous prepayment of more than one month’s
rent, unless such modification, amendment or prepayment shall have been approved
in writing by the Facility Mortgagee through or by reason of which such
successor landlord shall have succeeded to the rights of Landlord under this
Lease or, in case of any such prepayment, such prepayment of rent has actually
been delivered to such successor landlord; or (z) liable for any security
deposited pursuant to this Lease unless such security has actually been
delivered to such successor landlord. Nothing contained in this Section 20.2
shall be construed to impair any right otherwise exercisable by any such owner,
holder or lessee.

20.3      Mortgagee Cure Rights. If any act or omission by Landlord would give
Tenant the right, immediately or after lapse of time, to cancel or terminate
this Lease or to claim a partial or total eviction, or an abatement of Rent,
setoff or counterclaim not otherwise expressly permitted by the terms of this
Lease, or to declare a default hereunder, Tenant will not exercise any such
right until (i) it has given written notice of such act or omission to each
Facility Mortgagee whose name and address shall have previously been furnished
to Tenant, (ii) Landlord shall have failed to cure the same after the delivery
of such notice as may be herein required and within the time limits set forth in
this Lease, and (iii) following the giving of such notice to each Facility
Mortgagee, no Facility Mortgagee shall have remedied such act or omission (x) in
the case of an act or omission that is capable of being remedied without
possession of the applicable Leased Property, within the cure period available
to Landlord under this Lease plus thirty (30) days; and (y) in the case of any
act or omission that is incapable of being remedied without possession of the
applicable Leased Property, within thirty (30) days following the date on which
possession is obtained (either by such Facility Mortgagee or by a receiver in an
action commenced by such Facility Mortgagee).

20.4      Modifications. Tenant shall execute any modification of this Lease
reasonably requested by any Facility Mortgagee or prospective Facility Mortgagee
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terms of this Lease to conform with customary and reasonable mortgage financing
requirements, provided that such modifications (i) do not materially adversely
increase the obligations of Tenant hereunder or materially diminish Tenant’s
rights under this Lease, (ii) do not increase Rent payable hereunder, and (iii)
are requested by any such Facility Mortgagee or prospective Facility Mortgagee
only at the time of its initial loan advance or any subsequent extension of the
maturity date of its loan or material modification of the terms of its loan.
Tenant will not unreasonably withhold, delay or condition its consent to such
modification, provided subsections (i), (ii) and (iii) above are complied with.

21.

Property and Accounts Collateral.

21.1      Landlord’s Security Interest. The parties intend that, if an Event of
Default occurs under this Lease, Landlord will control Tenant’s Personal
Property (except that personal property expressly excluded under Section 35
below) so that Landlord or its designee or nominee can operate, sell or re-let
each Facility for its Primary Intended Use. Accordingly, to implement such
intention, and for the purpose of securing the payment and performance
obligations of Tenant hereunder, Landlord and Tenant agree as follows:

21.1.1         Property Collateral; Accounts Collateral. Tenant, as debtor,
hereby grants to Landlord, as secured party, a security interest in, and lien
upon, (i) all of Tenant’s right, title and interest in and to Tenant’s Personal
Property and any and all products, rents, proceeds and profits thereof in which
Tenant now owns or hereafter acquires an interest or right (collectively, the
“Property Collateral”) and (ii) all accounts receivable with respect to each
Facility that Tenant now owns or in which Tenant hereafter acquires an interest
or right (collectively, the “Accounts Collateral”). The security interests and
liens granted to Landlord in this Section 21.1 with respect to the Accounts
Collateral may be subordinated to any first priority security interest granted
in connection with any permitted AR Financing (as defined in Section 21.2
below); provided, however, that, in connection with such AR Financing, Landlord
shall furnish Tenant’s financiers, and Tenant’s financiers shall execute and
return to Landlord, an intercreditor agreement in form and substance reasonably
acceptable to Landlord.

21.1.1.1      Security Agreement. This Lease constitutes a security agreement
pursuant to and in accordance with the UCC covering all Property Collateral and
Accounts Collateral, as well as the Authorization Collateral and any other
property in or against which Landlord is granted a security interest or lien by
the terms of this Lease (collectively, the “Lease Collateral”), and such
security agreement, and the security interests and liens created in this Lease,
shall survive the expiration or earlier termination of this Lease. Tenant hereby
authorizes Landlord to file such financing statements, continuation statements
and other documents as may be necessary or desirable to perfect or continue the
perfection of Landlord’s security interests and liens in the Lease Collateral
pursuant to the UCC. In addition, if required by Landlord at any time during the
Term, Tenant shall execute and deliver to Landlord, in form reasonably
satisfactory to Landlord, additional security agreements, financing statements,
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reasonably require to perfect or continue the perfection of Landlord’s security
interests and liens in the Lease Collateral. Upon the occurrence of an Event of
Default or in connection with an Operational Transfer, Landlord shall be
entitled to exercise any and all rights and remedies available to a secured
party under the UCC, or available to a landlord under the laws of the State(s)
where the applicable Leased Property(ies) is (are) located, with respect to the
Lease Collateral, including the right to sell the same at public or private
sale, and, in connection with any such sale, Tenant agrees that the giving of
ten (10) days’ notice by Landlord, designating the time and place of any public
sale of any Lease Collateral, or the time after which any private sale or other
intended disposition of any Lease Collateral is to be made, shall be deemed to
be reasonable notice thereof, and Tenant waives any other notice with respect
thereto.

21.1.2         Certain Changes. Tenant shall give Landlord at least thirty (30)
days’ prior written notice of any change in any Tenant’s principal place of
business, name, identity, jurisdiction of organization or corporate structure,
and any such change in jurisdiction of organization or corporate structure
shall, without limitation of Section 24 hereof, be subject to Landlord’s prior
written approval, which approval shall not be unreasonably withheld. With
respect to any such change first mentioned above, Tenant will promptly execute
and deliver such instruments, documents and notices and take such actions, as
Landlord deems necessary or desirable to create, perfect and protect the
security interests and liens of Landlord in the Lease Collateral.

21.2      Accounts Receivable Financing. Tenant shall not obtain so-called
“Accounts Receivable” financing with respect to any Facility (or its operations
therein) or otherwise pledge any receivables as collateral (“AR Financing”)
unless (i) the terms and conditions of this Section 21 have been satisfied; (ii)
Tenant obtains Landlord’s consent to the terms thereof; and (iii) no Event of
Default has occurred and no Potential Default is continuing hereunder. Landlord
shall not unreasonably withhold or delay its consent to any AR Financing secured
by a first lien upon Tenant’s Accounts Collateral and as to which Landlord has
received an intercreditor agreement as required pursuant to Section 21.1.1, and,
as to any other AR Financing, Landlord may withhold its consent in its sole
discretion.

22.        Risk of Loss. During the Term, the risk of loss or of decrease in the
enjoyment and beneficial use of each Leased Property in consequence of the
damage or destruction thereof by fire, the elements, acts of terrorism,
casualties, thefts, riots, wars or otherwise, or in consequence of foreclosures,
attachments, levies or executions is assumed by Tenant, and Landlord shall in no
event be answerable or accountable therefor nor shall any of the events
mentioned in this Section entitle Tenant to any abatement of Rent.

23.        Indemnification. Notwithstanding the existence of any insurance
provided for herein, and without regard to the policy limits of any such
insurance, Tenant shall protect, indemnify, save harmless and defend Landlord
and the Landlord Indemnified Parties from and against all Losses (including,
without limitation, Litigation Costs), to the maximum extent permitted by law,
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any Landlord Indemnified Parties by reason of: (i) any accident, injury to, or
death of, persons or loss of, or damage to, property occurring on or about any
Leased Property; (ii) any use, misuse, non-use, condition, maintenance or repair
of any Leased Property by Tenant, any Tenant Parties or anyone claiming under
Tenant or any Tenant Parties; (iii) any Impositions; (iv) any failure on the
part of Tenant, any Tenant Parties or anyone claiming under Tenant or any Tenant
Parties to perform or comply with any of the terms of this Lease; (v) any claims
for work or labor performed or materials supplied to Tenant or any Tenant
Parties; (vi) any breach by Tenant of any of its representations and warranties
hereunder; (vii) any breach or default under any Authorization by any Tenant (or
any Facility) or any revocation of any Authorizations (including, but not
limited to, any Facility Provider Agreement); (viii) any negligence or
misconduct on the part of Tenant or any Tenant Parties; (ix) the non-performance
of any of the terms and provisions of any and all existing and future subleases
of any Leased Property to be performed by the subtenant thereunder; (x) any
failure on the part of Tenant, any Tenant Parties or anyone claiming under
Tenant or any Tenant Parties to perform or comply with any of the terms of any
Other Lease, the Operations Transfer Agreement or any other agreement referenced
in this Lease or relating to any of the Premises to which any of the foregoing
is a party; (xi) any claim, matter or other thing for which the Buyer (as
defined in the P&S Agreement) had agreed to indemnify, defend or hold harmless
Seller (or any of its Affiliates) under or in connection with the P&S Agreement
or any closing documents delivered in connection therewith, which pertain (in
whole or in part) to the use or operation of the Premises upon or at any time
after Closing; and/or (xii) the claims of any broker or finder made in
connection with this Lease except to the extent claiming under the written
agreements of Landlord. Any amounts that become payable by Tenant under this
Section 23 shall be paid within ten (10) Business Days after demand by Landlord,
and if not timely paid, shall bear interest at the Overdue Rate from the date of
such demand until paid. Tenant, at its expense, shall contest, resist and defend
any such claim, action or proceeding asserted or instituted against Landlord or
any Landlord Indemnified Parties with counsel acceptable to Landlord in its sole
discretion and shall not, under any circumstances, compromise or otherwise
dispose of any suit, action or proceeding without obtaining Landlord’s written
consent. Tenant shall have the right to control the defense or settlement of any
claim provided that (A) Tenant shall first confirm in writing to Landlord that
such claim is within the scope of this indemnity and that Tenant shall pay any
and all amounts required to be paid in respect of such claim; and (B) any
compromise or settlement shall require the prior written approval of Landlord,
which approval shall not be unreasonably withheld provided Landlord (or the
applicable Landlord Indemnified Parties) are irrevocably released from all
liabilities in connection with such claim as part of such settlement or
compromise. Landlord, at its election and sole cost and expense, shall have the
right, but not the obligation, to participate in the defense of any claim. If
Tenant does not act promptly and completely to satisfy its indemnification
obligations hereunder, Landlord may after notice to Tenant resist and defend any
such claims or causes of action against Landlord or any Landlord Indemnified
Party at Tenant’s sole cost. The terms of this Section 23 shall survive the
expiration or sooner termination of this Lease.

 

 

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24.

Assignment; Sublease.

24.1      Prohibition. Subject to Tenant’s rights to enter into Permitted
Transactions pursuant to Section 24.2 below, Tenant shall not, either directly
or indirectly, or through one or more step transactions or tiered transactions,
voluntarily or by operation of law, (i) assign, convey, sell, pledge, mortgage,
hypothecate or otherwise encumber, transfer or dispose of all or any part of
this Lease or any Tenant’s leasehold estate hereunder, (ii) sublease all or any
part of any Leased Property; (iii) engage the services of any Person for the
management or operation of all or any part of any Leased Property, except as
expressly described in Schedule 10.24 hereto; (iv) convey, sell, assign,
transfer, pledge, hypothecate, encumber or otherwise dispose of any stock,
partnership, membership or other interests (whether equity or otherwise) in any
Tenant, any Guarantor or any Person(s) controlling any Tenant or Guarantor, if
such conveyance, sale, assignment, transfer, pledge, hypothecation, encumbrance
or disposition results, directly or indirectly, in a change in control of such
Tenant or Guarantor (or of such controlling Person(s)); (v) dissolve, merge or
consolidate any Tenant or any Guarantor or any Persons controlling any Tenant or
any Guarantor with any other Person, if such dissolution, merger or
consolidation, directly or indirectly, results in a change in control of such
Tenant or Guarantor (or in such controlling Person(s)); (vi) sell, convey,
assign, or otherwise transfer all or substantially all of the assets of any
Tenant or any Persons controlling any Tenant; (vii) sell, convey, assign, or
otherwise transfer any of the assets of any Tenant or any Persons controlling
any Tenant or any Guarantor, if the consolidated net worth of such Tenant or
Guarantor (or such controlling Person(s), as the case may be) immediately
following such transaction is not at least equal to the greater of (1) the
consolidated net worth of such Tenant or Guarantor (or such controlling
Person(s), as the case may be) immediately prior to such transaction and (2) the
consolidated net worth of such Tenant or Guarantor (or controlling Person(s), as
the case may be) as of the Commencement Date; or (viii) enter into or permit to
be entered into any agreement or arrangement to do any of the foregoing or to
grant any option or other right to any Person to do any of the foregoing (each
of the aforesaid acts referred to in clauses (i) through (viii) being referred
to herein as a “Transfer”).

