Exhibit 10.31

AMENDED AND RESTATED MASTER LEASE

 

 

by and between

 

 

MRT of San Antonio TX -- SNF I, LLC

MRT of San Antonio TX -- SNF II, LLC

MRT of Graham TX -- SNF, LLC

MRT of Kemp TX -- SNF, LLC

MRT of Kerens TX -- SNF, LLC

MRT of Brownwood TX -- SNF, LLC

MRT of El Paso TX -- SNF, LLC

MRT of Kaufman TX -- SNF, LLC

MRT of Longview TX -- SNF, LLC

MRT of Mt. Pleasant TX -- SNF, LLC

 

(as “Landlord”)

 

and

 

Brownwood IV Enterprises, L.L.C.

El Paso VI Enterprises, L.L.C.

Graham I Enterprises, L.L.C.

Kaufman I Enterprises, L.L.C.

Kemp I Enterprises, L.L.C.

Kerens I Enterprises, L.L.C.

Longview III Enterprises, L.L.C.

San Antonio I Enterprises, L.L.C.

San Antonio II Enterprises, L.L.C.

Mt. Pleasant V Enterprises, L.L.C.

 

(as “Tenant”)

 

 

 

Dated:  November 20, 2018

 

 

 

 

 

 

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Table of Contents

 

Page

 

ARTICLE 1

DEFINITIONS3

 

ARTICLE 2

DEMISED PREMISES AND PERSONAL PROPERTY8

 

ARTICLE 3

TERM OF LEASE9

 

ARTICLE 4

RENT9

 

ARTICLE 5

LATE CHARGES AND INTEREST12

 

ARTICLE 6

PAYMENT OF TAXES AND ASSESSMENTS12

 

ARTICLE 7

[Reserved]13

 

ARTICLE 8

OCCUPANCY13

 

ARTICLE 9

INSURANCE14

 

ARTICLE 10

LANDLORD’S OR MORTGAGEE’S RIGHT TO PERFORM17

 

ARTICLE 11

REPAIRS AND MAINTENANCE; CASUALTY18

 

ARTICLE 12

ALTERATIONS AND DEMOLITION21

 

ARTICLE 13

COMPLIANCE WITH LAWS AND ORDINANCES22

 

ARTICLE 14

DISCHARGE OF LIENS22

 

ARTICLE 15

INSPECTIONS OF PREMISES BY LANDLORD23

 

ARTICLE 16

CONDEMNATION23

 

ARTICLE 17

RENT ABSOLUTE24

 

ARTICLE 18

ASSIGNMENT AND SUBLETTING26

 

ARTICLE 19

EVENTS OF DEFAULT28

 

ARTICLE 20

RIGHT TO CONTEST31

 

ARTICLE 21

LANDLORD’S REMEDIES UPON DEFAULT31

 

ARTICLE 22

CUMULATIVE REMEDIES OF LANDLORD34

 

ARTICLE 23

SECURITY FOR RENT34

 

ARTICLE 24

INDEMNIFICATION36

 

ARTICLE 25

SUBORDINATION PROVISIONS37

 

ARTICLE 26

TENANT’S FAITHFUL COMPLIANCE WITH MORTGAGE38

 

ARTICLE 27

HUD Financings39

 

ARTICLE 28

TENANT’S ATTORNMENT39

 

ARTICLE 29

REPRESENTATIONS AND WARRANTIES40

 

ARTICLE 30

STATEMENTS AND REPORTS40

 

 

 

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Table of Contents

(continued)

Page

 

ARTICLE 31

[RESERVED]41

 

ARTICLE 32

ADDITIONAL CovenantS41

 

ARTICLE 33

MISCELLANEOUS42

 

ARTICLE 34

TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE45

 

ARTICLE 35

HAZARDOUS SUBSTANCES50

 

ARTICLE 36

LIMITATION OF LANDLORD’S LIABILITY52

 

 

 

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AMENDED AND RESTATED

MASTER LEASE

THIS AMENDED AND RESTATED MASTER LEASE (this “Lease”) made and entered into this
20th day of November, 2018, by and among MRT of San Antonio TX - SNF I, LLC, MRT
of San Antonio TX - SNF II, LLC, MRT of Graham TX - SNF, LLC, MRT of Kemp TX -
SNF, LLC, MRT of Kerens TX - SNF, LLC, MRT of Brownwood TX - SNF, LLC, MRT of El
Paso TX - SNF, LLC, MRT of Kaufman TX - SNF, LLC, MRT of Longview TX - SNF, LLC,
and MRT of Mt. Pleasant TX - SNF, LLC, each a Delaware limited liability company
(collectively, the “Landlord”), and Brownwood IV Enterprises, L.L.C., El Paso VI
Enterprises, L.L.C., Graham I Enterprises, L.L.C., Kaufman I Enterprises,
L.L.C., Kemp I Enterprises, L.L.C., Kerens I Enterprises, L.L.C., Longview III
Enterprises, L.L.C., San Antonio I Enterprises, L.L.C., San Antonio II
Enterprises, L.L.C. and Mt. Pleasant V Enterprises, L.L.C., each a Texas limited
liability company (collectively referred to herein as the “Tenant” and sometimes
individually as a “Tenant”, as the context requires).

W I T N E S S E T H:

WHEREAS, pursuant to a Master Lease, dated July 29, 2015 (as amended, the
“GuenePointe Lease”), Landlord currently leases the Leased Property, as defined
below, to GruenePointe 1 Graham, LLC, GruenePointe 1 El Paso, LLC, GruenePointe
1 Kerens, LLC, GruenePointe 1 Casa Rio, LLC, GruenePointe 1 River City, LLC,
GruenePointe 1 Brownwood, LLC, GruenePointe 1 Longview, LLC, GruenePointe 1
Kemp, LLC, GruenePointe 1 Mt. Pleasant, LLC, and GruenePointe 1 Kaufman, LLC,
each a Texas limited liability company (collectively, “GruenePointe”); and

WHEREAS, pursuant to the GruenePointe Lease, GruenePointe is currently either
the licensed operator, or the manager pursuant to a prior QIPP Transaction, of
the respective Facilities located on the Land (as such terms are hereinafter
defined); and

WHEREAS, Landlord and Tenant have entered into a Master Lease, dated November 9,
2018 (the “Original Master Lease”), with respect to the Leased Property (as
defined herein), except that Mt. Pleasant I Enterprises, L.L.C., was included as
a Tenant under the Original Master Lease and Mt. Pleasant V Enterprises, L.L.C.,
was not included as a Tenant thereunder; and

WHEREAS, by entering into this Lease, the parties wish to amend and restate in
its entirety the Original Lease in order to substitute Mt. Pleasant V
Enterprises, L.L.C., as a Tenant hereunder in place of Mt. Pleasant I
Enterprises, L.L.C., and to make certain minor corrections to the text of the
Original Lease, and Mt. Pleasant I Enterprises, L.L.C., is executing the
signature page to this Lease in order to evidence its agreement with such
amendment and substitution; and

WHEREAS, GruenePointe and Tenant have entered into an Amended and Restated
Operations Transfer Agreement, dated the date hereof (as the same may be amended
from time to time, the “OTA”), pursuant to which GruenePointe has agreed to
transfer to Tenant certain

 

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assets and operational control of the Facilities, and Tenant has agreed to
acquire such assets and operational control, upon the terms and conditions set
forth therein; and

WHEREAS, it is a condition to the closing under the OTA that the GruenePointe
Lease shall have been terminated and that Landlord and Tenant shall have entered
into a new lease, pursuant to which Landlord shall lease the Leased Property to
Tenant, and Tenant shall lease the Leased Property from Landlord, for a term
commencing as of the Effective Time under the OTA; and