24.2      Permitted Assignments and Subleases. Any purported Transfer made
without the prior written consent of Landlord, in Landlord’s sole discretion,
shall be absolutely null and void. If Landlord consents to any Transfer, such
Transfer shall not be effective and valid unless and until the applicable
transferee executes and delivers to Landlord any and all documentation
reasonably required by Landlord. Any consent by Landlord to a particular
Transfer shall not constitute consent or approval of any subsequent Transfer,
and Landlord’s written consent shall be required in all such instances. No
consent by Landlord to any Transfer shall be deemed to release any Tenant from
its obligations hereunder and each Tenant shall remain fully liable for payment
and performance of all obligations under this Lease. Notwithstanding anything to
the contrary contained in this Section 24, Landlord’s consent shall not be
required with respect to any of the following transactions (collectively, the
“Permitted Transactions”): (i) Tenant may assign its interest and rights under
this Lease to a single entity that is either a Guarantor or a Person wholly
owned and controlled by any Guarantor, provided and on the conditions that (x)
Tenant and such assignee first deliver to Landlord an assignment

 

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and assumption agreement relative to this Lease pursuant to which such assignee
assumes Tenant’s obligations under this Lease and that is otherwise reasonably
acceptable to Landlord and such other documentation relative to such assignment
as Landlord may reasonably require and (y) neither Tenant nor any Guarantor
shall be released from any of their respective obligations under this Lease, any
Other Lease or any Lease Guaranty on account of such assignment; (ii) in the
event the Primary Intended Use of a particular Leased Property is operation of
an assisted living facility and/or an independent living facility, Tenant may
enter into Approved Residency Agreements with residents of such facility and
Approved Commercial Agreements, provided that all of the requirements for
constituting an Approved Residency Agreement and Approved Commercial Agreements
are complied with in all material respects at the time of entry into such
agreement and at all times thereafter; and (iii) any transfer of publicly traded
stock and other securities listed on the New York Stock Exchange, NASDAQ or any
other national securities exchange of Tenant, any Guarantor or any Person
controlling Tenant or any Guarantor.

24.3      Rights of Landlord. If this Lease is assigned, or if the Premises (or
any part thereof) are sublet or used or occupied by anyone other than Tenant,
whether or not in violation of this Lease, Landlord may (without prejudice to or
waiver of its rights), collect rent from the assignee, subtenant or occupant.
Landlord may apply the net amount collected to the Rent herein required to be
paid by Tenant, but no such assignment, subletting, occupancy or collection
shall be deemed a waiver of any of the provisions of this Section 24. With
respect to the allocable portion of the Premises sublet, in the event that the
total rent and any other considerations received under any sublease by Tenant is
greater than the total Fixed Rent required to be paid, from time to time, under
this Lease, Tenant shall pay to Landlord fifty percent (50%) of such excess
received from any subtenant (excluding any subtenant under any Approved
Residency Agreement or any Approved Commercial Agreement) and such amount shall
be deemed a component of the Additional Rent.

25.

Financial Statements and Reporting.

25.1      Maintenance of Books and Records. Tenant shall keep and maintain, or
cause to be kept and maintained, proper and accurate books and records in
accordance with GAAP, and a standard modern system of accounting, in all
material respects reflecting the financial affairs of each Tenant and the
results from operations of each Facility. Landlord shall have the right, from
time to time during normal business hours after five (5) Business Days prior
oral or written notice to the applicable Tenant, itself or through any of
Landlord’s Representatives, to examine such books and records at the office of
such Tenant or other Person maintaining such books and records and to make such
copies or extracts thereof as Landlord or Landlord’s Representatives shall
request. Tenant shall have access, at reasonable times upon prior written notice
to Landlord, to the Business Records (as defined in the P & S Agreement)
conveyed to Landlord under the P & S Agreement.

25.2      Annual Financial Information. As soon as available, and in any event
within one hundred twenty (120) days after the close of each Fiscal Year, Tenant
shall deliver

 

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to Landlord, presented on a consolidated basis (which must include
Facility-level information), as well as on a property-by-property basis,
financial statements prepared for such Fiscal Year with respect to Tenant,
including a balance sheet and operating statement as of the end of such Fiscal
Year, together with related statements of income for such Fiscal Year, certified
by an Officer’s Certificate to the effect that such financial statements are
true and correct and have been prepared in accordance with GAAP, applied on a
consistent basis. Together with Tenant’s annual financial statements, Tenant
shall deliver to Landlord: (i) a statement of cash flows for each Leased
Property; and (ii) such other information as Landlord shall reasonably request.
If Tenant ever obtains any audited financial statements during the Term
pertaining to Tenant, then Tenant shall promptly (and in any event with five
Business Days after Tenant's receipt thereof) deliver the same to Landlord,
together with copies of any and all management letters and other similar
materials pertaining to such audit.

25.3      Quarterly Financial Information. If Tenant is obligated to prepare the
same for any other Person or if Tenant otherwise prepares the same, then as soon
as available, and in any event within forty-five (45) days after the end of each
fiscal quarter, Tenant shall deliver to Landlord, presented on a consolidated
basis (which must include Facility-level information), as well as a
property-by-property basis, quarterly and year-to-date unaudited financial
statements prepared for such fiscal quarter with respect to Tenant, including a
balance sheet and operating statement as of the end of such fiscal quarter and
further including related statements of cash flows for such fiscal quarter and
for the portion of the Fiscal Year ending with such fiscal quarter. Each such
quarterly statement shall show the separate operations of each Leased Property,
including, without limitation, (i) a breakdown of Resident Revenues and other
revenues itemized by payor type and a reasonably detailed breakdown of operating
expenses and (ii) resident census information by payor type (collectively,
“Census Information”). Each such quarterly report shall be accompanied by the
following: (x) a statement in reasonable detail showing the calculation of Net
Operating Income for each Facility for the trailing four fiscal quarters, in
each case, ending at the end of the fiscal quarter as to which such statement is
being delivered; (y) a then current occupancy report for each Facility; and (z)
such other information as Landlord shall reasonably request.

25.4      Certifications of Compliance. Simultaneously with the delivery of the
annual and quarterly financial statements contemplated by Sections 25.2 and 25.3
and the monthly financial information contemplated under Section 25.6, Tenant
shall deliver to Landlord an Officer’s Certificate in the form of Exhibit D
attached hereto and dated as of the date of such delivery.

25.5      Annual Budgets. At least thirty (30) days prior to the commencement of
each subsequent Fiscal Year during the Term, Tenant shall deliver to Landlord an
Annual Budget presented on a consolidated basis (which include Facility-level
information), as well as a property-by-property basis for the ensuing Fiscal
Year and, promptly after preparation thereof, any subsequent revisions to the
Annual Budget.

 

 

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25.6      Monthly Financial Information. To the extent not already furnished
under Section 8.2.3.4, as soon as available, and in any event within thirty (30)
days after the end of each calendar month, Tenant shall deliver to Landlord,
presented on a consolidated basis (which include Facility-level information), as
well as a property-by-property basis, monthly, rolling twelve-month and
year-to-date unaudited financial statements prepared for the applicable month
with respect to Tenant, including a balance sheet and operating statement as of
the end of such month and further including related statements of cash flows for
such month and for the portion of the Fiscal Year ending with such month, which
statements shall be accompanied by an Officer’s Certificate certifying (i) that
the same are true and correct and were prepared in accordance with GAAP, applied
on a consistent basis, subject to changes resulting from audit and normal
year-end audit adjustments, and (ii) as to any material variances from the
approved Annual Budget on a line-item basis. Each monthly report shall show the
separate operations of each Leased Property, including, without limitation, the
monthly cash flow and Census Information for such Leased Property. Each such
monthly report shall be accompanied by the following: (1) a statement setting
forth in reasonable detail the calculation of Net Operating Income for each
Facility for the trailing twelve (12) months, in each case, ending at the end of
the calendar month as to which such statement is being delivered; (2) a then
current occupancy report for each Facility; (3) a monthly summary of accounts
receivable with respect to each Facility and all of the Facilities in form
acceptable to Landlord; and (4) such other information as Landlord shall
reasonably request.

25.7      Authorizations. Within ten (10) days after Landlord’s written request
therefor, Tenant shall deliver to Landlord copies of any and all Authorizations
(together with any renewals or extensions therefor) certified by Tenant as
accurate and complete in an Officer’s Certificate.

25.8      Actuarial Reports. Promptly (and in any event no later than ten (10)
days) after Tenant’s receipt thereof, Tenant shall deliver to Landlord a
complete copy of any Actuarial Report(s) received by Tenant.

25.9      Survey Deficiency Summary Reports. Within ten (10) days after
Landlord’s request therefor, Tenant shall deliver to Landlord a consolidated
survey deficiency summary report, indicating for each Facility whether any
survey, citation or report alleging any deficiency with respect to such Facility
has been issued during the prior fiscal quarter and, if so, setting forth the
identity of the Governmental Authority that issued such survey, citation or
report, a description of the alleged deficiency and the timetable or deadline
for remedying same and Tenant’s plan for curing such deficiency and any other
plan of correction. Tenant shall also deliver to Landlord within ten (10) days
after written request therefor by Landlord any other Facility specific survey
reports reasonably requested by Landlord.

25.10

[Intentionally Omitted]

 

 

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25.11    Financial Statements of Guarantor. Tenant shall cause each Guarantor to
deliver to Landlord on a timely basis the annual financial statements, and
Officer’s Certificates, that are required by the terms of each Lease Guaranty.

25.12    Estoppel Certificates. Upon request by Landlord in connection with a
proposed sale or refinancing of any Leased Property(ies) by Landlord or
otherwise (and, in the case of any such request, in any case within ten (10)
days), Tenant shall deliver an “Estoppel Certificate” in form and substance
satisfactory to Landlord and certifying as to the matters described in Exhibit E
attached thereto. Each such Estoppel Certificate shall be certified to Landlord
and Landlord’s designees and may be relied upon by Landlord and its designees.
Any Estoppel Certificate shall, at Landlord’s request, be delivered together
with complete and accurate copies (originals of which shall be made available
for inspection upon request by Landlord) of all licenses, permits and other
Authorizations necessary to operate the Facilities in accordance with all
applicable laws.

25.13    SEC Reports. As soon as reasonably available, Tenant shall deliver to
Landlord copies of any Forms 10K, 10Q and 8K, and any other annual, quarterly,
monthly or other reports, copies of all registration statements and any other
public information that any Tenant, any Guarantor, any ParentCo or any Affiliate
of any Tenant, any Guarantor or any ParentCo files with the SEC or any other
Governmental Authority. Promptly upon the furnishing thereof to the shareholders
of any Tenant, any Guarantor, any ParentCo or any Affiliate of any Tenant, any
Guarantor or any ParentCo, Tenant shall deliver to Landlord copies of all
statements, reports, notices and proxy statements so furnished. Tenant shall not
be deemed in default on account of any failure to furnish any of the materials
described in this Section 25.13 if such materials are publicly filed on a
scheduled basis and are readily available to Landlord, at little or no charge,
through on-line public information data bases maintained by ParentCo. If any of
the materials described in this Section 25.13 are available in electronic
format, then upon Landlord’s written request therefor, Tenant shall promptly
furnish such electronic copies to Landlord

25.14    Supplemental Information. Tenant shall deliver to Landlord such
supplements to the foregoing documents, and such other information and reports
(including, without limitation, non-financial information), as Landlord or any
Facility Mortgagee may reasonably request from time to time, provided such
supplements, and such information and reports, are consistent with the types of
supplements, reports and information generally utilized by institutions within
the healthcare or financing industry.

25.15    Facility Level Meetings and Reviews. Upon reasonable advance written
request by Landlord (provided no such written request shall be required with
respect to any Jeopardy Event), Tenant shall permit and shall make appropriate
arrangements for, Landlord and/or Landlord’s Representatives to discuss the
affairs, operations, finances and accounts of each Tenant, each Guarantor and
their respective Affiliates with, and be advised as to the same by, senior
officers of each Tenant (and such of each Tenant’s independent accountants and
other financial advisors as would be relevant to the topic(s) of the particular

 

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meeting), all as Landlord may deem appropriate for the purpose of verifying any
report(s) delivered by Tenant to Landlord under this Lease or for otherwise
ascertaining compliance with this Lease by Tenant or the business, operational
or financial condition of each Tenant, each Guarantor and/or their respective
Affiliates and/or any of the Facilities. Without limitation of the foregoing,
from time to time promptly following receipt of written notice from Landlord to
Tenant (and in any event within ten (10) Business Days of such receipt), Tenant
shall permit, and shall make appropriate arrangements for, Landlord and/or
Landlord’s Representatives to discuss the business, operational and financial
condition of specific Facility(ies) designated by Landlord with, and be advised
as to the same by, appropriate personnel of Tenant and its Affiliates having
operational and accounting responsibilities for the Facility(ies) so specified
by Landlord and to review, and make abstracts from and copies of, the books,
accounts and records of Tenant and its Affiliates relative to any such
Facility(ies). Unless otherwise agreed in writing by Landlord and Tenant, all of
the discussions, reviews, abstracting and copying referenced in this
Section 25.15 shall occur during normal business hours.

25.16    Format. Notwithstanding anything contained herein to the contrary,
Tenant shall deliver to Landlord the financial information, statements, reports,
operating budgets and other financial data contemplated by Section 25 in
electronic form, and if an electronic form is not available, a format acceptable
to Landlord in the exercise of its reasonable discretion.

26.        Landlord’s Right to Inspect. Tenant shall permit Landlord, Landlord’s
Representatives, any then current or prospective Facility Mortgagee or other
lender to Landlord, any then current or prospective investment banker, mortgage
broker or other professional engaged by Landlord, any prospective purchaser of
any Leased Property or any investor in Landlord or any Affiliate of Landlord
and/or any prospective lessee, and its and their respective authorized
representatives, to enter upon and conduct a physical inspection of any Leased
Property at Landlord’s expense (unless such item is otherwise expressly required
to be performed at Tenant's or any Tenant Party's expense pursuant to this Lease
or any other agreement between Landlord and Tenant or any Tenant Party) during
normal business hours and, except in an emergency, upon not less than five (5)
days’ prior written notice, subject to any security, health, safety or
confidentiality requirements of any Governmental Authority relating to the
Premises, or imposed by law or applicable regulations or any insurance
requirement, and provided that no such entry or inspection shall materially
interfere with Tenant’s business operations within the affected Leased
Property(ies). Nothing contained in this Section 26 shall limit or impair
Landlord’s right to immediately enter upon and inspect the Premises, or any of
Landlord’s other rights or remedies, upon the occurrence of any Event of Default
by Tenant.

27.        No Waiver. No failure by Landlord or Tenant to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the

 

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extent permitted by law, no waiver of any breach shall affect or alter this
Lease, which shall continue in full force and effect with respect to any other
then existing or subsequent breach.

28.        Single Lease. Tenant hereby acknowledges that the agreement between
Landlord and Tenant to treat this Lease as single lease in all respects was and
is of primary importance to Landlord, and Landlord would not have entered into
this Lease without there being such an agreement and such treatment of this
Lease. All rights and obligations under this Lease relating to the Premises
shall apply to each Leased Property and any default under this Lease pertaining
to a single Leased Property or to the Premises or any portion thereof shall be
an Event of Default pertaining to the Premises and each Leased Property. Without
limiting the generality of the foregoing, the parties hereto acknowledge that,
notwithstanding any references herein to any individual Leased Property and
notwithstanding the possibility that certain individual Leased Properties may be
deleted herefrom pursuant to the express provisions of this Lease under certain
limited circumstances, the parties hereto expressly intend and agree that this
Lease is not divisible and shall be treated as a single lease for all purposes
whatsoever (including, without limitation, in the context of Tenant’s attempted
rejection, assumption and/or assignment of this Lease in any bankruptcy or other
insolvency proceeding affecting any Tenant, in which case the parties hereto
intend for such rejection to terminate this Lease with respect to the entire
Premises or such assumption to apply with respect to the entire Premises, i.e.,
all but not less than all of the Leased Properties). Notwithstanding anything
contained in this Section 28 or elsewhere in this Lease to the contrary, the
existence of Tenant’s Proportionate Share and the allocations of Rent described
in Section 3.1.2 hereof and elsewhere in this Lease do not change the joint and
several nature of each Tenant’s obligation to pay all Rent owing hereunder as
provided in Section 1.3 above. This Lease does not constitute, and may not be
enforced (except at Landlord’s sole discretion in connection with a Limited
Termination Election) or treated as, a separate lease for any individual Leased
Property. Notwithstanding the foregoing, the right of possession and leasehold
right granted to each Tenant hereunder is limited as provided in Section 1.3
above.

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

30.        No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same Person may
acquire, own or hold, directly or indirectly, (i) this Lease or the leasehold
estate created hereby or any interest in this Lease or such leasehold estate and
(ii) the fee estate in any Leased Property.

31.        Conveyance by Landlord. Landlord may, without the consent or approval
of Tenant, sell, transfer, assign, pledge, encumber, hypothecate, convey or
otherwise dispose of all or any portion of the Premises. If Landlord or any
successor owner of any Leased Property shall sell, transfer, assign, convey or
otherwise dispose of any Leased Property in accordance

 

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with the terms hereof other than as security for a debt, and the purchaser,
grantee, assignee or transferee of the Leased Property(ies) shall expressly
assume all obligations of Landlord hereunder with respect to such Leased
Property(ies) arising or accruing from and after the date of such sale,
conveyance, transfer, assignment or other disposition, Landlord or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of Landlord under this Lease with respect to such
Leased Property(ies) arising or accruing from and after the date of such sale,
conveyance, transfer, assignment or other disposition as to such Leased
Property(ies) and all such future liabilities and obligations with respect to
such Leased Property(ies) shall thereupon be binding upon such purchaser,
grantee, assignee or transferee. In the event of any such sale, transfer,
assignment, conveyance or other disposition (other than as security for a debt)
of less than all of the Premises, the provisions of Section 40 hereof governing
New Leases shall apply.

32.        Quiet Enjoyment. So long as Tenant shall pay all Rent as the same
becomes due and shall fully comply with all of the terms of this Lease and fully
perform its obligations hereunder, Tenant shall peaceably and quietly enjoy each
Leased Property for the Term hereof, free of any claim, interruption or other
action by Landlord or anyone claiming through Landlord, but subject to all
Permitted Encumbrances. No failure by Landlord to comply with the foregoing
covenant shall give Tenant any right to abate, reduce or make a deduction from
or offset against the Rent or any other sum payable under this Lease, or to fail
to perform any other obligation of Tenant hereunder. Notwithstanding the
foregoing, Tenant shall have all rights and remedies available at law or in
equity, except as otherwise provided herein, by separate and independent action,
to pursue any claim or claims it may have against Landlord as a result of any
breach by Landlord of the covenant of quiet enjoyment contained in this
Section 32.

33.        Notices. All notices, demands, requests, consents, approvals and
other communications hereunder shall be in writing and delivered (i) by mail
(registered or certified mail, return receipt requested), in which case such
notice shall be deemed received three (3) Business Days after its deposit, (ii)
by confirmed facsimile, in which case such notice shall be deemed received the
next Business Day, or (iii) by reputable nationally recognized overnight courier
service, in which case such notice shall be deemed received the next Business
Day, addressed to the respective parties, as follows:

(a)

if to any Tenant:

Capital Senior Living Corporation

300 Park Avenue

Suite #1700

New York, New York 10022

Attn: Lawrence A. Cohen

Fax: (212) 551-1774

 

 

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With a copy to:

 

Capital Senior Living Corporation

14160 Dallas Parkway

Suite #300

Dallas, Texas 75254

Attn: David Brickman

Fax: (972) 770-5666

 

(b)

if to Landlord:

Ventas Georgetowne, LLC

c/o Ventas, Inc.

10350 Ormsby Park Place, Suite 300

Louisville, Kentucky 40223

Attention: Lease Administration

Facsimile: (502) 357-9001

 

With a copy to:

Ventas, Inc.

10350 Ormsby Park Place, Suite 300

Louisville, Kentucky 40223

Attention: General Counsel

Facsimile: (502) 357-9029

or to such other address as either party may hereunder designate in writing.

34.        General REIT Provisions. Tenant understands that, in order for
Landlord’s Affiliate, Ventas, Inc., to qualify as a REIT, certain requirements
(the “REIT Requirements”) must be satisfied, including, without limitation, the
provisions of Section 856 of the Code. Accordingly, Tenant agrees, and agrees to
cause its Affiliates, permitted subtenants, if any, and any other parties
subject to its control by ownership or contract, to reasonably cooperate with,
and to take such actions as are reasonably requested by, Landlord to ensure that
the REIT Requirements are satisfied, including, but not limited to, providing
Landlord or Ventas, Inc. with information about the ownership of Tenant and its
Affiliates.

35.        Transfer of Tenant’s Personal Property. Upon the expiration or
earlier termination of this Lease with respect to a Leased Property (unless such
termination is the result of Tenant’s purchase of such Leased Property), all
Tenant’s Personal Property relating to such Leased Property shall become the
property of Landlord, free of any lien, claim or encumbrance, and Tenant shall,
at its expense, take any actions reasonably necessary to discharge any
applicable lien, claim or encumbrance (and, relative to any Tenant’s Personal
Property that is leased by Tenant, Tenant agrees, at its expense, immediately to
acquire title

 

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thereto, in order to be able to convey title thereto to Landlord as provided in
this Section 35). Landlord acknowledges and agrees that neither Tenant’s
proprietary software nor Tenant’s trademarks nor Tenant’s accounts receivable
nor Tenant’s policy manuals are to be transferred to Landlord pursuant to this
Section 35. Tenant shall execute and deliver such assignments, conveyance
documents, bills of sale and other instruments as Landlord shall reasonably
require to evidence the conveyances and transfers referenced in this Section 35
and otherwise reasonably assist Landlord with such conveyances and transfers.

36.

Compliance With Environmental Laws.

36.1      Hazardous Substances. Tenant shall not place or hold any Hazardous
Substances under, on or at any of the Leased Properties, except as is necessary
or reasonable in the ordinary course of its business. If Tenant’s business
requires the use of any Hazardous Substances, other than such cleaning materials
as are typically found in healthcare facilities, Tenant shall notify Landlord in
writing and shall comply with hazard communication and notification requirements
of the Occupational Safety and Health Act and any other Environmental Laws with
respect to such Hazardous Substances. Tenant shall comply with all Environmental
Laws in connection with its use, operation and management of the Leased
Properties. Tenant shall not cause or allow any asbestos to be incorporated into
any Leased Improvements or Alterations that it makes or causes to be made on or
to any of the Leased Improvements. Tenant shall not use any of the Leased
Properties as a treatment, storage, or disposal (whether permanent or temporary)
facility for Hazardous Substances as defined under RCRA. If Tenant, in the
ordinary course of its business (e.g., customary cleaning supplies), generates
Hazardous Substances, then Tenant shall comply with all Environmental Laws
relating to the appropriate use, storage, transportation and disposal of
Hazardous Substances. Tenant further agrees that it shall properly, and in
compliance in all material respects with all Environmental Laws, dispose of all
“infectious waste” such as, without limitation, laboratory waste, pathological
waste, blood specimens or products, resident waste, including, without
limitation, bandages and disposable gowns, sharp waste and any material
generated by the production or testing of biological agents. All of the terms,
covenants, warranties and indemnifications contained in this Section 36 shall
survive the expiration or sooner termination of this Lease.

36.2      Remediation; Notification. If Tenant becomes aware of a material
violation of any Environmental Laws relating to any Hazardous Substance or
otherwise in, on, under or about any Leased Property or any adjacent property
thereto, or if Tenant, Landlord or a Leased Property becomes subject to any
order of any federal, state or local agency to repair, close, detoxify,
decontaminate or otherwise remediate such Leased Property, Tenant shall promptly
notify Landlord of such event and, at its sole cost and expense, cure such
violation or effect such repair, closure, detoxification, decontamination or
other remediation, which activities shall in all events be performed in
accordance with all applicable Environmental Laws and shall be subject to
Landlord’s written approval as to their scope, process, content and standard for
completion prior to their commencement, such approval not to be unreasonably
withheld. If Tenant fails to implement and diligently pursue any such cure,

 

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repair, closure, detoxification, decontamination or other remediation as
required under this Section 36.2, Landlord shall have the right, but not the
obligation, to carry out such action and to recover from Tenant all of
Landlord’s costs and expenses incurred in connection therewith. Each of Landlord
and Tenant shall promptly notify the other upon becoming aware (or being
notified) of (i) any claims, suits, proceedings, investigations or demands, or
any enforcement, cleanup or other regulatory or judicial action, threatened,
made, or initiated against or involving it and relating to any of the Leased
Properties pursuant to any Environmental Laws, including, without limitation,
those relating to the presence, treatment, storage, handling, disposal,
generation, spill, release or discharge of any Hazardous Substances on, at, in,
under or about the Leased Properties or the migration thereof from or to any
other property; and (ii) the imposition of any lien arising under Environmental
Laws on any of the Leased Properties.

36.3      Indemnity. Tenant shall indemnify, defend, protect, save, hold
Landlord and all of the Landlord Indemnified Parties harmless from and against
any and all Losses (including, but not limited to, losses of use or economic
benefit or diminution in value) suffered or incurred by Landlord or any Landlord
Indemnified Parties in connection with, arising out of, resulting from or
incident to: (i) the production, use, generation, storage, treatment,
transporting, disposal, discharge, release or other handling or disposition of
any Hazardous Substances from, in, on or about any of the Leased Properties,
whenever caused, arising or occurring, except to the extent caused by Landlord
or any of the Landlord Indemnified Parties from and after the date hereof; (ii)
the presence of any Hazardous Substances in, on, under or about any Leased
Properties before the Commencement Date or during the Term; (iii) the violation
of any Environmental Laws with respect to any Leased Property during the Term or
prior to the Commencement Date; and (iv) any breach by Tenant or any Tenant
Parties of this Section 36.

36.4      Environmental Inspection. Landlord shall have the right, upon not less
than five (5) days’ written notice to Tenant, except in the case of an
emergency, in which event no notice shall be required, to conduct an inspection
of any Leased Property to determine the existence or presence of Hazardous
Substances at, in, on, under or about any Leased Property in violation of any
Environmental Laws or the existence at any Leased Property of any violation of
any Environmental Laws. Landlord shall have the right to enter and inspect any
Leased Property and to conduct any testing, sampling and analyses reasonably
necessary and shall further have the right to inspect materials brought into any
Leased Property. Landlord may, in its discretion, retain such experts to conduct
the inspections, or perform the tests, referred to herein, and to prepare a
written report in connection therewith. Landlord shall have the right to inspect
the Leased Properties with regard to the management and disposal of Hazardous
Substances at all reasonable times during the Term. All reasonable costs and
expenses incurred by Landlord under this Section 36.4 shall be paid by Tenant as
Consent Expenses.

36.5      Removal. Upon the earlier of the expiration or earlier termination of
this Lease as to one or more Leased Properties, Tenant shall forthwith remove
all Hazardous Substances from any portion of the Leased Properties as to which
such expiration or

 

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termination relates, to the extent such Hazardous Substances are present due to
the acts or omissions of Tenant or any Tenant Parties, which removal shall be
performed in accordance with any Environmental Laws and to Landlord’s
satisfaction.

37.

Operational Transfer.

 

 

37.1

Exercise; Transfer of Authorizations.