WHEREAS, Landlord is willing to lease the Leased Property to Tenant, and Tenant
is willing to lease the Leased Property from Landlord, subject to and in
accordance with the terms, conditions and covenants contained herein; and

WHEREAS, as an inducement to Landlord to lease the Leased Property to Tenant
pursuant to this Lease, Creative Solutions in Healthcare, Inc., a Texas
corporation (the “Guarantor”) has executed and delivered to Landlord that
certain Amended and Restated Guaranty Agreement, dated of even date herewith
(the “Guaranty Agreement”), guarantying the performance of all of the
obligations of Tenant under this Lease; and

WHEREAS, it is the parties’ intention to set forth their respective covenants
and obligations in a single agreement, not merely as a matter of convenience,
but because the leasing of the ten (10) properties comprising the Leased
Property as an inseparable unit is a special and essential inducement to
Landlord to enter into this transaction, and but for the leasing of such ten
(10) properties together as an inseparable whole, Landlord would not have
entered into this Lease; and

WHEREAS, the parties agree and acknowledge that the amount set forth herein as
Rent (defined below) is calculated on the basis of leasing the said ten (10)
properties together as a single, inseparable group and is non-allocable among
the ten (10) properties, and that it would be impossible to allocate to any one
or more of the properties a divisible portion of the Rent; and

WHEREAS, the parties agree and acknowledge and are forever estopped from
asserting to the contrary that if, notwithstanding the provisions of these
Recitals, this Lease were to be determined or found to be in any proceeding,
action or arbitration under state or federal bankruptcy, insolvency,
debtor-relief or other applicable laws to constitute multiple leases demising
multiple properties, such multiple leases could not, by the debtor, trustee, or
any other party, be selectively or individually assumed, rejected or assigned;
and

WHEREAS, it is the parties’ intention and understanding that nothing in this
Lease, including any rights of Landlord to inspect the Leased Property or gain
access to any of Tenant’s information, shall constitute or be deemed to
constitute a duty on the part of Landlord to provide for the safety and
well-being of any resident of the Facilities, which shall be the sole and
exclusive responsibility of Tenant.

 

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NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt,
sufficiency and mutuality of which are hereby acknowledged, it is agreed as
follows:

ARTICLE 1
DEFINITIONS

1.1The terms defined in this Article shall, for all purposes of this Lease and
all agreements supplemental hereto, have the meaning herein specified.

(a)“Adverse Event” has the meaning ascribed to such term in Section 4.6.

(b)“Affiliate” means, with respect to any person, any person that, directly or
indirectly, controls or is controlled by or is under common control with such
person.  For the purposes of this definition, “control” (including the
correlative meanings of the terms “controlled by” and “under common control
with”), as used with respect to any person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such person, through the ownership of voting securities, partnership
interests or other equity interests.  For the purposes of this definition,
“person” means any natural person, trust, partnership, corporation, joint
venture or other legal entity.

(c)“Base Rent” has the meaning ascribed to such term in Section 4.1.

(d)“Casualty” has the meaning ascribed to such term in Section 11.3.

(e)“Commencement Date” means the Transfer Date, as defined in the OTA.

(f)“Control” means, as applied to any entity, the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that entity, whether through ownership, voting control, by contract
or otherwise.

(g)“Default Rate” means an annual rate of interest equal to the greater of (i)
the Prime Rate plus five percent (5%), and (ii) twelve percent (12%).

(h)“Demised Premises” means, collectively, the Land, the Facilities, any other
improvements now or hereafter located on the Land, and all easements, tenements,
hereditaments and appurtenances thereto.

(i)“EBITDAR” means, for any period, an amount equal to:

(i)the consolidated net income of Tenant for such period determined in
accordance with GAAP; plus

(ii) the sum of the following, to the extent deducted in the calculation of such
net income:  (1) interest expense, (2) depreciation, (3) income taxes, (4)
franchise taxes, (5) amortization, (6) all other non-cash, non-recurring charges
and expenses, excluding accruals for cash expenses made in the ordinary course
of business, (7) loss from any sales of assets, other

 

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than sales in the ordinary course of business, (8) non-cash rent expenses, (9)
rent under any real estate leases, (10) non-cash compensation expenses arising
from the issuance of stock, options to purchase stock, and stock appreciation
rights and settlement costs and legal expenses related to the grant and exercise
of stock options, and (11) non-recurring or special Tenant employee bonuses as
well as non-recurring special corporate level bonuses, including expenses and
employer taxes related to the payment of such bonuses; minus

(iii) gains from any sales of assets, other than sales in the ordinary course of
business; minus

(iv) to the extent not already deducted from the calculation of net income, a
management fee equal to the greater of (A) five percent (5%) of actual collected
revenue of the Facilities for such period, and (B) six percent (6%) of the
lesser of (1) Net Patient Revenue of the Facilities for such period, and (2)
actual collected revenue of the Facilities for such period.

(j)“EBITDARM” means, for any period, an amount equal to EBITDAR for such period,
plus, to the extent deducted in determining such EBITDAR, management fees.

(k)“environmental laws” has the meaning ascribed to such term in Section 35.2.

(l)“Event of Default” has the meaning ascribed to such term in Section 19.1.

(m)“Facilities” means the skilled nursing facilities respectively situated on
the Land and identified on Exhibit “A” hereto.

(n)“Facility Property” means, with respect to any Facility, such Facility and
the Land upon which it is situated.

(o)“Financial Statements” has the meaning ascribed to such term in Section 30.1.

(p)“First Extended Term” has the meaning ascribed to such term in Section 3.3.

(q)“Fixed Charges” means, for any period, the aggregate amount, on a
consolidated basis, of (A) scheduled principal payments for such period in
respect of indebtedness, excluding balloon payments and principal payments from
time to time on any accounts receivable/payable working capital line of credit
provided by a commercial lender, (B) scheduled payments (including but not
limited to principal and interest payments) for such period related to equipment
financing and/or capital leasing (to the extent not included in clause (A)
above), (C) non-financed capital expenditures during such period, excluding
construction in progress expenditures, (D) required payments during such period
of interest on indebtedness, and (E) scheduled payments of rent for such period
on any real estate leases and equipment operating leases.

 

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(r)“Guarantor” has the meaning ascribed to such term in the recitals of this
Lease.

(s)“Guarantor Group” means, collectively, the Guarantor, each of the entities
comprising the Tenant, and each other entity that is the operator of any
facility that, at the time in question, is managed or operated by Guarantor.

(t)“Hazardous substance” has the meaning ascribed to such term in Section 35.2.

(u)“Indemnified Parties” has the meaning ascribed to such term in Section 24.1.

(v)“Initial Term” has the meaning ascribed to such term in Section 3.1.

(w)“Intangibles” has the meaning ascribed to such term in Section 34.1.

(x)“Land” means, collectively, all of the parcels of real property on which the
Facilities are respectively located and which are more fully described on
Exhibit “B” hereto.

(y)“Landlord” has the meaning ascribed to such term in the introductory
paragraph of this Lease.

(z)“Landlord’s Personal Property” means all unaffixed equipment and other
personal property of any nature whatsoever located at any of the Facilities as
of the Commencement Date, including, but not limited to, data processing
equipment, medical equipment and supplies, office equipment, beds, furniture,
and other items owned by Landlord in connection with each Facility and all
component and ancillary parts used in connection with any such items, and all
replacements, substitutions, accretion and additions to any such items;
excluding, however, motor vehicles.

(aa)“Lease” means this Amended and Restated Master Lease.