37.1.1         Exercise. Upon (i) the expiration of this Lease as to any Leased
Property in accordance with its terms as of the Expiration Date applicable to
such Leased Property, (ii) the occurrence of an Early Termination Event as to
any Leased Property (including any Deleted Property) or (iii) the earlier
dispossession of Tenant from any Leased Property, Landlord shall have the
unequivocal, unilateral right to require an Operational Transfer with respect to
such Leased Property (any Leased Property with respect to which Landlord elects
to require an Operational Transfer, a “Transition Property”) by delivery of
written notice to Tenant specifying such election (a “Transition Notice”).
Landlord may exercise (in its sole discretion) its right to require an
Operational Transfer, with respect to any Leased Property with respect to which
this Lease will terminate by its terms as of the Expiration Date applicable to
such Leased Property, by delivering a Transition Notice on or prior to ten (10)
days prior to such Expiration Date. In the event of an Early Termination Event
as to any Leased Property or dispossession of Tenant with respect to any Leased
Property, Landlord may exercise (in its sole discretion) its right to require an
Operational Transfer with respect to such Leased Property at any time by
delivering a Transition Notice to Tenant.

37.1.2         Transfer of Authorizations. If Landlord exercises its right to
require an Operational Transfer with respect to a particular Leased
Property(ies), Tenant shall take any and all necessary actions; file such
applications, petitions, and transfer notices; make such assignments,
conveyances and transfers of permits, licenses, approvals and Facility Provider
Agreements issued to Tenant to and for the benefit of Landlord and/or any
Landlord’s designee (any such designee, a “Successor Operator”); and cause such
permits, licenses, approvals and Facility Provider Agreements to be issued to
and for the benefit of Landlord and/or any Successor Operator, in any and all
such cases as are necessary, desirable, or advisable, such that the day-to-day
operations of the Transition Property(ies) for the Primary Intended Use(s) of
the Facility(ies) located on such Transition Property(ies) are transferred and
transitioned, practically and legally, to Landlord and/or any Successor Operator
simultaneously with the termination or earlier expiration of this Lease as to
the Transition Property(ies) without interruption of the business activities
therein, regulatory or otherwise (such transfer of operations, an “Operational
Transfer”). Without limitation of the foregoing or any other rights of Landlord
or any Successor Operator as set forth in this Section 37, as part of any
Operational Transfer, Tenant shall, to the extent permitted by applicable law,
(i) sell, transfer, convey and assign to Landlord and/or any Successor Operator,
as applicable, those of the Authorizations that Landlord elects to assume and
accept (or cause Successor Operator to assume and accept) (the “Assigned
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Operator to continue to rely upon any Authorizations (including, but not limited
to, any Facility Provider Agreements); (ii) use its unconditional, best efforts
to enable Landlord and/or Successor Operator to apply for and obtain any and all
licenses, operating permits, Provider Agreements, provider status, certificates
of need, certificates of exemption, approvals, waivers, variances and other
governmental, quasi-governmental and private authorizations necessary or
advisable for the continuous operation of the Facility(ies) located on each
Transition Property for its/their Primary Intended Use(s) (collectively,
“Transfer Authorizations”); (iii) assign to Landlord or any Successor Operator,
as applicable, such assignable resident, vendor, service provider and other
contracts relating to the Facility(ies) located on each Transition Property as
Landlord or any Successor Operator may request (the “Assigned Contracts”); (iv)
if requested by Landlord, enter into an operations transfer agreement with
Landlord or Successor Operator, as applicable, that is reasonably acceptable to
Landlord; (v) not unreasonably withhold, condition or delay its consent to
entering into any interim sublease or management agreements as may be necessary
to effectuate an early transfer of the operations of the Facility(ies) located
on each Transition Property for its/their Primary Intended Use(s) prior to the
time that Landlord or Successor Operator, as applicable, holds all
Authorizations from all applicable Governmental Authorities necessary to so
operate such Facility(ies); and (vi) indemnify, defend, protect and hold
harmless Landlord and any Successor Operator from and against any loss, damage,
cost or expense incurred by Landlord or Successor Operator in connection with
the correction of any and all deficiencies of a physical nature identified by
any Governmental Authority in the course of any Operational Transfer. Except as
may be expressly assumed and paid by any successor third party operator, the
costs and expenses incident to any Operational Transfer, including, but not
limited to, any costs incident to assigning the Assigned Authorizations,
obtaining Transfer Authorizations and assigning the Assigned Contracts, shall be
paid entirely by Tenant as Consent Expenses. It is the express intention of the
parties that, at the expiration or earlier termination of the Term as to each
Transition Property, and upon any dispossession of Tenant in connection with any
Event of Default as to any Facility(ies) located on a Transition Property, any
and all Authorizations needed to operate each Transition Property as to which
the Term is expired or terminated, or as to which Tenant has been dispossessed,
for its/their Primary Intended Use(s) shall, to the maximum extent permitted by
applicable law, and if Landlord so elects, remain with such Facility(ies) and
shall be transferred into the name of Landlord and/or Successor Operator, as
applicable, regardless of whether any such Authorization is in the name of
Tenant at any time during the Term.

37.2      Reasonable Assistance. In anticipation of the expiration of this Lease
as to any Leased Property, or upon any Early Termination Event as to any Leased
Property, or the earlier dispossession of Tenant with respect to any Leased
Property, Tenant shall cooperate with Landlord in all respects to facilitate and
effectuate an Operational Transfer if Landlord elects to require an Operational
Transfer. Such cooperation shall include, without limitation: (i) furnishing to
Landlord or any prospective Successor Operator complete and accurate books,
records, files, documents and information in Tenant’s possession, custody or
control necessary or reasonably requested by Landlord or Successor Operator in
connection with any Operational Transfer, the assessment and/or assumption of
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and/or the completion and processing of any applications for the assignment of
the Assigned Authorizations or the Assigned Contracts or obtaining Transfer
Authorizations; and (ii) facilitating the evaluation and employment by Landlord
or any prospective Successor Operator of such employees of Tenant or its
Affiliates (or any third party employment agency with whom Tenant or its
Affiliates has an agreement pursuant to which such agency employs such parties)
as Landlord or Successor Operator may elect to evaluate or employ, including,
without limitation, to the extent permitted by law, affording Landlord or
Successor Operator, as applicable, access to all relevant personnel files,
records, documents and information in Tenant’s or its Affiliates’ possession,
custody or control.

37.3      Facility Termination; Limited Term Contraction Right; Limited Extended
Operation by Tenant.

37.3.1         Facility Termination. Notwithstanding anything to the contrary
contained in this Lease, Tenant shall not, prior to the fifteenth (15th) day
preceding the Expiration Date applicable to each Leased Property, commence to
wind up and terminate the operations of the Facility(ies) operated thereon (a
“Facility Termination”). In no event, and under no circumstances, shall any
Tenant relocate the residents or occupants of any Facility to any other
healthcare facility without obtaining Landlord’s prior written consent (which
consent may be withheld in Landlord’s sole discretion); provided, however, that,
if Landlord has not delivered a Transition Notice to Tenant prior to the
fifteenth (15th) day preceding the Expiration Date applicable under this Lease
to a particular Leased Property, then Tenant may commence the Facility
Termination (including the relocation of residents) as to the Facility(ies)
located on such Leased Property and, upon the expiration of this Lease as to
such Leased Property and Facility(ies), Tenant shall vacate such Leased Property
and surrender possession thereof to Landlord in accordance with all of the
applicable requirements of this Lease. If, prior to the fifteenth (15th) day
preceding the Expiration Date applicable under this Lease to a particular Leased
Property, Landlord elects to require an Operational Transfer by delivering a
Transition Notice to Tenant, Tenant shall not commence or otherwise engage in a
Facility Termination with respect to the Facility(ies) located on such Leased
Property. In the event of an Early Termination Event or early dispossession of
Tenant with respect to any Leased Property, Tenant shall in no event commence a
Facility Termination in connection with the applicable Leased Property unless
and until Landlord affirmatively elects, in writing and in its sole discretion,
not to deliver a Transition Notice with respect to such Leased Property.

37.3.2         Limited Term Contraction Right. Landlord shall have the right, as
to each Leased Property, to elect to contract the Term, and accelerate the
Expiration Date, of this Lease as it applies to such Leased Property. To
exercise such election and right as to a particular Leased Property, Landlord
shall give a written notice (a “Contraction Notice”) to Tenant specifying the
revised, earlier Expiration Date that will, for all purposes of this Lease,
thereafter be applicable to such Leased Property, which revised, earlier
Expiration Date so specified by Landlord shall be (i) not more than one hundred
twenty (120) days prior to the Initial Expiration Date, (ii) no sooner than
sixty (60) days after the date of Landlord’s aforesaid Contraction Notice, and
(iii) binding upon Landlord and Tenant upon Landlord’s

 

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issuance of such Contraction Notice. Landlord may issue one, but not more than
one, Contraction Notice as to each Leased Property.

37.3.3         Limited Extended Operation by Tenant. In the event Landlord
delivers a Transition Notice as to a particular Transition Property, Tenant
shall thereafter operate the Facility(ies) located on such Transition Property
in accordance with all of the requirements of this Lease until the earliest to
occur of (i) the date (on or after the expiration of this Lease as to such
Transition Property and Facility(ies)) on which Landlord or Successor Operator,
as applicable, will assume the operation of such Facility(ies), as specified in
a written notice from Landlord to Tenant given not less than sixty (60) days
prior to the date of such assumption; (ii) the date that is one hundred twenty
(120) days after the Expiration Date applicable to such Transition Property and
Facility(ies) (except that in connection with any Early Termination Event or any
early dispossession of Tenant with respect to any Leased Property, such one
hundred twenty (120) day period shall not commence until Landlord delivers a
Transition Notice as to the applicable Leased Property); and (iii) the date (on
or after the Expiration Date applicable to any Transition Property and
Facility(ies)) that is ninety (90) days after Tenant receives written notice
from Landlord that, notwithstanding the foregoing, Tenant may commence the
Facility Termination, on which earliest date, Tenant shall vacate the Leased
Property in question and surrender possession thereof to Landlord in accordance
with all of the applicable requirements of this Lease. In the event Landlord
sends Tenant a Transition Notice with respect to a Leased Property as to which
this Lease has terminated as of the Expiration Date applicable to such Leased
Property (e.g.. not in the case of an Early Termination Event or early
dispossession of Tenant), and, as a result thereof, Tenant operates a
Facility(ies) beyond the aforesaid Expiration Date applicable to such Leased
Property, then, from and after the expiration of this Lease as to such Leased
Property and until the earliest to occur of the dates described in clauses (i),
(ii) and (iii) above relative to such Leased Property (the “Reimbursement
Period”), (x) Landlord shall provide Tenant with an operating budget, (y)
Landlord shall include in the aforesaid operating budget, and Tenant shall
continue to pay during the Reimbursement Period, all Rent that would have been
owing under this Lease as to such Leased Property if this Lease had not expired
as to such Leased Property, and (z) Landlord shall reimburse Tenant for any
operating deficits with respect to such Leased Property that Tenant may be
required to fund out-of-pocket on account of operating losses and expenses of
such Leased Property incurred by Tenant by reason of, or arising out of
compliance with, such budget with respect to the Reimbursement Period applicable
to such Leased Property. Any such reimbursement shall be due from Landlord to
Tenant within thirty (30) days after written request by Tenant, provided that
Tenant shall furnish such documentation of any operating deficits, losses and
expenses as Landlord may reasonably request. The terms of this Section 37 shall
survive the expiration or sooner termination of this Lease.

37.4      Use of Tenant’s Names. Without limitation of the other provisions of
this Section 37 and notwithstanding anything to the contrary contained in this
Lease, Tenant agrees to allow Landlord or any Successor Operator, at its option
and at no cost to Landlord or any such Successor Operator, to continue to use,
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materials, operations and otherwise, any or all name(s) of Tenant and its
Affiliates (including, without limitation, tradenames) associated with the
operation of a particular Leased Property and related Facility as a going
concern except Landlord, its affiliate or assign shall not use “Capital Senior
Living” or any variation thereof (e.g., CSL) following (i) the expiration or
termination of this Lease as it applies to such Leased Property and Facility and
(ii) the vacation from, and surrender of, such Leased Property and Facility by
Tenant in accordance with this Section 37 and the other requirements of this
Lease. As to any name (including, without limitation, any trade name) or any
portion thereof that is associated solely with any Leased Property and related
Facility, it is understood that any such name is and shall at all times remain
the property of Landlord, and that Tenant shall have a license (to the full
extent, if any, that Landlord is entitled to do so) to use such property or
facility name(s) during the Term hereof, but that Landlord makes no
representations or warranties regarding said license or said name(s) and that
any failure of other defect in such name(s) shall not give rise to any claim,
defense or other matter whatsoever.

38.        Non-Recourse. Tenant specifically agrees to look solely to Landlord’s
and any successor owner’s interest in the then applicable Premises for recovery
of any judgment against Landlord, it being specifically agreed that neither
Landlord, any such successor owner, nor any officer, director, employee, lender,
agent or Affiliate of Landlord or any such successor owner shall ever be
personally liable for any such judgment or for the payment of any monetary
obligation to Tenant. Tenant shall have no recourse against any other property
or assets of Landlord or any successor owner, or against any property or assets
of any officer, director, employee, lender, agent or Affiliate of Landlord or
any successor owner. Furthermore, in no event shall Landlord (original or
successor) ever be liable to Tenant for any special, indirect or consequential
damages suffered by Tenant from whatever cause. Landlord shall have no recourse
against Tenant’s officers and directors personally for any judgment against
Tenant; provided, however, that said limitation shall not apply if and to the
extent that Landlord has a claim that would otherwise be covered by a directors’
and officers’ (i.e., “D&O”) liability policy or any other applicable policy of
insurance.