(bb)“Lease Year” means a twelve (12) month period commencing on the Commencement
Date, and on each anniversary of the Commencement Date thereafter, except that
if the Commencement Date is other than the first day of a calendar month, then
the first Lease Year shall be the period from the Commencement Date through the
date twelve (12) months after the last day of the calendar month in which the
Commencement Date occurs, and each subsequent Lease Year shall be the period of
twelve (12) months running from the date immediately succeeding the last day of
the prior Lease Year.

(cc)“Leased Property” means, collectively, the Demised Premises and the
Landlord’s Personal Property.

(dd)“Material Adverse Change” means any change that (i) has or would reasonably
be expected to have a material adverse effect on the financial condition of the

 

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business, operations, properties, assets, or liabilities of any single Facility,
Tenant or Guarantor, either individually or taken as a whole, or (ii)
constitutes a material adverse change in or material adverse effect on the
legality, validity or enforceability of this Lease or the Guaranty Agreement, or
(iii) constitutes a material adverse change in or material adverse effect upon
the existence, perfection or priority of any security interest or lien securing
this Lease or the value of any collateral securing this Lease, or (iv)
constitutes a material violation by any single Facility or Tenant of any
material law or  regulation that is not cured within thirty (30) days, unless
such violation is being contested or appealed by appropriate proceedings, or (v)
has materially impaired or would reasonably be expected to materially impair the
ability of Guarantor to perform the obligations set forth in the Guaranty
Agreement, or (vi) has materially impaired or would reasonably be expected to
materially impair the ability of Tenant to perform its obligations or to
consummate the transactions under this Lease.

(ee)“Medicaid Net Patient Revenue” means Net Patient Revenue derived solely from
payments under the Texas Medicaid program, including under any Texas Medicaid
managed care organization.

(ff)“Mortgage” has the meaning ascribed to such term in Section 25.1.

(gg)“Mortgagee” has the meaning ascribed to such term in Section 25.1.

(hh)“Net Patient Revenue” means, for any period, gross patient service revenue
for such period minus contractual allowances, charity care provision, and the
provision for doubtful accounts.

(ii)“OTA” has the meaning ascribed to such term in the recitals of this Lease.

(jj)“Permitted Use” means, as to each Facility Property, the operation of a
skilled nursing facility licensed for the number of beds, and certified for the
number of Medicare beds and for the number of Medicaid beds as indicated with
respect to such Facility Property on Exhibit “A” hereto, as well as uses
incidental thereto, all in full compliance with all rules, regulations and
minimum standards applicable thereto, as prescribed by the State of Texas and
such other governmental authorities having jurisdiction thereof, and for any
other purpose mutually agreed upon in writing by Landlord and Tenant, and for no
other purpose.

(kk)“Prime Rate” means the prime rate of interest reported in the Wall Street
Journal or if the Wall Street Journal ceases to be in existence or for any
reason no longer publishes such prime rate, then the Prime Rate shall be the
rate announced by a national bank selected by Landlord.

(ll)“Proper Successor” has the meaning ascribed to such term in Section 33.5 of
this Lease.

(mm)“Purchase Price” has the meaning ascribed to such term in Section 31.4.

(nn)“QIPP Subtenant” has the meaning ascribed to such term in Section 18.4.

 

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(oo)“QIPP Transaction” has the meaning ascribed to such term in Section 18.4.

(pp)“Rent” means, collectively, Base Rent and all additional rent under this
Lease.

(qq)“Second Extended Term” has the meaning ascribed to such term in Section 3.4.

(rr)“Security Deposit” has the meaning ascribed to such term in Section 23.3.

(ss)“SNF Medicaid Rate” means the daily rate, unit rate, fee-for-service rate,
or any other rate paid directly or indirectly to a Facility, by the Texas Health
and Human Services Commission, the Texas Medicaid and Healthcare Partnership,
any Texas Medicaid managed care organization, or any equivalent, successor or
designated entity, or, any individual or entity contracted with any of the
foregoing, as the Medicaid payment for each day a Medicaid recipient utilizes a
bed in a Facility.

(tt)“Supplemental Management Fees” means any supplemental management fees or
payments received by Tenant in its capacity as manager of any Facility as to
which Tenant has entered into a QIPP Transaction.

(uu)“Taking” has the meaning ascribed to such term in Section 16.1.

(vv)“Taxes and Assessments” has the meaning ascribed to such term in Section
6.1.

(ww)“Tenant” has the meaning ascribed to such term in the introductory paragraph
of this Lease.

(xx)“Tenant’s Fixed Charge Coverage Ratio” means, for any period, the ratio of
(i) the aggregate EBITDAR of Tenant for such period, to (ii) the aggregate Fixed
Charges of Tenant for such period.

(yy)“Tenant’s Personal Property” means any equipment or other personal property,
other than the Landlord’s Personal Property, placed or installed by Tenant at
any of the Facilities after the date hereof, and any replacements,
substitutions, accretions and additions to any such items.

(zz)“Tenant’s Rent Coverage Ratio” means, for any period, the ratio of (i) the
aggregate EBITDAR of Tenant for such period, to (ii) Base Rent for such period.

(aaa)“Term” has the meaning ascribed to such term in Section 3.7.

(bbb)“Test Date” means the last day of each calendar quarter during the Term,
beginning with the first such date to occur that is at least six (6) months
after the Commencement Date.

 

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(ccc)“Transition Closing Date” has the meaning ascribed to such term in Section
33.1.

(ddd)All other terms shall be as defined in the other sections of this Lease.

ARTICLE 2
DEMISED PREMISES AND PERSONAL PROPERTY

2.1For and in consideration of the Rent to be paid and the other covenants and
agreements hereinafter to be kept and performed by the parties, Landlord does
hereby lease unto Tenant, and Tenant does hereby lease from Landlord, the Leased
Property for the Term, for use and operation therein and thereon for the
Permitted Use.

2.2Except in the circumstance of any unavoidable Casualty, throughout the Term,
Tenant shall use or cause the Demised Premises to be used continuously for the
Permitted Use.

2.3Upon the expiration or termination of this Lease for any reason, the Demised
Premises, with the improvements located therein and all the Landlord’s Personal
Property shall be surrendered in good order, condition and repair (ordinary wear
and tear excepted).

2.4Landlord and Tenant agree that this Lease constitutes a single and
indivisible lease as to all of the Demised Premises collectively and shall not
be subject to severance or division unless and to the extent, pursuant to
Section 18.5, Landlord elects to effect a partial assignment of this Lease.  In
furtherance of and subject to the foregoing, Landlord and Tenant each (a) waives
any claim or defense based upon the characterization of this Lease as anything
other than a master lease of all the Demised Premises and irrevocably waives any
claim or defense that asserts that this Lease is anything other than a master
lease, (b) covenants and agrees that it will not assert that this Lease is
anything but a unitary, unseverable instrument pertaining to the lease of all,
but not less than all, of the Demised Premises, (c) stipulates and agrees not to
challenge the validity, enforceability or characterization of this Lease of the
Demised Premises as a unitary, unseverable instrument pertaining to the lease of
all, but not less than all, of the Demised Premises, and (iv) shall support the
intent of the parties that this Lease is a unitary, unseverable instrument
pertaining to the lease of all, but not less than all, of the Demised Premises,
if, and to the extent that, any challenge occurs.  To the extent that legal, tax
or title insurance requirements in connection with the purchase of the Demised
Premises by Landlord or the leasing thereof to Tenant, may require, or may have
required, individual rent allocations (including allocations of rents in certain
states for tax purposes), Landlord and Tenant agree that such individual
allocations are solely to comply with legal, tax or title insurance
requirements, and shall not be used or construed, directly or indirectly, to
vary the intent of Landlord and Tenant that this Lease constitutes a single and
indivisible lease of all the Demised Premises collectively and is not an
aggregation of separate leases.

ARTICLE 3
TERM OF LEASE

 

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3.1Except as expressly provided below, the initial term of this Lease (the
“Initial Term”) shall commence on the Commencement Date and shall expire on the
last day prior to the fifteenth (15th) anniversary of the Commencement
Date.  Notwithstanding anything contained herein to the contrary, if the
Commencement Date occurs on any day other than the first day of a calendar
month, the Initial Term shall expire on the fifteenth (15th) anniversary of the
last day of the calendar month in which the Commencement Date occurs, unless
terminated earlier as provided for herein.  Promptly following the occurrence of
the Commencement Date, Landlord and Tenant shall jointly execute a Declaration
of Commencement Date, substantially in form attached hereto as Exhibit “C”,
setting forth the calendar date of the Commencement Date.

3.2Tenant shall have and is hereby granted the right and option to extend the
Initial Term of this Lease for an extended term of five (5) Lease Years (the
“First Extended Term”) upon and subject to all the terms, provisions and
conditions hereof.  The First Extended Term shall commence upon the day next
following the expiration of the Initial Term.

3.3In the event that Tenant shall have exercised the option contained in Section
3.2 above, Tenant shall have and is hereby granted the right and option to
extend this Lease for an additional extended term of five (5) Lease Years (the
“Second Extended Term”) upon and subject to all the terms, provisions and
conditions hereof.  The Second Extended Term shall commence upon the day next
following the expiration of the First Extended Term.

3.4The options granted pursuant to Sections 3.2 and 3.3 above may be exercised
only if there is no uncured Event of Default under this Lease at the time of
exercise and at the time of the expiration of the Initial Term or the First
Extended Term, as applicable.  Said options shall be exercised by Tenant giving
to Landlord written notice of Tenant’s election to do so not less than two
hundred seventy (270) days prior to the expiration of the Initial Term or the
First Extended Term, as applicable.

3.5The Initial Term, as it may be extended by the First Extended Term and the
Second Extended Term, is hereinafter referred to as the “Term”.

ARTICLE 4
RENT

4.1During the Term, Tenant shall pay to Landlord rental (“Base Rent”) for the
Demised Premises and the Landlord’s Personal Property, over and above all other
and additional payments to be made by Tenant as provided in this Lease, in an
amount per annum equal to Seven Million Seven Hundred Thousand and no/100
Dollars ($7,700,000.00), or Six Hundred Forty-One Thousand Six Hundred Sixty-Six
and 67/100 Dollars ($641,666.67) per month.  On each anniversary of the
Commencement Date, the Base Rent shall increase over the Base Rent as in effect
as of the last day of the immediately preceding Lease Year by two percent
(2%).  Notwithstanding anything herein to the contrary, the increases to Base
Rent pursuant to this Section 4.1 shall not be applicable to any amounts added
to Base Rent pursuant to Section 4.3 or Section 4.4.

 

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4.2The Base Rent for each calendar month during the Term shall be paid by Tenant
to Landlord in four (4) equal installments, each in the amount of $160,416.67,
on the first four (4) Fridays of such calendar month.  Unless otherwise notified
in writing, all payments of Rent shall be made payable to Landlord by wire
transfer to the account specified on Exhibit “D” attached hereto, or to such
other account as Landlord may designate in writing from time to time.  Tenant
may, but shall not be obligated to, authorize Landlord to effect payments of
Base Rent by electronic funds transfers (debit entries) initiated by Landlord
from Tenant’s bank account as such amounts become due.  

4.3In the event that, during any of the Texas state fiscal years ending,
respectively, in 2019, 2020, or 2021, there shall become effective an increase
in the SNF Medicaid Rate that, when added to all other such increases that
became effective during such three-fiscal year period, represents a meaningful
increase above the SNF Medicaid Rate in effect for the state fiscal year ended
on September 30, 2018 (a “Triggering Rate Increase”), then, upon Landlord’s
request, Landlord and Tenant shall in good faith negotiate the amount, if any,
by which Base Rent thereafter shall be increased in order to equitably reflect
the increase in the fair market rental value of the Facilities as the result of
such Triggering Rate Increase.

4.4In the event that, at any time following the date of this Lease, Tenant shall
enter into a QIPP Transaction as to any Facility, then, upon Landlord’s request,
Landlord and Tenant shall in good faith negotiate the amount, if any, by which
Base Rent thereafter shall be increased in order to equitably reflect the
increase in the fair market rental value of the Facilities as the result of such
QIPP Transaction.

4.5This Lease is and shall be deemed and construed to be a “pure net” or
“triple-net” lease and the Rent specified herein shall be net to Landlord in
each year during the Term of this Lease.  Landlord shall have no cost
obligation, responsibility or liability whatsoever for repairing, operating,
maintaining or owning the Premises during the Term of this Lease.  Tenant does
hereby indemnify Landlord against any and all such costs, expenses and
obligations. Accordingly, Tenant shall pay Rent to Landlord during the Term free
of any deduction, diminution or payment obligation on the part of Landlord for
real property taxes and assessments, sales and use taxes, and all other taxes,
assessments, utility charges, operating expenses, refurnishings, insurance
premiums and any other charge or expense, levy, fine, fee or cost in connection
with the Premises and the ownership, operation and maintenance, repair and
replacement thereof, including but not limited to all expenses and charges,
whether for upkeep, maintenance, operation, repair, refurnishing, refurbishing,
restoration, replacement, insurance premiums, taxes, utilities, occupational
licenses and other permits and other operating or other charges of a like nature
or otherwise, whether known or unknown, ordinary or extraordinary, foreseen or
unforeseen, anticipated or unanticipated, and in effect now or enacted
hereafter.

4.6Tenant recognizes and acknowledges that Landlord and/or certain beneficial
owners of Landlord may from time to time qualify as real estate investment
trusts pursuant to Sections 856 et seq. of the Internal Revenue Code of 1986, as
amended, and that avoiding (a) the loss of such status, (b) the receipt of any
income derived under any provision of this Lease that does not constitute “rents
from real property” (in the case of real estate investment trusts), and

 

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(c) the imposition of income, penalty or similar taxes (each an “Adverse Event”)
is of material concern to Landlord and such beneficial owners. In the event that
this Lease or any document contemplated hereby could, in the reasonable opinion
of counsel to Landlord, result in or cause an Adverse Event, Tenant agrees to
cooperate with Landlord in negotiating an amendment or modification thereof and
shall at the request of Landlord execute and deliver such documents reasonably
required to effect such amendment or modification. Any amendment or modification
shall be structured so that the economic results to Landlord and Tenant shall be
substantially similar to those set forth in this Lease without regard to such
amendment or modification, and any such amendment or modification shall not
materially increase the obligations of Tenant as identified in this Lease.
Without limiting any of Landlord’s other rights pursuant to this provision,
Landlord may waive the receipt of any amount payable to Landlord hereunder and
such waiver shall constitute an amendment or modification of this Lease with
respect to such payment.

4.7Notwithstanding any language contained in this Lease to the contrary, the
parties agree and acknowledge that the amount set forth as Base Rent is
calculated on the basis of leasing the Leased Property together as a single,
inseparable group.  The parties agree that the Base Rent payable hereunder is
non-allocable among the Leased Properties. Further notwithstanding any language
contained in this Lease to the contrary, the parties further agree and
acknowledge that it would be impossible to allocate to any one or more of the
Leased Properties a divisible portion of the Base Rent.  Further notwithstanding
any language contained in this Lease to the contrary, Tenant agrees and
acknowledges that the leasing of the Leased Property as an inseparable whole was
accepted by Landlord as a special and essential inducement to enter into this
transaction, and but for Tenant’s agreement to lease the Leased Property as an
inseparable whole, Landlord would not have entered into this Lease.