39.        Combination of Leases. If Landlord is the landlord under both this
Lease and any Other Lease, Landlord shall have the right, at any time during the
Term, by written notice to Tenant, to require that this Lease and such Other
Lease (the “Combination Lease”) be combined into a single lease and to require
Tenant to execute an amendment to this Lease whereby (i) if this Lease is the
Section 39 Lease, the Leased Properties covered by the Combination Lease
(“Additional Properties”) are added as Leased Properties under this Lease and
otherwise merged into this Lease or (ii) if the Combination Lease is the Section
39 Lease, the Leased Properties covered by this Lease are added as Leased
Properties under the Combination Lease and otherwise merged into the Combination
Lease, in each case subject to the following terms and conditions:

39.1      Section 39 Lease. References in this Lease to the “Section 39 Lease”
shall mean and refer to whichever of this Lease or the Combination Lease is
chosen by Landlord to be the Section 39 Lease.

 

 

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39.2      Additional Properties. If this Lease is the Section 39 Lease,
effective as of the date specified in Section 39.4 below (the “Section 39
Date”), this Lease shall be deemed to be amended as follows:

39.2.1         The Additional Properties shall be included as Leased Properties
under this Lease and the appropriate exhibits to this Lease shall be amended to
add the addresses and legal descriptions of such Additional Properties.

39.2.2         Fixed Rent under this Lease shall be the combination of the
respective amounts of the Fixed Rent under this Lease and the Combination Lease.

39.2.3         Any rental escalations that are to be made with respect to the
Leased Properties under this Lease shall also be made with respect to the
Additional Properties as if such Additional Properties had been Leased
Properties under this Lease since the beginning of the Term.

39.2.4         Schedule 2 to this Lease shall be amended so as to add thereto
the Tenant’s Proportionate Share(s) relative to the Tenant(s) under the
Combination Lease that was/were previously included in Schedule 2 to the
Combination Lease, and the Tenant’s Proportionate Share(s) of the Tenant(s)
included in this Lease (including, without limitation, the additional Tenant(s)
from the Combination Lease) shall be recalculated so that each such Tenant shall
have a Tenant’s Proportionate Share equal to the percentage that the Fixed Rent
allocable to the Facility(ies) operated by such Tenant (which allocable portion
of Fixed Rent shall remain equal to the share of Fixed Rent that was allocated
to such Facility(ies) under this Lease or the Combination Lease, as applicable,
prior to the combination of the Leases pursuant to this Section 39) comprises of
the aggregate Fixed Rents for all Leased Properties included in this Lease
(including, without limitation, the Additional Properties) and so that the
aggregate of all Tenant’s Proportionate Shares equals one hundred percent
(100%).

39.2.5         Tenant under this Lease shall be responsible for the payment,
performance and satisfaction of all duties, obligations and liabilities arising
under the Combination Lease, insofar as they relate to the Additional
Properties, that were not paid, performed and satisfied in full prior to the
Section 39 Date, and, without limitation of the foregoing, (i) any Event of
Default that had occurred, arisen or accrued under the Combination Lease prior
to the Section 39 Date shall be, and shall be deemed to be, an Event of Default
under this Lease, as to which the rights and remedies and other provisions of
this Lease shall be applicable, (ii) any breach or default that had occurred,
arisen or accrued under the Combination Lease prior to the Section 39 Date but
had not yet become an Event of Default under the Combination Lease as of the
Section 39 Date shall be, and be deemed to be, a breach or default under this
Lease, as to which the cure periods, rights and remedies and other provisions of
this Lease shall be applicable, and (iii) with respect to any breach or default
described in subsection (ii) above, although the cure periods, rights and
remedies and other provisions of this Lease shall be applicable, the portion of
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Combination Lease that had elapsed as of the Section 39 Date shall be counted in
determining whether and when the applicable cure period under this Lease has
expired.

39.2.6         The Additional Properties shall otherwise be incorporated into
this Lease as Leased Properties included under this Lease the same as if this
Lease, from the inception of the Lease, had included such Leased Properties as
Leased Properties hereunder on the rent, lease terms and other economic terms
described in the Combination Lease (and, in such regard, any provisions of the
Combination Lease that apply particularly, or in a particular manner, to any or
all of the Additional Properties shall continue to apply thereto under this
Lease (e.g.. if an Additional Property is located in a particular jurisdiction
and, under Section 46 of the Combination Lease, particular provisions apply
thereto on account thereof, such provisions shall continue to apply to such
Additional Property under this Lease, as the Section 39 Lease)).

39.2.7         Exhibit C attached hereto and the Base Year Resident Revenues
shall thereafter be amended and increased, respectively, to include the
Additional Properties and increase the Base Year Resident Revenues by the amount
of the Allocated Base Year Resident Revenues applicable to the Additional
Properties.

39.3      Combination Lease. If this Lease is not the Section 39 Lease,
effective as of the Section 39 Date, this Lease shall be amended as necessary
(i) to incorporate into the Combination Lease as Leased Properties thereunder
the Leased Properties covered by this Lease the same as if the Leased Properties
covered by this Lease had, from the inception of this Lease, been included in
the Combination Lease as Leased Properties thereunder on the rent, lease terms
and other economic terms described in this Lease and (ii) otherwise to comply
with the requirements of Section 39 of the Combination Lease, as the Section 39
Lease thereunder. Tenant acknowledges and agrees that, without limitation of
Section 39.2.5 above, the amendment referenced in this Section 39.3 shall not
result in Tenant being released from any duties, liabilities or obligations that
had accrued under this Lease through the Section 39 Date.

39.4      Section 39 Date. In the case of any combination of leases pursuant to
this Section 39, such combination shall be effective on the date that is the
earlier of (i) the date the required amendments to the Lease and the Combination
Lease are fully executed and delivered by the parties thereto and (ii) the date
specified in the written notice from Landlord to Tenant requiring a combination
of this Lease and the Combination Lease as described above, which date shall be
no sooner than ten (10) days, nor later than sixty (60) days, after the date
such notice is issued.

39.5      Additional Actions. Landlord and each Tenant shall take such actions
and execute and deliver such documents, including, without limitation, required
amendments to this Lease and the Combination Lease, as are reasonably necessary
and appropriate to effectuate fully the provisions and intent of this Section 39
and, in the event any ambiguity, or actual or apparent conflict in the terms or
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arises on account of any combination of leases pursuant to this Section 39, such
ambiguity or conflict shall be resolved by Landlord, in its reasonable
discretion.

40.        New Lease. Landlord shall have the right, at any time and from time
to time during the Term, by written notice to Tenant, to require Tenant to
execute an amendment to this Lease whereby one or more Leased Properties
(individually, a “Transferred Premises” or collectively, “Transferred Premises”)
are separated and removed from this Lease, and simultaneously to execute a
substitute lease with respect to such Transferred Premises, in which case:

40.1      New Lease Terms. Landlord and Tenant shall execute a new lease (the
“New Lease”) for such Transferred Premises, effective as of the date specified
in Section 40.3 below (the “Property Transfer Date”), in the same form and
substance as this Lease, but with the following changes thereto:

40.1.1         Fixed Rent. The initial Fixed Rent for such Transferred Premises
shall be an amount equal to the product of (i) the sum of Tenant’s Proportionate
Shares applicable to all of the Facilities located on the Transferred Premises,
and (ii) aggregate Fixed Rent in effect under this Lease immediately prior to
the Property Transfer Date. The allocable share of Fixed Rent for each Tenant
under the New Lease shall be equal to the product of (x) Tenant’s Proportionate
Share for the Facility(ies) located on such Transferred Premises under the New
Lease, as calculated pursuant to Section 40.1.2, and (y) Fixed Rent under the
New Lease. Any rental escalations required under this Lease shall be made under
the New Lease on the same date and in the same manner as is required under this
Lease, in the full amount required as if such Transferred Premises had been
under the New Lease for a full year, notwithstanding that the period from the
Property Transfer Date to the rent escalation date may be less than one full
year. The Base Year Resident Revenues applicable to the Transferred Premises for
purposes of determining whether the Rent Escalation Condition under such New
Lease has been satisfied shall be equal to the aggregate of the Allocated Base
Year Resident Revenues for all of the Transferred Premises.

40.1.2         Proportionate Shares. An exhibit to such New Lease comparable to
Schedule 2 attached to this Lease shall include a Tenant’s Proportionate Share
for each Facility located on the Transferred Premises covered by the New Lease
equal to the percentage that the Fixed Rent allocable to such Facility under the
New Lease comprises of the aggregate Fixed Rent for all Facilities located on
all of the Transferred Premises under such New Lease (and the aggregate of all
such Tenant’s Proportionate Shares under such New Lease shall equal one hundred
percent (100%)).

40.1.3         Liabilities and Obligations. The New Lease shall provide that
each Tenant thereunder shall be responsible for the payment, performance and
satisfaction of all duties, obligations and liabilities arising under this
Lease, insofar as they relate to the Transferred Premises subject to the New
Lease, that were not paid, performed and satisfied in full prior to the
commencement date of the New Lease (and Tenant under this Lease shall also

 

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be responsible for the payment, performance and satisfaction of the aforesaid
duties, obligations and liabilities not paid, performed and satisfied in full
prior to the commencement date of such New Lease), and shall further provide
that the Tenant thereunder shall not be responsible for the payment, performance
or satisfaction of any duties, obligations and liabilities of Tenant under this
Lease arising after the Property Transfer Date.

40.1.4         Single Leased Property. If the New Lease relates to a single
Leased Property, the New Lease shall provide that (i) because, for example, such
New Lease may thereafter be amended by agreement of Landlord and Tenant to
include one or more other leased properties or such New Lease may thereafter be
combined with a Combination Lease pursuant to Section 39 of such New Lease, with
such New Lease as the Section 39 Lease, Landlord and Tenant under such New Lease
have, in creating such New Lease, nevertheless retained in such New Lease
references to multiple Leased Properties and provisions and terms that apply to
multiple Leased Properties and (ii) without limitation of and subject to
Section 39 of such New Lease, for so long as such New Lease relates to a single
Leased Property, the aforesaid references to multiple Leased Properties, and the
aforesaid provisions and terms applicable to multiple Leased Properties, shall,
if the context so requires in light of such New Lease relating to only a single
Leased Property, be treated as references to a single Leased Property or as
provisions and terms applicable to a single Leased Property.

40.1.5         Deletion of Provisions. At the election of Landlord, any one or
more of the provisions of the New Lease pertaining to the REIT status of Ventas,
Inc. shall be deleted. In addition, Landlord may delete and eliminate from such
New Lease such provisions herein as it elects, provided such deletion and
elimination do not materially and adversely affect the Tenant under such New
Lease.

40.1.6         Security Deposit; Escrow Deposits; Capital Expenditures Deposits.
Such New Lease shall contemplate both a security deposit and escrow and capital
expenditures deposits in the same manner or fashion as contemplated by this
Lease. Such amounts under the New Lease shall initially be funded by Landlord
from the Security Deposit held by Landlord and the escrow and capital
expenditures deposits held in the Escrow Account and Capital Expenditures
Account, with the Security Deposit under the New Lease to be equal to the
product of (i) the sum of Tenant’s Proportionate Shares applicable to all of the
Facilities located on the Transferred Premises and (ii) the aggregate Security
Deposit held by Landlord under this Lease immediately prior to the Property
Transfer Date and the initial amounts to be held in the escrow and capital
expenditures accounts under the New Lease to be determined as provided in
Section 11.3.4 hereof.

40.2      Amendments to this Lease. Upon execution of such New Lease, and
effective as of the Property Transfer Date, this Lease shall be deemed to be
amended as follows: (i) the Transferred Premises shall be excluded from the
Premises hereunder; (ii) Fixed Rent hereunder shall be reduced by the amount of
the Fixed Rent allocable to the Transferred Premises; (iii) Exhibit C attached
hereto and the Base Year Resident Revenues shall be amended and reduced,
respectively, to delete and eliminate the Transferred Premises

 

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therefrom and reduce the Base Year Resident Revenues by the amount of the
Allocated Base Year Resident Revenues applicable to the Transferred Premises for
purposes of determining whether the Rent Escalation Condition has been satisfied
or otherwise under this Lease; and (iv) Schedule 2 attached hereto shall be
modified so as to remove the Tenant’s Proportionate Shares for the Transferred
Premises, and the Tenant’s Proportionate Shares for the Leased Properties
remaining under this Lease shall be recalculated so that each such Facility
shall have a Tenant’s Proportionate Share equal to the percentage that the Fixed
Rent for such Facility comprises of the aggregate Fixed Rents for all Premises
remaining under this Lease, and so that the aggregate of all Tenant’s
Proportionate Shares remaining under this Lease equals 100%. Such amendments
shall occur automatically and without the necessity of any further action by
Landlord or Tenant, but, at Landlord’s election, the same shall be reflected in
a formal amendment to this Lease, which amendment shall be promptly executed by
Tenant.

40.3      Effective Date. Any New Lease shall be effective on the date which is
the earlier of: (i) the date the New Lease is fully executed and delivered by
the parties thereto and (ii) the date specified in the written notice from
Landlord to Tenant requiring a New Lease as described above, which date shall be
no sooner than ten (10) days, nor later than sixty (60) days, after the date
such notice is issued.