4.8This Lease is a “true lease” and not a financing lease, capital lease,
mortgage, equitable mortgage, deed of trust, trust agreement or other financing
or trust arrangement; the economic realities of this Lease are those of a true
lease; and the business relationship created by this Lease and any related
documents is solely that of a long-term commercial operating lease between
Landlord and Tenant and has been entered into by both parties in reliance on the
economic and legal bargains contained herein.  In no event shall Tenant or any
affiliate of Tenant claim depreciation, amortization or interest deductions as
owner of any property for United States federal, state or local tax purposes
(except as alterations not financed by Landlord).  The Term is less than the
remaining economic life of the Leased Property.

4.9Whenever under the terms of this Lease any sum of money is required to be
paid by Tenant in addition to the Base Rent, whether or not such sum is herein
designated as additional rent or provision is made for the collection of said
sum as additional rent, said sum shall nevertheless be deemed additional rent
and shall be collectible as such with the first installment of rent thereafter
falling due hereunder.

ARTICLE 5
LATE CHARGES AND INTEREST

 

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5.1Tenant hereby acknowledges that late payment by Tenant to Landlord of Base
Rent will cause Landlord to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain.  Such costs
include, but are not limited to, processing and accounting
charges.  Accordingly, if any installment of Base Rent shall not be received by
Landlord when such amount shall be due, then without any requirement for notice
to Tenant, Tenant shall pay to Landlord a late charge equal to five percent (5%)
of the portion of such installment of Base Rent that is not paid timely.  The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of late payment by
Tenant.  Acceptance of such late charge by Landlord shall in no event constitute
a waiver of Tenant’s default or breach with respect to any unpaid overdue
amounts, nor prevent Landlord from exercising any of the other rights and
remedies granted under this Lease, at law or in equity.

5.2Any Base Rent or other amounts payable by Tenant to Landlord under this Lease
that are not paid on the due date shall bear interest at the Default Rate from
the due date until paid.

ARTICLE 6
PAYMENT OF TAXES AND ASSESSMENTS

6.1Subject to Section 6.2, Tenant will pay, thirty (30) days before any fine,
penalty, interest or cost may be added thereto for the non-payment thereof (or
sooner if elsewhere herein required), all taxes assessed or levied by government
(including but not limited to real estate taxes, ad valorem taxes, school taxes,
assessments and personal property, intangible and use taxes, if any, imposed
upon the Leased Property), assessments, licenses and permit fees, bed taxes,
charges for public utilities imposed upon the Leased Property, and all
governmental charges, general and special, ordinary and extraordinary, foreseen
and unforeseen, of any kind and nature whatsoever that during the Term may be
assessed, levied, confirmed, imposed upon or become due and payable out of or in
respect of, or become a lien on the Leased Property and/or Landlord’s Personal
Property or any part thereof (hereinafter collectively referred to as “Taxes and
Assessments”).

6.2Tenant shall pay to Landlord (or, if so directed by Landlord, to Landlord’s
lender), on the 4th Friday of each calendar month during the Term, an amount
equal to 1/12th of the anticipated Taxes and Assessments for the then current
calendar year.  Landlord will apply all such payments (which shall not bear
interest) to the payment of the Taxes and Assessments as and when they become
due.  If at any time the payments theretofore paid by Tenant shall be
insufficient for the payment of the Taxes and Assessments, Tenant, within ten
(10) Business Days after Landlord’s written demand therefor, shall pay the
amount of the deficiency to Landlord or Landlord’s Lender, as the case may
be.  If Landlord fails to make any payment for which payments are sufficiently
held by Landlord, and such failure results in a penalty or imposition payable by
Landlord or Tenant with respect to the Premises, Landlord shall be responsible
for paying such penalty or imposition.  If such collected amounts are in excess
of the Taxes and Assessments due, then (i) such excess shall be applied to the
Taxes and Assessments

 

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for the next calendar year, or (ii) if in the final calendar year of the Term,
such excess shall be refunded to Tenant within ten (10) Business Days of the
expiration of the Term.

6.3Tenant shall prepare and timely file all required personal property
declaration forms for the personal property at the Premises, including, without
limitation, the Equipment and Tenant’s Personal Property, and shall pay on or
before the due date thereof, all personal property taxes directly to the
governing authorities, it being understood and agreed that personal property
taxes shall not be deemed to be included in the Taxes and Assessments to be
deposited with and paid by Landlord under Section 7(b).  Within thirty (30) days
after the due date thereof, Tenant shall deliver to Landlord receipts (if
available from the taxing authority) or other evidence of payment of all
personal property taxes paid by Tenant.

6.4Any Taxes and Assessments relating to a fiscal period of any authority, a
part of which is included within the Term and a part of which is included in a
period of time before or after the Term, shall be adjusted pro rata between
Landlord and Tenant and each party shall be responsible for its pro rata share
of any such Taxes and Assessments.

6.5Nothing herein contained shall require Tenant to pay income taxes assessed
against Landlord, or capital levy, franchise, estate, succession or inheritance
taxes of Landlord.

6.6If any income, profits or revenue tax shall be levied, assessed or imposed
upon the income, profits or revenue arising from Base Rent payable hereunder,
partially or totally in lieu of or as a substitute for real estate or personal
property taxes imposed upon the Leased Property, or otherwise, then Tenant shall
be responsible for the payment of such tax.  In addition, Tenant shall pay to
Landlord any and all state and local sales tax, use tax, franchise tax
(including the Texas “margin tax”) and/or gross receipts tax imposed on any
payment deemed to be Rent under this Lease or under the Laws and rules and
regulations imposing such taxes.  For the avoidance of doubt, Tenant will pay
directly to Landlord all state and local sales tax, use tax, franchise tax
and/or gross receipts tax within thirty (30) days after presentation of invoice
or written direction of Landlord and Landlord will remit the same to the
appropriate governmental entity.

ARTICLE 7
[Reserved]

ARTICLE 8
OCCUPANCY

8.1During the Term, the Facilities demised hereunder shall be used and occupied
by Tenant for the Permitted Use.  Tenant shall at all times maintain in good
standing and in full force and effect all the licenses, certifications and
provider agreements issued by the State of Texas and any other applicable state
or federal governmental agencies, permitting the operation of the Demised
Premises for the Permitted Use.  Tenant shall at all times use commercially
reasonable efforts to maximize the number of occupied beds at the Demised
Premises.  Without Landlord’s prior written consent, which Landlord may withhold
in its sole and absolute discretion, Tenant shall not apply for, or consent to,
any reduction in the number of state licensed beds or Medicaid and Medicare
certified beds at the Demised Premises.

 

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8.2Tenant will not suffer any act to be done or any condition to exist on the
Demised Premises or any portion thereof that is unlawful, known to be dangerous
or that may void or make voidable any insurance then in force on the Demised
Premises or any portion thereof.

8.3Upon expiration or termination of this Lease for any reason, Tenant will
return to Landlord the Demised Premises, with the improvements located therein
and all the Landlord’s Personal Property (i) in good order, condition and
repair, reasonable wear and tear excepted, and (ii) qualified and sufficient for
licensing and certification by all governmental agencies having jurisdiction
over the Demised Premises for the Permitted Use with licenses, certifications
and provider agreements in full force and good standing.

ARTICLE 9
INSURANCE

9.1Tenant shall, at its sole cost and expense, during the term of this Lease,
maintain property and casualty insurance with extended coverage endorsement on
the Leased Property.  Each carrier providing any insurance, or portion thereof,
required by this Article shall be reasonably acceptable to Landlord, shall have
the legal right to conduct its business in the jurisdiction in which the Leased
Property is located, and shall have a claims paying ability rating by S&P of not
less than “A-” and an A.M. Best Company, Inc. rating of not less than “A” and
financial size category of not less than “IX”.

9.2Tenant shall, at Tenant’s sole cost and expense, cause to be issued and shall
maintain during the entire Term of this Lease:

(a)Property insurance provided by a Causes of Loss-Special Form, which insurance
shall include an endorsement for building ordinance/demolition/increased cost of
construction.  Such insurance shall, at all times, be maintained in an amount
equal to the full replacement cost of the Demised Premises.  Such insurance
shall, at all times, also be maintained in the full replacement cost of the
Landlord’s Personal Property located at or used in connection with the Demised
Premises.  As used herein, the term “full replacement cost” means coverage for
the actual replacement cost of the Demised Premises and such amount may be
determined annually by a qualified appraiser on behalf of the Landlord, at
Landlord’s expense.  The term “full replacement cost” shall also mean coverage
for the actual replacement cost of the Landlord’s Personal Property located at
or used in connection with the Demised Premises.  Upon written request by
Tenant, Landlord will provide Tenant with information in its possession that is
reasonably necessary to establish the value of the Leased Property or any
portion thereof.  Such insurance shall at all times be payable to Landlord and
Tenant as their interest may appear and shall contain a loss payable clause to
the holder of any mortgage/deed of trust or lessor under any leasehold estate
superior to Landlord to which this Lease shall be subject and subordinate, as
said mortgagee’s/beneficiary’s/senior lessor’s interest may appear.

(b)Boiler & Machinery insurance for the Demised Premises, in the amount of full
replacement of the Demised Premises and the Landlord’s Personal Property, under
the terms of which Landlord and Tenant will be indemnified, as their interests
may appear, against any loss

 

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or damage of the Leased Property that may result from any accident as covered
under a standard Boiler & Machinery policy;

(c)If either required by any Mortgagee or if the Demised Premises are located in
a flood zone or earthquake zone, as applicable, Flood and Earthquake insurance
for the Demised Premises in an amount not less than the replacement cost of the
Leased Property, as determined by Landlord.

(d)Commercial general liability insurance naming Landlord and Tenant as insured,
and such other parties as Landlord shall request as additional insureds, and
insuring against claims for bodily injury or property damage occurring upon, in
or about the Demised Premises, or in or upon the streets, sidewalks, passageways
and areas adjoining the Demised Premises, such insurance to afford protection
for the Demised Premises with limits of not less than Two Hundred Fifty Thousand
and 00/100 Dollars ($250,000) per each occurrence and Seven Hundred Fifty
Thousand and 00/100 Dollars ($750,000) aggregate per location, or such higher
limits as may be required under Texas law. Coverage shall be on an occurrence
basis;

(e)Nursing Home or Long-Term Care Professional Liability insurance with limits
of not less than Two Hundred Fifty Thousand and 00/100 Dollars ($250,000) per
each occurrence and Seven Hundred Fifty Thousand and 00/100 Dollars ($750,000)
aggregate per location, or such higher limits as may be required under Texas
law.  Coverage shall be on an occurrence basis;

(f)Automobile liability insurance with respect to each motor vehicle owned or
operated by Tenant, with limits of not less than One Million and 00/100 Dollars
($1,000,000) per each occurrence and Three Million and 00/100 Dollars
($3,000,000) aggregate;

(g)Umbrella general liability coverage with a limit of not less than Five
Million and No/100 Dollars ($5,000,000.00); and

(h)Worker’s compensation insurance or other similar insurance that may be
required by governmental authorities or applicable legal requirements in an
amount not less than the minimum required by law.

9.3All policies of insurance shall:

(a)(i) name Tenant as the insured and Landlord and Landlord’s Lenders as
additional insureds, as their interests may appear, and (ii) include primary
coverage in favor of all additional insureds (and with provisions that any other
insurance carried by any additional insured or Landlord shall be
non-contributing and that naming Landlord and the additional parties listed
above in this Section as additional insureds shall not negate any right Landlord
or such parties would have had as claimants under the policy if not so
designated); provided that the business interruption insurance required pursuant
to this Article 9 shall name Landlord and Landlord’s Lenders as loss payees.

 

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(b)provide that the beneficial interest of Landlord in such policies shall be
fully transferable;

(c)provide that they shall not be canceled, terminated, reduced or materially
modified without at least thirty (30) days prior written notice to Landlord;

(d)include a standard mortgagee clause in favor of any
mortgagee/beneficiary/senior lessor and shall contain, if obtainable, a waiver
of the insurer’s right of subrogation against funds paid under the standard
mortgagee endorsement that are to be used to pay the cost of any repairing,
rebuilding, restoring or replacing;

(e)provide that they are being issued on a primary, non-contributory basis, and
with respect to any umbrella or “excess coverage” policy, such shall
specifically provide that it is primary vis-a-vis any insurance policies carried
by Landlord or any of Landlord’s affiliates; and

(f)be subject only to such deductibles or retention amounts as shall reasonably
be acceptable to Landlord.

9.4An original Certificate of Insurance and Evidence of Property Coverage for
all insurance policies required by this Article shall be delivered to Landlord
at least five (5) days prior to the Commencement Date and replacement
Certificates of Insurance and Evidence of Property Coverage at least thirty (30)
days prior to the date of expiration.  From time-to-time immediately after
Landlord’s request thereof, Tenant shall deliver to Landlord copies of all
insurance policies then being carried by Tenant pursuant to these insurance
requirements.

9.5Tenant shall at all times keep in effect business interruption insurance with
a loss of rents endorsement naming Landlord as an insured in an amount at least
sufficient to cover each of the following for the period of the next succeeding
twelve (12) months following the occurrence of the business interruption:

(a)The aggregate of the cost of all taxes and assessments due for such twelve
(12) month period;

(b)The cost of all insurance premiums for insurance required to be carried by
Tenant for such twelve (12) month period; and

(c)The aggregate of the amount of the Base Rent for such twelve (12) month
period.

All proceeds of any business interruption insurance shall be applied, first, to
the payment of any and all Base Rent payments for such twelve (12) month period;
second, to the payment of any taxes and assessments and insurance deposits
required for such twelve (12) month period; and, thereafter, after all necessary
repairing, rebuilding, restoring or replacing has been completed as required by
the pertinent provisions of this Lease and the pertinent sections of any

 

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mortgage/deed of trust/senior lease, any remaining balance of such proceeds
shall be paid over to Tenant.

9.6From time to time, Landlord or any mortgagee/beneficiary/senior lessor may
reasonably require Tenant to change the amount or type of insurance, or to add
or substitute additional coverages, required to be maintained by Tenant
hereunder.

9.7In the event the amount of any casualty insurance proceeds exceed One Hundred
Fifty Thousand and No/100 Dollars ($150,000), such insurance proceeds as may be
paid to Tenant and Landlord shall be deposited with Landlord to be held and
disbursed for the repairing, rebuilding, restoring or replacing of the Demised
Premises or any portion thereof, or any improvements from time to time situated
thereon or therein, subject to the pertinent provisions of any Mortgage and in
accordance with the provisions of this Lease.