40.4      Other Undertakings. Tenant shall take such actions and execute and
deliver such documents, including without limitation the New Lease and new or
amended Memorandum(s) of Lease and, if requested by Landlord, an amendment to
this Lease, as are reasonably necessary and appropriate to effectuate fully the
provisions and intent of this Section 40, and Landlord shall execute and deliver
such new or amended Memorandum(s) of Lease as are reasonably necessary and
appropriate to effectuate fully the provisions and intent of this Section 40 and
an amendment of this Lease in accordance with Section 40.2 above, as applicable.

41.        Restrictive Covenant. Tenant, Guarantor and their respective
Affiliates shall be subject to the restrictive covenants and conditions
governing the ownership, leasing, management or operation of additional
healthcare facilities contained in Exhibit F attached hereto.

42.

Miscellaneous.

42.1      Survival. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Tenant or Landlord
arising prior to any date of expiration or termination of this Lease shall
survive such expiration or termination, and, without limitation of the
foregoing, Tenant’s obligation to pay any Rent owing hereunder with respect to
any period on or prior to the expiration or termination of this Lease, as this
Lease applies to any or all of the Premises, shall survive any such expiration
or termination.

42.2      Non-Business Day Payments. Notwithstanding anything herein to the
contrary, if any payment required to be made hereunder falls on a date that is
not a Business

 

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Day, then such required payment shall be made on the Business Day immediately
preceding the date on which such payment would otherwise be due.

42.3      Brokers. Tenant warrants that, it has not had any contact or dealings
with any Person that would give rise to the payment of any fee or brokerage
commission in connection with this Lease, and Tenant shall indemnify, protect,
hold harmless and defend Landlord from and against any liability with respect to
any fee or brokerage commission arising out of any act or omission of Tenant.
Landlord warrants that, it has not had any contact or dealings with any Person
that would give rise to the payment of any fee or brokerage commission in
connection with this Lease, and Landlord shall indemnify, protect, hold harmless
and defend Tenant from and against any liability with respect to any fee or
brokerage commission arising out of any act or omission of Landlord.

42.4      Headings. The headings in this Lease are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.

42.5      Counterparts. This Lease may be executed in any number of
counterparts, each of which shall be a valid and binding original, but all of
which together shall constitute one and the same instrument.

42.6      Integration; Modification; Interpretation; Relationship. This Lease
(including, without limitation, the preamble, recitals, schedules and exhibits
hereto, each of which is fully incorporated into and made a part of this Lease)
contains the entire agreement between Landlord and Tenant with respect to the
subject matter hereof; it being understood and agreed that nothing contained
herein modifies or waives that agreement signed by Landlord’s Affiliates and
Tenant’s affiliate dated as of April 28, 2005. Landlord and Tenant hereby agree
that all prior or contemporaneous oral understandings, agreements or
negotiations relative to the leasing of the Premises are merged into and revoked
by this Lease. No representations, warranties or agreements have been made by
Landlord except as set forth in this Lease. This Lease may be only be modified
by a writing signed by both Landlord and Tenant. Both Landlord and Tenant have
been represented by counsel, and this Lease and every provision hereof has been
freely and fairly negotiated. Consequently, all provisions of this Lease shall
be interpreted according to their fair meaning and shall not be strictly
construed against any party. The sole relationship between Landlord and Tenant
under this Lease is that of landlord and tenant. Nothing contained in this Lease
shall be deemed or construed by the parties hereto or by any third party to
create the relationship of principal and agent, borrower and lender,
partnership, joint venture or any association between Landlord and Tenant; it
being expressly understood and agreed that neither the method of computation of
rent nor any act of the parties hereto shall be deemed to create any
relationship between Landlord and Tenant other than the relationship of landlord
and tenant.

42.7      Time of Essence. Time is of the essence of this Lease and each
provision hereof in which time of performance is established.

 

 

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42.8      Force Majeure. In the event that either Landlord or Tenant is delayed
in performing its respective obligations pursuant to this Lease by any cause
beyond the reasonable control of the party required to perform such obligation,
the time period for performing such obligation shall be extended by a period of
time equal to the period of the delay. For purposes of this Lease: (i) a cause
shall be beyond the reasonable control of a party to this Lease when such cause
would affect any Person similarly situated (such as a power outage, labor
strike, Act of God or trucker’s strike) but shall not be beyond the reasonable
control of such party when peculiar to such party (such as financial inability
or failure to order long lead time material sufficiently in advance); (ii) this
Section shall not apply to any obligation to pay money or otherwise perform any
financial obligation hereunder; and (iii) in the event of any occurrence that a
party believes constitutes a cause beyond the reasonable control of such party
and that will delay any performance by such party, such party shall promptly in
writing notify the other party of the occurrence and nature of such cause, the
anticipated period of delay and the steps being taken by such party to mitigate
the effects of such delay.

42.9      Severability; Maximum Rate. If any term or provision of this Lease is
held or deemed to be invalid or unenforceable, such term or provision shall be
modified as slightly as possible so as to render it valid and enforceable; if
such term or provision, as modified, shall be held or deemed invalid or
unenforceable, such holding shall not affect the remainder of this Lease and
same shall remain in full force and effect. If any late charges or interest
computations provided for in any provision of this Lease are based upon a rate
in excess of the maximum rate permitted by applicable law, the parties agree
that such charges or interest computations shall be fixed at the maximum
permissible rate.

42.10    Governing Law; Venue. This Lease was negotiated in the State of
Illinois, which State the parties agree has a substantial relationship to the
parties and to the underlying transaction embodied hereby. In all respects, the
internal laws of the State of Illinois (without regard to principles of
conflicts of laws) and any applicable laws of the United States of America shall
govern the validity, enforceability and construction of the obligations of the
parties set forth herein, but all provisions hereof relating to the creation of
the leasehold estate and remedies set forth in Section 17 shall be governed by
the laws of the State in which each applicable Leased Property that is the
subject of dispute is located. The parties hereto will submit to jurisdiction
and the laying of venue for any suit on this Lease in the jurisdiction of the
Leased Property that is the subject of the dispute or, if no such jurisdiction
is available or ascertainable, the Commonwealth of Kentucky.

42.11    Waiver of Trial by Jury. EACH OF LANDLORD AND TENANT ACKNOWLEDGES THAT
IT HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT TO ITS RIGHTS TO
TRIAL BY JURY. EACH OF LANDLORD AND TENANT HEREBY EXPRESSLY WAIVES ANY RIGHT TO
TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER
THIS LEASE OR (ii) IN ANY MANNER CONNECTED WITH OR RELATED OR INCIDENTAL TO THE
DEALINGS OF LANDLORD AND TENANT WITH RESPECT TO THIS LEASE

 

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OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN
CONNECTION HEREWITH, OR THE TRANSACTIONS RELATED HERETO OR THERETO, IN EACH CASE
WHETHER NOW EXISTING OR HEREINAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE. EACH OF LANDLORD AND TENANT HEREBY AGREES AND CONSENTS THAT
ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY A COURT
TRIAL WITHOUT A JURY, AND THAT EITHER PARTY MAY FILE A COPY OF THIS SECTION WITH
ANY COURT AS CONCLUSIVE EVIDENCE OF THE CONSENT OF SUCH PARTY TO THE WAIVER OF
ITS RIGHT TO TRIAL BY JURY.

42.12    Waivers; Forbearance. All waivers, consents and releases provided for
in this Lease are effective only to the extent permitted by applicable law. No
waiver of any condition or covenant herein contained, or of any breach of any
such condition or covenant, shall be held or taken to be a waiver of any
subsequent breach of such covenant or condition, or to permit or excuse its
continuance or any future breach thereof, or of Landlord’s right to terminate
this Lease or exercise any other remedy granted herein on account of such
existing breach. No delay or omission by either party hereto to exercise any
right or power accruing upon any noncompliance or breach by the other party with
respect to any of the terms hereof shall impair any such right or power or be
construed to be a waiver thereof.

42.13    Binding Character. This Lease shall be binding upon and shall inure to
the benefit of the heirs, successors, personal representatives, and permitted
assigns of Landlord and Tenant.

43.

Renewal Options.

43.1      Exercise of Renewal Options. Tenant is hereby granted the right to
renew this Lease, with respect to all, but not less than all, of the Premises
for two (2), 5-year option renewal terms (collectively, the “Extended Terms” and
each an “Extended Term”) upon giving written notice to Landlord of each such
renewal at least twelve (12) months but not more than eighteen (18) months prior
to the termination of the then current Term, provided that, at the time Tenant
gives a renewal notice as set forth above and at the time of the commencement of
the applicable Extended Term, no Event of Default shall have occurred and no
Potential Default shall be continuing under this Lease. Tenant may not exercise
its option for more than one Extended Term at a time or for more than the two
(2) Extended Terms expressly described herein.

43.2      Renewal Terms. During each Extended Term, all of the terms and
conditions of this Lease shall continue in full force and effect, subject,
however, to the following provisions. In the case of each Extended Term, the
Fixed Rent for the first Lease Year of any such Extended Term shall be equal to
the greater of (i) the annual Fixed Rent for the immediately preceding Lease
Year multiplied by 1.025 or (ii) the Fair Market Rental of the Premises (as
determined in accordance with this Section 43.2 and Section 43.3 hereof) for

 

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such first Lease Year of the applicable Extended Term. Commencing upon the
commencement of the second (2nd) Lease Year of each Extended Term, and upon the
commencement of each Lease Year thereafter during the Extended Term, the Fixed
Rent for such Lease Year shall be an amount equal to the sum of (x) the Prior
Period Fixed Rent applicable to such Lease Year, plus (y) the product of (a) the
Prior Period Fixed Rent applicable to such Lease Year and (b) provided the Rent
Escalation Condition has been satisfied with respect to such Lease Year, the
amount equal to the greater of (1) two and one-half percent (2½%) or (2)
seventy-five percent (75%) of the CPI Increase, expressed as a percentage, for
such Lease Year for which such calculation is being performed.

43.3      Fair Market Rental Determination. Within thirty (30) days after
receipt from Tenant of a notice of renewal under Section 43.1 hereof, the Fair
Market Rental of the Premises, and the Fair Market Rental of each Leased
Property within the Premises, shall be determined by appraisal under the
procedures of Exhibit H attached hereto. Without limiting the efficacy of
Section 43.2 above, in no event shall the Fixed Rent for the first Lease Year of
any Extended Term be less than 102.5% of the Fixed Rent for the immediately
preceding Lease Year.

43.4      Extended Term Tenant’s Proportionate Shares. If Fixed Rent for the
first Lease Year of any Extended Term is based upon the Fair Market Rental of
the Premises as determined pursuant to Section 43.2 and Section 43.3 hereof,
then, effective as of the first day of such Extended Term, Schedule 2 attached
hereto shall be revised so as to allocate the aggregate Fixed Rent payable
hereunder to the individual Leased Properties covered by this Lease, and to
assign Tenant’s Proportionate Shares to such Leased Properties, in a manner that
is consistent with the respective Fair Market Rentals of such Leased Properties
as determined pursuant to Section 43.2 and Section 43.3 hereof.

43.5      Other Leases. Notwithstanding anything to the contrary contained in
this Section 43 or elsewhere in this Lease, Tenant acknowledges and agrees that
(i) any purported renewal notice sent by it under this Lease shall be void and
of no force or effect unless, simultaneously with the issuance of any such
renewal notice, the Tenant Lease Affiliate under each of the Other Leases that
remains in effect also issues a renewal notice with respect to the property(ies)
to which each such Other Lease applies and (ii) any Potential Default or Event
of Default by any such Tenant Lease Affiliates of its obligations under its
Other Lease shall preclude Tenant’s exercise of renewal rights hereunder.

43.6      Rights Personal to Original Tenant. Tenant's rights under this
Section 43 are personal to Capital Senior Management 2, Inc., a Texas
corporation, the original Tenant under this Lease, and shall automatically
terminate upon any assignment of this Lease by Tenant (whether by operation of
law or otherwise) and upon any sublease by Tenant of more than ten percent (10%)
of the rentable area of any Improvements, excepting from said ten percent (10%)
calculation any Approved Residency Agreement or any Approved Commercial
Agreement.

 

 

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44.        Medicare; Medicaid. Tenant acknowledges that, at present, assisted
living facilities and independent living facilities do not participate in
Medicare or Medicaid and are not regulated or inspected by Governmental
Authorities or other Persons administering Third Party Payor Programs to the
same degree and extent as hospitals and/or skilled nursing facilities (e.g..
through the issuance of certificates of need, periodic surveys of the quality of
care, issuance of deficiency reports, assignment of deficiency ratings of a
particular scope or severity or constituting immediate Jeopardy Events, etc.),
and agrees that, in the event that, during the Term, any of the Leased
Properties determines to participate in Medicare or Medicaid and/or becomes
subject to increased levels of regulation or inspection by Governmental
Authorities or any of the other aforesaid Persons, Landlord shall be entitled
from time to time to impose, and Tenant shall be obligated to comply with, such
additional covenants and other obligations relating to the Leased Properties and
Tenant’s leasing and operation thereof as Landlord or its Affiliates customarily
impose upon tenants entering into new leases with Landlord or its Affiliates for
properties like the Leased Properties and/or as Landlord from time to time
determines, in Landlord’s discretion, are consistent with the practices of
landlords entering into new leases for properties like the Leased Properties.

45.        Special Purpose Entity Obligations. Tenant agrees to comply, and to
cause all Tenant Lease Affiliates to comply, with the representations,
warranties, covenants and agreements set forth in Exhibit I attached hereto.

46.        State Specific Provisions. The following provisions shall apply to
those Leased Properties, if any, that are located within the following states:

46.1

New York.

46.1.1         Relative to Section 15 of this Lease, the Tenant agrees that the
provisions of this Lease relating to casualties shall be deemed as an express
agreement as to damage or destruction of the premises by fire or other casualty.
New York Real Property Law Section 227 (and any similar or successor statute),
providing for such a contingency in the absence of the express agreement, shall
have no application in such case.

46.1.2         Relative to Section 17.5 of this Lease, the Tenant explicitly
agrees to waive the provisions of Section 761 of the Real Property Actions &
Proceedings Law, or any similar or successor statute, of the State of New York.

46.2

California.

46.2.1         Relative to Sections 3.4.1 and 8.2.5.4 of this Lease and any
other provisions of this Lease relating to the Security Deposit, Tenant waives
the provisions of any applicable law or statute affording tenants rights with
respect to security deposits (including, without limitation, Section 1950.7 of
the California Civil Code) and agrees that the provisions of Sections 3.4.1 and
8.2.5.4 of this Lease and any other provisions of this Lease relating to the
Security Deposit shall govern the treatment of the Security Deposit in all
respects.

 

 

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46.2.2         Relative to Section 9.1.1 of this Lease, Tenant agrees that the
waiver contained in the last sentence thereof shall include, without limitation,
to the extent permitted by law, a waiver of any rights Tenant may have under the
provisions of California Civil Code Sections 1941 and 1942 and any successor
statutes or laws permitting Tenant to make repairs at Landlord’s expense.

46.2.3         Relative to Section 11.2 of this Lease, the Tenant shall,
following the completion of any Alteration, promptly cause to be recorded in the
county in which the Leased Property is located a Notice of Completion in
accordance with Section 3093 of the California Civil Code or any successor
statute with respect to such work, and deliver a copy thereof to Landlord.

46.2.4         Relative to Section 15.10 of this Lease, Tenant waives any
statutory rights of termination that may arise by reason of any Casualty
(including, without limitation, the provisions of California Civil Code Section
1932, Subsection 2, and Section 1933, Subsection 4 and any successor statutes or
laws of a similar nature) or Condemnation (including, without limitation, the
provisions of California Code of Civil Procedure Sections 1265.110 through
1265.160 and any successor statutes or laws of a similar nature), and the
parties agree that their respective rights and obligations in the event of any
Casualty shall be governed by the terms of this Lease.

46.2.5         Relative to Section 17.1.1 of this Lease and the other
subsections of Section 17.1, Tenant agrees that the provision of any notice of
default as set forth in such subsections shall be in lieu of, and not in
addition to, any notice required under applicable law (including, without
limitation, California Code of Civil Procedure Section 1161 regarding unlawful
detainer actions and any successor statute or similar law).

46.2.6         Relative to Section 16.3 of this Lease, Tenant waives any
statutory rights of termination that may arise by reason of any Condemnation of
any part of the Leased Property (including, without limitation, the provisions
of California Code of Civil Procedure Section 1265.130 and any successor
statutes or laws of a similar nature).

46.2.7         Relative to Sections 17.3 and 17.4 of this Lease, Landlord and
Tenant agree that, if an Event of Default occurs and, on account thereof, this
Lease is terminated as to all of the Leased Properties or Landlord makes a
Limited Termination Election (other than a Limited Termination Election
involving only a Leased Property(ies) located outside of California), the
provisions of Sections 17.3 and 17.4 of this Lease shall be revised in their
entirety to apply to any such complete termination or Limited Termination
Election, as applicable, as follows:

“17.3   Certain Remedies. If an Event of Default giving rise to termination
under Section 17.2 shall have occurred, Tenant shall, if and to the extent
required by Landlord so to do, immediately surrender to Landlord the Leased
Property(ies) specified by Landlord and as to which the Lease has been or may be

 

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terminated pursuant to Section 17.2 or otherwise, and Landlord may enter upon
and repossess such Leased Property(ies) by summary proceedings, ejectment or
otherwise, and may remove Tenant and all other Persons and all personal property
from such Leased Property(ies) subject to the rights of any occupants or
patients and to any requirement of law. Landlord shall also have the right to
exercise all or any of the rights and remedies afforded Landlord by California
law, including, but not limited to, the remedies provided under California Civil
Code Sections 1951.2 or 1951.4. Pursuant to California Civil Code Section
1951.2, the damages Landlord may recover against Tenant include, but are not
limited to, the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award, exceeds the amount of
such rental loss for the same period that the Tenant proves could be reasonably
avoided. Pursuant to California Civil Code Section 1951.4, Landlord may continue
this Lease in effect after Tenant's breach of this Lease and abandonment of the
Leased Properties and recover Rent as to the Leased Properties (or as to the
Terminated Lease Properties, in the event of a Limited Termination Election) as
it becomes due, if Tenant has the right to sublet the Leased Properties or
assign this Lease, subject only to reasonable limitations (and, in such regard,
Tenant agrees that the limitations on subletting and assignment that are set
forth in Section 24 hereof are reasonable)."

17.4.     Damages. To the extent permitted by law, neither (i) the termination
of this Lease pursuant to Section 17.2, (ii) the repossession of any or all of
the Leased Properties or any portion thereof, (iii) the failure of Landlord to
relet any or all of the Leased Properties or any portion thereof, (iv) the
reletting of any or all of the Leased Properties or any portion thereof, (v) the
failure of Landlord to collect or receive any rentals due upon any such
reletting, nor (vi) the election by Landlord not to terminate the Lease but
rather to seek all damages provided at law or in equity, shall relieve Tenant of
any of its liabilities or obligations hereunder, all of which shall survive any
such termination, repossession or reletting. In the event of any such
termination of this Lease (or any termination of this Lease as to less than all
of the Leased Properties in the event of a Limited Termination Election or the
election by Landlord not to terminate this Lease as to such Leased Properties,
but rather to pursue its damages at law or in equity), without limitation of
Section 17.5 and Section 19 below, Landlord shall be entitled to collect from
Tenant:

(a)       The worth at the time of award of any unpaid Rent (or any unpaid Rent
as to the Terminated Lease Properties, in the event of a Limited Termination
Election) which had been earned at the time of such termination; plus

(b)       The worth at the time of award of the amount by which the unpaid Rent
for the Leased Properties (or for the Terminated Lease Properties, in the event
of a Limited Termination Election) which would have been earned after
termination until the time of award exceeds the amount of such Rent loss
relative to the Leased Properties (or relative to the Terminated Lease
Properties, in the event of a

 

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Limited Termination Election) that Tenant proves could have been reasonably
avoided; plus

(c)       The worth at the time of award of the amount by which the unpaid Rent
for the Leased Properties (or for the Terminated Lease Properties, in the event
of a Limited Termination Election) for the balance of the Term after the time of
award exceeds the amount of such Rent loss relative to the Leased Properties (or
relative to the Terminated Lease Properties, in the event of a Limited
Termination Election) that Tenant proves could be reasonably avoided; plus

(d)       Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which, in the ordinary course of things, results therefrom.

As used in Sections 17.4(a) and (b) above, the “worth at the time of award” is
computed by allowing interest at the Overdue Rate. As used in Section 17.4(c)
above, the “worth at the time of award” is computed by discounting such amount
at the discount rate of the Federal Reserve Bank of San Francisco at the time of
award plus one percent (1%) per annum.

In case of any Event of Default, Landlord may, with or without terminating this
Lease (but subject, in the case of any Leased Property(ies) located in
California, to any provisions of California law providing that this Lease will
be deemed terminated as to any Leased Property(ies) as to which Tenant’s right
to possession is terminated by Landlord due to an Event of Default), (x) relet
any or all of the Premises or any part or parts thereof, for a term or terms
that may, at Landlord’s option, be equal to, less than or exceed the period that
would otherwise have constituted the balance of the Term and may grant
concessions or free rent to the extent that Landlord considers advisable or
necessary to relet the same, and (y) make such reasonable alterations, repairs
and decorations in the applicable Leased Property(ies) or any portion thereof as
Landlord, in its sole judgment, considers advisable or necessary for the purpose
of reletting the applicable Leased Property(ies); and such reletting and the
making of such alterations, repairs and decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Landlord
shall in no event be liable in any way whatsoever for failure to relet any
Leased Property, or, in the event that any Leased Property is relet, for failure
to collect the rent under such reletting. To the fullest extent permitted by
law, Tenant hereby expressly waives the service of any notice of intention to
re-enter provided for in any statute, and also waives any and all rights of
redemption or re-entry or re-possession in case Tenant shall be dispossessed by
a judgment or by warrant of any court or judge or in case of re-entry or
re-possession by Landlord or in case of any expiration or termination of this
Lease. The terms “enter”, “re-enter”, “entry”, or “re-entry” as used in this
Lease are not restricted to their technical legal meanings.”

 

 

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46.2.8         Relative to Section 17.5 of this Lease, Tenant agrees that, in
addition to the waivers referenced therein, Tenant waives, to the maximum extent
permitted by applicable law, any right it may have under California Code of
Civil Procedure Section 1179 to apply to a court to relieve Tenant from
forfeiture of this Lease following a judgment for possession of the applicable
Leased Property(ies).

46.2.9          Relative to Section 24 of this Lease, Tenant waives, to the
maximum extent permitted by applicable law, any right it may have under
California Civil Code Section 1995.310 to the remedies set forth therein, and
any successor statutes or laws of a similar nature.

46.2.10       Relative to Section 36.1 of this Lease, Tenant, at its sole cost
and expense, shall comply with all laws relating to the storage, use, handling
and disposal of hazardous, toxic or radioactive matter.

46.3      Arizona. Relative to Section 16 of this Lease, the Tenant hereby
waives the provisions of Arizona Revised Statutes Section 33-343 and agrees that
the provisions of this Lease shall govern in the event of damage to or
destruction of the Premises or in the event that the Premises otherwise becomes
untenantable.

47.        Right of First Offer. Provided no Event of Default shall have
occurred and no Potential Default shall be continuing, prior to Landlord
agreeing during the Term to sell its fee simple interest in the Leased Property
to any person or entity that is not an Affiliate of Landlord or Tenant (a “Third
Party”), Tenant shall have a right of first offer to purchase Landlord's fee
simple title to the Leased Property, on the terms and conditions as set forth in
this Section 47 (the “Right of First Offer”). Subject to the foregoing and the
other terms and conditions of this Section, if, during the Term, Landlord shall
elect to sell its fee simple interest in the Leased Property:

47.1      Notices. Landlord shall promptly deliver to Tenant a notice of such
election to sell, together with a statement of a purchase price, closing date
and (at Landlord's sole option) any other material terms and conditions upon
which Landlord is willing to sell its fee simple interest in the Leased Property
(the “ROFO Notice”). Tenant may, within ten (10) Business Days after Landlord’s
delivery to Tenant of a ROFO Notice, make an unqualified offer to purchase
Landlord's fee simple interest in the Leased Property on all of the same terms
as those set forth in such ROFO Notice and no other terms and conditions (the
“ROFO Acceptance Notice”).

47.2      Conditions of Sale. If, for any reason, (i) within said ten (10)
Business Day Period, either Tenant does not reply to Landlord’s ROFO Notice with
a ROFO Acceptance Notice; or (ii) Tenant and Landlord shall not have entered
into the Purchase Contract within twenty (20) Business Days after Landlord's
delivery to Tenant of a Purchase Contract, then the Right of First Refusal and
Tenant's rights under this Section shall be forever waived, terminated and of no
further force and effect whatsoever, and Landlord shall have the

 

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unrestricted right (without any obligation to do so) to sell the Leased Property
to any person or entity on such terms and conditions as shall be acceptable to
Landlord in its sole and absolute discretion. Notwithstanding the foregoing, the
Right of First Offer shall be revived if and only if either of the following two
(2) conditions is satisfied: (a) if, on or before the first anniversary of the
date of Landlord's delivery of the applicable ROFO Notice, Landlord elects to
sell its fee simple interest in the Leased Property to any Third Party at a
purchase price that is less than 93% of the purchase price contained in the
applicable ROFO Notice, or (b) if Landlord shall not have made or accepted an
offer to sell its fee simple interest on or before the first anniversary of the
date of Landlord's delivery of the applicable ROFO Notice, then in either such
circumstance, Tenant shall be entitled to a new ROFO Notice prior to any such
subsequent sale of Landlord's fee simple interest in the Leased Property to a
Third Party. If the Right of First Offer is waived and the purchase and sale of
the Leased Property is consummated with a Third Party, the purchaser of the
Leased Property shall assume this Lease and agree to perform each and every
covenant of Landlord contained in this Lease (it being understood and agreed,
however, that the provisions of this Section 47 shall no longer be applicable)
and Tenant shall attorn to such purchaser as Landlord hereunder.

If Tenant timely and properly delivers to Landlord a ROFO Acceptance Notice as
described in Section 47.1 above, then not later than ten (10) Business Days
after Landlord's receipt of the ROFO Acceptance Notice, Landlord shall (if it
has not done so already) prepare and deliver to Tenant an agreement for the
purchase and sale of the Leased Property conforming to the terms and conditions
set forth in the ROFO Notice and otherwise in form and substance prepared by
Landlord (as may be supplemented and amended, the "Purchase Contract"). Landlord
may, but need not, include a copy of the Purchase Contract with the ROFO Notice.
If Tenant has given Landlord a ROFO Acceptance Notice, then on or before the
twentieth (20) Business Day after Landlord's delivery to Tenant of the form of
the Purchase Contract, Tenant shall execute and deliver the Purchase Contract;
failing which Tenant shall have no further rights under this Section 47. Any
default by Tenant under the Purchase Contract shall constitute an Event of
Default under this Lease, entitling Landlord to any and all rights and remedies
available under this Lease, available under said Purchase Contract and otherwise
available at law or in equity. Tenant shall continue to pay all Fixed Rent,
Additional Rent and other rent and charges due and owing under this Lease
through the date of the consummation of any such sale to Tenant.