No sums shall be paid by Landlord from such proceeds toward such repairing,
rebuilding, restoring or replacing unless it shall be first made to appear to
the reasonable satisfaction of Landlord that the amount of money necessary to
provide for any such repairing, rebuilding, restoring or replacing (according to
any plans or specifications that may be adopted therefor) in excess of the
amount received from any such insurance policies, if any, has been expended or
provided by Tenant for such repairing, rebuilding, restoring or replacing, and
that the amount received from such insurance policies is sufficient to complete
such work.  In the event there is any amount required in excess of the amount
received from such insurance policies, Tenant shall deposit such excess funds
with Landlord so that the total amount available will be sufficient to complete
such repairing, rebuilding, restoring or replacing in accordance with the
provisions of any Mortgage and any plans and specifications submitted in
connection therewith, free from any liens or encumbrances of any kind
whatsoever. The funds held by Landlord shall be disbursed as needed for
completion of the work, with each disbursement to be made only upon presentment
of architect’s or general contractor’s certificates, waivers of lien (including
conditional waivers, as appropriate), contractor’s sworn statements, and other
evidence of cost as may be reasonably required by Landlord or any Mortgagee.

ARTICLE 10
LANDLORD’S OR MORTGAGEE’S RIGHT TO PERFORM

10.1Should Tenant fail to pay any amounts or perform any of its covenants herein
agreed to be paid or performed, and such failure continues beyond any applicable
cure periods set forth in this Lease with respect thereto, Landlord may, but
shall not be required to, make such payment or perform such covenants, and all
sums so expended by Landlord thereon shall immediately be payable by Tenant to
Landlord, with interest thereon at the Default Rate, from date thereof until
paid, and in addition, Tenant shall reimburse Landlord for Landlord’s reasonable
expenses in enforcing or performing such covenants, including reasonable
attorney’s fees.  Any such costs or expenses incurred or payments made by
Landlord shall be payable by Tenant as additional rent and shall be collectible
as such by Landlord.

 

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10.2Performance of, and/or payment made, to discharge said Tenant’s obligations
shall be optional with Landlord and such performance and payment shall in no way
constitute a waiver of, or a limitation upon, Landlord’s other rights hereunder.

10.3Tenant hereby acknowledges and agrees that any Mortgagee shall have the
right but not the obligation to perform any covenants and pay any amounts that
Tenant has failed to perform or pay as required under the terms of this Lease
but only to the extent such Mortgagee is entitled under the terms of its
Mortgage.

ARTICLE 11
REPAIRS AND MAINTENANCE; CASUALTY

11.1Throughout the Term, Tenant, at its sole cost and expense, will keep and
maintain, or cause to be kept and maintained, the Leased Property (including
without limitation the sidewalks, alleyways, passageways, vacant land, parking
spaces, curb cuts, and curbs adjoining the Demised Premises) in good order and
condition (ordinary wear and tear excepted subject to Tenant’s obligation to
repair and replace the same in accordance with the terms of this Lease) without
waste, and Tenant will make or cause to be made, as and when the same shall
become necessary, all structural and nonstructural, exterior and interior,
replacing, repairing and restoring necessary to comply with the above
requirements.  All replacing, repairing and restoring required of Tenant shall
be new and (in the reasonable opinion of Landlord), to the extent reasonably
available, of equivalent quality to the property being repaired or replaced, and
shall be in compliance with all standards and requirements of law, licenses and
municipal ordinances necessary to operate the Demised Premises for the Permitted
Use.  Any items of Landlord’s Personal Property that are uneconomical to repair
shall be replaced by new items or newly refurbished items that, to the extent
reasonably available, are of equivalent quality to the Landlord’s Personal
Property being repaired or replaced and in good working order, and all
replacement items shall become part of the Landlord’s Personal Property.  No
items of Landlord’s Personal Property shall be removed from the Demised Premises
except in connection with repair or replacement of such items. In performing any
such repairs, Tenant shall comply in all respects with Section 14.1, and shall,
upon request from Landlord, deliver to Landlord evidence satisfactory to
Landlord of such compliance, including, without limitation, copies of lien
waivers and/or paid invoices for all such repairs.

11.2Replacement Reserve.

(a)Tenant shall establish and maintain in effect throughout the Term hereof a
cash reserve (the “Replacement Reserve”) in an amount equal to $500 per licensed
bed for each of the Facilities, which amount shall be funded by Tenant as
hereinafter set forth and held by Landlord in a cash account on its books and
records, for the payment of costs and expenses associated with capital
improvements, repairs and replacements of every kind and nature to be performed
at the Facilities (“Capital Improvements”), and for no other purpose. During the
initial two (2) Lease Years, Tenant shall deliver to Landlord, simultaneously
with each of the four installments of Base Rent to be paid during each calendar
month, and in addition to all other amounts due hereunder, an amount equal to
one-ninety-sixth (1/96th) of the required

 

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Replacement Reserve to be deposited into the Replacement Reserve. On or before
the last day of each Lease Year, Tenant shall deposit into the Replacement
Reserve such additional amounts as may be necessary to replenish any amounts
drawn from the Replacement Reserve during such Lease Year.  Disbursements shall
be made from the Replacement Reserve only in accordance with this paragraph.  So
long as no Event of Default has occurred and is continuing, and no event or
circumstance exists which, with the giving of notice, the passage of time or
both, would become an Event of Default, Landlord shall disburse to Tenant from
the Replacement Reserve (but in no event to exceed amounts on deposit in the
Replacement Reserve), within ten (10) business days after Tenant’s written
request (and provision to Landlord of any supporting documentation reasonably
required by Landlord), the costs and expenses incurred installing or
constructing any Capital Improvements, provided such written notice includes a
detailed description of the Capital Improvements installed or constructed
together with an invoice for the work done. With each draw request, Tenant will
deliver to Landlord (i) a certification by Tenant that the work for which the
draw to be funded has been completed in accordance with applicable legal
requirements, and (ii) such additional supporting evidence as may be requested
by Landlord in its reasonable judgment, including such items as invoices,
receipts or other evidence verifying the cost of such work, together with
affidavits and/or lien waivers from those providing work, materials or supplies
for such portion of the work (provided it shall not be a requirement that Tenant
shall have made any payment on such invoice, unless necessary to procure the
required lien waiver). Tenant will additionally furnish to Landlord evidence
that all necessary or required approvals or consents from governmental
authorities have been obtained. In authorizing any disbursement from the
Replacement Reserve, Landlord shall be entitled to rely on Tenant’s written
request and supporting documentation without any inquiry into the accuracy,
validity or contestability of any such amount or the nature or necessity of the
materials provided or the work performed. Landlord may, at any time and from
time to time, but shall have no obligation to, make or cause to be made
inspections of any Facility.  In the event that any inspection report from any
such inspection reasonably recommends that Capital Improvements are required or
anticipated that are the obligation of Tenant in accordance the terms of this
Lease, Landlord shall provide Tenant with a written description of such Capital
Improvements and Tenant shall then complete those Capital Improvements to the
reasonable satisfaction of Landlord as expeditiously as is reasonably
practicable under the circumstances after the receipt of such description from
Landlord.

(b)It is specifically hereby stipulated and agreed that notwithstanding the
preceding provisions of this Section 11.2, the management, uses and disbursement
procedures and requirements of the Replacement Reserve may be taken over by a
Facility Mortgagee, and Tenant agrees to negotiate in good faith any changes to
this Section 11.2 as may be reasonably requested by a Facility Mortgagee in such
event and to pay the reasonable costs of the Facility Mortgagee in processing
draw requests.