47.3      Right of First Offer Not Applicable to Certain Transfers. Without in
any way (by implication or otherwise) expanding the scope of the Right of First
Offer, Tenant acknowledges and agrees that this Section 47 and the Right of
First Offer shall not be applicable to any sale of the Leased Property described
below:

(i)

Any transfer to any Affiliate of Landlord or Tenant;

(ii)         Any mortgage or deed of trust made by Landlord, or any transfer
made in connection with the foreclosure or other realization upon any such
mortgage or deed of trust, or any transfer made in lieu of foreclosure;

 

 

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(iii)        Any transfer in connection with a liquidation, reorganization or
similar action whereby the assets of Landlord are distributed to any owners of
Landlord or any Affiliates of Landlord (including, without limitation, any
affiliates of any owners of Landlord of any tier);

(iv)        Any transfer of the Leased Property as a result of a merger,
combination, consolidation, sale of all or substantially all of Landlord’s
assets, or any sale of all or any portion of the membership or other ownership
interests of Landlord;

(v)        Any transfer by condemnation, eminent domain or similar taking of the
Leased Property, or any transfer made in lieu thereof;

(vi)        Any transfer of a fractional or other partial interest in the Leased
Property or any part thereof;

(vii)       Any transfer of any part of the Leased Property other than the Land
or the Improvements;

(viii)

Any gift, donation or other transfer made without cash consideration; or

(ix)

Any transfer due to any tax sale or any other involuntary transfer.

 

Moreover, Landlord shall not be deemed to have breached the provisions of this
Section if it shall have made or accepted any offer to sell Landlord's fee
simple interest in the Leased Property to a Third Party (i) that is conditional
upon the waiver of Tenant's rights under this Section 47, or (ii) if any
contemplated sale of the Leased Property is scheduled to close at any time after
the end of the Term. Landlord shall have no obligation or other liability to
Tenant under this Section unless Landlord shall have failed to comply with its
express obligations under this Section 47 and Landlord shall have actually
consummated the sale of fee simple title to the Leased Property to a Third Party
during the Term.

47.4      Assignment of Right of First Offer. Tenant shall not have the right to
assign or transfer in any way any of Tenant's rights under this Section 47,
including, without limitation, any rights of Tenant under any purchase and sale
agreement entered into pursuant hereto.

47.5      Rights Personal to Original Tenant. Tenant's rights under this
Section 47 are personal to Capital Senior Management 2, Inc., a Texas
corporation, the original Tenant under this Lease, and shall automatically
terminate upon any assignment of this Lease by Tenant (whether by operation of
law or otherwise) and upon any sublease by Tenant of more than ten percent of
the rentable area of any Improvements, excepting from said ten percent (10%)
calculation any Approved Residency Agreement or any Approved Commercial
Agreement.

 

 

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47.6      Other Leases. If, at any time following the giving of a ROFO Notice
under this Lease, Landlord has also given to Tenant, any Tenant Lease Affiliate
or any other Affiliate, successor or assign of the foregoing (collectively, the
“Other Lease Parties”) a right of first offer or other offer to sell any of the
leased properties (or any portion thereof) described in any or all of the Other
Leases (collectively, “Other Sale Offers”) and such Other Sale Offers remain
outstanding, then (notwithstanding anything contained in this Section 47 to the
contrary) Tenant shall have no right to exercise its Right of First Offer under
this Lease unless the applicable Other Lease Party shall have contemporaneously
exercised all of its rights to purchase the property described in the Other Sale
Offers. Moreover, any default by Tenant, any Tenant Lease Affiliate or any Other
Lease Party under any agreement to effectuate any Other Sale Offer shall
constitute an Event of Default under this Lease, entitling Landlord and Landlord
Lease Affiliate to terminate this Lease, to terminate any purchase and sale
agreement entered into in connection with this Section 47 and to any and all
other rights and remedies available under this Lease, available under said
agreement and otherwise available at law or in equity.

48.

Fannie Mae; Fannie Mae Loan.

48.1      Fannie Mae Financing. The provisions of this Section 48 do not in any
way limit the generality or efficacy of the provisions of Section 8.4 above.

48.2      Reserve Payments. In connection with the Fannie Mae Financing,
Landlord is or may be required to make payments to Fannie Mae from time to time
in order to maintain various reserves (“Fannie Mae Reserves”) required under the
Fannie Mae Loan Documents, including, without limitation, reserves for taxes,
insurance and replacements relating to the Leased Property (each an “Fannie Mae
Reserve Payment”). So long as the Fannie Mae Financing encumbers the Leased
Property, Tenant shall deposit with Landlord (at least five (5) Business Days
prior to being due and payable to Fannie Mae), the greater of (a) the amount of
the required Fannie Mae Reserve Payments or (b) the amounts Tenant would
otherwise be required to deposit pursuant to either (A) the terms and conditions
of Section 3.3 hereof with respect to deposits for taxes and insurance, and (B)
the terms and conditions of Section 11.3 hereof with respect to deposits for
replacements; provided, however, that Tenant shall fund and make any and all
other sums, reserves and deposits as may be required under said Sections 3.3 and
11.3, respectively, if any Event of Default has occurred or if any Potential
Default is continuing. If an Event of Default has occurred, Tenant shall be
required to make payments under both clause (a) and clause (b) above. At least
five (5) Business Days prior to being due and payable to Fannie Mae, Tenant
shall pay to Landlord any expenses charged by Fannie Mae to Landlord for
compliance with or calculation of reserves required under the Fannie Mae Loan
Documents.

48.3      Fannie Mae Reserve Deposits. Upon the Commencement Date, Tenant shall
pay to Landlord, as additional Rent, an amount equal to the sum of the amount
paid or credited by Landlord, the Buyer or its Affiliate in connection with the
Closing under the P&S Agreement for the Fannie Mae Reserves for the Leased
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received by the Buyer from the Seller under the P&S Agreement for accrued real
estate taxes for the Leased Property. If and to the extent that the Buyer
receives in connection with the Closing a net credit from the Seller for accrued
real estate taxes for the Leased Property in excess of the amounts payable by
the Buyer for the corresponding Fannie Mae Reserve for real estate taxes (after
any reconciliation of such amounts as contemplated under the P&S Agreement) for
the Leased Property, then Landlord shall deposit into the escrow for Impositions
described in Section 3.3.1 above an amount equal to such positive difference,
provided that no Event of Default has occurred and no Potential Default is
continuing. If upon the expiration of this Lease, no Event of Default has
occurred and no Potential Default is outstanding, then any amounts then
remaining in the Fannie Mae Reserves that have been funded by Tenant (including,
if applicable, any interest thereon) shall be promptly returned to Tenant, only
as and when the conditions of Section 3.3.5 for the return of the Impositions
escrows have been met and provided that any and all Impositions (including,
without limitation, any and all real estate taxes that have accrued during the
Term, but are not due or payable until after the end of Term or are otherwise
unpaid) or insurance due or owing hereunder have been paid (or caused by Tenant
to be paid) in full.

48.4      Use of Reserves. In the event of any dispute or disagreement between
Landlord and Tenant as to the manner in which Fannie Mae Reserves are to be
expended, the determination of Landlord shall govern and control; provided,
however, that with respect to any proceeds of the February Replacement Reserve
that are actually received by Landlord upon the Closing and as to which Seller
has no claim under the P&S Agreement, Tenant may utilize said funds for any
purpose relating to the maintenance, repair or replacement of the Facility as
Tenant sees fit in its sole reasonable judgment, subject to the requirements of
Section 11 above and all other applicable provisions of this Lease. In no event
whatsoever shall Landlord ever be liable to Tenant for (and Tenant hereby agrees
to waive forever and not to make or pursue) any claim relating to Landlord's
handling of the Fannie Mae Reserves.

48.5      Termination of Fannie Mae Financing. If at any time the Fannie Mae
Financing ceases to encumber the Premises, Tenant shall immediately deposit with
Landlord such amounts sufficient to cause the amount of deposits pursuant to (A)
the terms and conditions of Section 3.3 hereof with respect to deposits for
taxes and insurance, and (B) the terms and conditions of Section 11.3 hereof
with respect to deposits for replacements, to be at the level they would have
been but for the operation of Section 48.1.

48.6      SPE; Reference to Leased Properties, Other Leases or Facilities. If
the Fannie Mae Loan Documents now or hereafter require that Tenant be a
single-asset special purpose entity, then (i) Tenant shall reasonably cooperate
with Landlord in replacing the Tenant as to each applicable Leased Property with
a special purpose entity owned and controlled by Tenant, which meets the special
purpose entity requirements of Fannie Mae and is otherwise acceptable to
Landlord; and (ii) any reference in this Lease to multiple Leased Properties,
Other Leases, other Facilities or any other plural term shall not constitute
permission for Tenant to hold an interest in any other property or facility
other than the Leased Property.

 

 

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48.7      New/Additional Financing. Without limiting the generality of
Section 20.4 hereof, if Landlord, at its sole option, ever obtains any new or
additional financing that is secured in whole or in part by any of the Premises
(including, without limitation, any Facility Mortgage), then Tenant shall, if so
required by Landlord (at its sole option), amend this Lease to contain
provisions of the sort contained in this Section 48 (and no more onerous than
the provisions of this Section 48 or any other provisions of this Lease) with
respect to any such new or additional financing and any and all other provisions
as Landlord may (in its reasonable discretion) deem reasonably necessary in
order to conform this Lease to the terms and conditions of any such new or
additional financing.

49.        Authorizations. Without limiting the generality or efficacy of any
duty, obligation or liability of Tenant under this Lease or any Other Lease,
Tenant hereby agrees to use commercially reasonable efforts to cause to be
obtained as soon as possible, each of those Authorizations described in
Section 9 of the P&S Agreement, together with any and all other Authorizations
as may be required in order for Landlord to own the Leased Property or for
Tenant (or its permitted manager) to legally operate the Leased Property
according to its Primary Intended Use. Tenant shall reasonably consult with
Landlord before taking any and all such actions and Tenant shall not suffer or
permit any action that violates or is otherwise in conflict with any request or
other direction from Landlord to Tenant with respect to such Authorizations.

50.        Transaction Closing Costs. For purposes of this Lease, “Transaction
Closing Costs” shall mean any and all costs and expenses paid or incurred by
Landlord, the Buyer or any Affiliate of Landlord or the Buyer in connection with
the consummation of the transactions contemplated by the P&S Agreement,
including, but not limited to, (i) any and all costs associated with any and all
due diligence inspection under the P&S Agreement; (ii) any costs and expenses
(including, without limitation, attorneys’ fees and expenses) paid or incurred
by Landlord or any Affiliate of Landlord to negotiate, execute and deliver this
Lease, the P&S Agreement, the Term Sheet Letter or any other letter of intent or
term sheet associated with the transactions contemplated hereby; (iv) any and
all fees and expenses paid or incurred by the Buyer or any Affiliate of the
Buyer in connection with the assignment and assumption of the Assumed
Indebtedness excluding the assumption fee payable by the Seller under Section
12.5 of the P&S Agreement; (v) any and all closing and other transactions costs
incurred or paid by the Buyer or any Affiliate of the Buyer under or in
connection with the P&S Agreement; (vi) any and all costs and expenses
(including, without limitation, attorney’s fees) incurred by Landlord, the
Buyer, Tenant or any Affiliate of any of them relating to any Authorizations;
and (vii) any costs and expenses paid or incurred by Landlord, the Buyer or any
Affiliate of Landlord or the Buyer that are similar to any of the foregoing. The
parties acknowledge and agree that Transaction Closing Costs do not include any
costs or expenses payable by the Seller under the Purchase and Sale Agreement.
On or before the Effective Date and again as of the Commencement Date, Tenant
shall pay to Landlord any and all Transaction Closing Costs with respect to
which Landlord has theretofore invoiced or otherwise notified Tenant, but which
Tenant has not then already reimbursed Landlord. Any and all Transaction Closing
Costs not invoiced or otherwise made the subject of any notice or demand from
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not paid prior to the foregoing dates shall be paid by Tenant to Landlord within
ten (10) Business Days after the submission to Tenant of the applicable invoice,
notice or other demand therefor. Delinquent amounts owing from Tenant to
Landlord hereunder shall bear interest at the Overdue Rate. The provisions of
this Section shall survive any termination of this Lease.

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IN WITNESS WHEREOF, the parties have caused this Lease to be executed and their
respective corporate seals to be hereunto affixed and attested by their
respective officers hereunto duly authorized.

Witness:

 

 

 

 

Name:  

 

 

 

Name:

LANDLORD:

 

VENTAS GEORGETOWNE, LLC, a Delaware limited liability company

 

By: VENTAS REALTY, LIMITED PARTNERSHIP, a Delaware limited partnership, its Sole
Member

 

By:            ENTAS, INC., a Delawar     corporation, as its general partner

 

By:        Raymond J. Lewis  

Name: Raymond J. Lewis

Title:    Senior Vice President

 

 

Witness:

 

 

 

Name:  

 

 

 

Name:

TENANT:

 

CAPITAL SENIOR MANAGEMENT 2, INC., a Texas corporation

 

 

By:        /s/ Lawrence A. Cohen  

Name: Lawrence A. Cohen  

Title:    President

 

 

 

 

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