(c)Tenant shall provide Landlord with an engineering or property condition
report (at Tenant’s sole cost and expense and in form and substance satisfactory
to Landlord in Landlord’s sole discretion) with respect to each Facility, not
more than twenty-four (24) months nor less than eighteen (18) months prior to
the end of the Initial Term (unless Tenant has elected a renewal option pursuant
to Article 3) or (if Tenant has elected a renewal option pursuant to

 

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Article 3) the last renewal Term elected by Tenant pursuant to Article 3.  If
(i) any such property condition report lists replacements of the roof or HVAC
systems as being required on the Demised Premises during the remainder of the
applicable Term, or (ii) an alteration or repair to the Demised Premises is
required by any applicable governmental authority during the last eighteen (18)
months of the applicable Term, then, Tenant promptly and expeditiously shall
cause such alteration or repair to be performed and, provided such alteration or
repair is the result of normal wear and tear and not due to neglect or waste by
Tenant, the cost of such alteration or repair, as the case may be, will be
apportioned between Landlord and Tenant with Tenant’s share equal to the cost of
such alteration or repair, as the case may be, multiplied by a fraction, the
numerator of which shall be the remainder of the Term from the time such
alteration or repair needs to be made pursuant to clauses (i) and (ii) of this
paragraph, and the denominator of which shall be the anticipated useful life of
such alteration or repair, as the case may be.  If, after any such
apportionment, any renewal Term is exercised in accordance with Article 3, the
cost of such alteration or repair will be re-apportioned accordingly.  If such
alteration or repair is due to neglect or waste by Tenant, Tenant will bear the
full cost of such alteration or repair, including any reasonable costs incurred
by Landlord to ensure that the alteration or repair is completed, and such
alteration or repair shall be made in accordance with all applicable
requirements of this Lease.

(d)Provided that no Event of Default exists at the expiration of this Lease, and
Tenant has paid all sums to Landlord which Tenant is required to pay prior to
the expiration of this Lease and there is not otherwise any term, covenant or
condition which is required to be performed by Tenant as of the expiration of
this Lease (including, without limitation, any alteration or repair required
pursuant to Section 11.2(c)), then any portion of the Replacement Reserve then
remaining on deposit with Landlord shall be returned to Tenant after delivery of
exclusive possession of the Demised Premises to Landlord.  In the event of the
sale of the Demised Premises and the purchaser’s assumption of Landlord’s
obligations hereunder, Landlord shall have the right to transfer the Replacement
Reserve to the purchaser, and Landlord shall thereupon be deemed to be released
by Tenant from all liability for the return of such Replacement Reserve, and
Tenant agrees to look solely to the new landlord for the return of said
Replacement Reserve.  It is agreed that the provisions hereof shall apply to
every transfer or assignment made of the Replacement Reserve to a new
landlord.  Tenant further covenants that it will not assign or encumber the
monies deposited herein as the Replacement Reserve and that neither Landlord nor
its successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.

11.3In the event that any part of the improvements located on the Demised
Premises or the Landlord’s Personal Property shall be damaged or destroyed by
fire or other casualty (any such event being called a “Casualty”), Tenant shall
promptly and with all due diligence, but in any event on or before one year
after the date of such Casualty, replace, repair and restore the same as nearly
as possible to the condition it was in immediately prior to such Casualty, in
accordance with all of the terms, covenants and conditions and other applicable
requirements of this Lease and any Mortgage in the event of such Casualty,
whether or not the insurance proceeds or other compensation are sufficient to
pay the cost of such restoration and repair.  The Demised Premises and the
Landlord’s Personal Property shall be so replaced, repaired and

 

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restored as to be of at least equal value and substantially the same character
as prior to such Casualty.  Tenant shall submit to Landlord for Landlord’s prior
written approval plans and specifications for any such restoring, replacing or
repairing, and Tenant shall immediately select an independent architect approved
by Landlord and any Mortgagee, who shall be in charge of such repairing,
restoring and replacing.  Without limitation of Landlord’s rights hereunder,
there shall be the following additional conditions precedent to any disbursement
of insurance proceeds:  (i) at the time of each and every disbursement there
shall exist no Event of Default under this Lease, and (ii) that Landlord and
Mortgagee, if applicable, shall have approved all plans and specifications for
any proposed repair or restoration.  Tenant covenants that it will give to
Landlord prompt written notice of any Casualty affecting the Leased
Property.  Notwithstanding anything to the contrary in this Lease, there shall
be no abatement or other adjustment of Base Rent as a result of any Casualty.

11.4Provided that there shall not exist an Event of Default under this Lease,
Tenant shall have the right, at any time and from time to time, to remove and
dispose of any Landlord’s Personal Property that may have become obsolete or
unfit for use, or that is no longer useful in the operation of the Demised
Premises, provided further that Tenant promptly replaces any such Landlord’s
Personal Property so removed or disposed of with other personal property free of
any security interest, lien or encumbrance.  Said replacement Landlord’s
Personal Property shall be in good working order and of the same character and
specifications as the Landlord’s Personal Property so removed or disposed of and
such replacement Landlord’s Personal Property shall automatically become the
property of and shall belong to Landlord, and Tenant shall execute such bills of
sale or other documents reasonably requested by Landlord to vest the ownership
of such Landlord’s Personal Property in Landlord.

11.5The parties acknowledge the existence of a subsurface water condition
affecting the building foundation at the Facility identified on Exhibit “A” as
Kemp Care Center, located at 1351 S. Elm Street, Kemp Texas.  Notwithstanding
anything contained in this Lease to the contrary, Landlord agrees expeditiously
to perform, at Landlord’s sole cost and expense, such remediation of the said
condition as shall reasonably be necessary in order to alleviate the
infiltration of water to the building’s fill pad and to reduce further movement
of the foundation. Tenant shall have no responsibility for any maintenance,
repair or rebuilding that may be the direct result of subsurface water
conditions at Kemp Care Center.  

ARTICLE 12
ALTERATIONS AND DEMOLITION

12.1Tenant will not remove or demolish any improvement or building that is part
of the Demised Premises or any portion thereof or allow it to be removed or
demolished, without the prior written consent of Landlord.  Tenant further
agrees that it will not make, authorize or permit to be made any changes or
alterations having a cost of more than Fifty Thousand Dollars ($50,000) at any
one Facility in any given year without first obtaining Landlord’s written
consent thereto. As used herein, the term “changes or alterations” shall not
include routine maintenance, upkeep or upgrades, such as painting, wallpapering,
installation of flooring, installation or replacement of HVAC systems and
controls, roof repair or replacement, non-structural energy

 

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upgrades, upgrades and changes mandated by law or the orders of any governmental
agency having jurisdiction of the Demised Premises, and similar changes; it
shall include, however, structural changes and  building additions.  All
alterations, improvements and additions to the Demised Premises shall be of
first-class quality and in good working order, in the reasonable opinion of
Landlord, and shall become the property of Landlord and shall meet all building
and fire codes, and all other applicable codes, rules, regulations, laws and
ordinances.

ARTICLE 13
COMPLIANCE WITH LAWS AND ORDINANCES

13.1Throughout the Term, Tenant, at its sole cost and expense, will obey,
observe and  promptly comply with all present and future laws, ordinances,
orders, rules, regulations and requirements of any federal, state and municipal
governmental agency or authority having jurisdiction over all or any portion of
the Leased Property and the use and operation thereof for the Permitted Use.

13.2Tenant shall likewise observe and comply with the requirements of all
policies of public liability and fire insurance and all other policies of
insurance at any time in force with respect to the Leased Property or any
portion thereof.

13.3Tenant shall promptly apply for and procure and keep in good standing and in
full force and effect all necessary licenses, permits, provider agreements and
certifications required by any governmental authority for the purpose of
maintaining and operating each Facility as a skilled nursing facility, in full
compliance with all the rules and regulations and minimum standards applicable
thereto, as prescribed by the State of Texas and such other governmental
authorities having jurisdiction thereof, each Facility having no less than the
number of licensed skilled nursing beds as set forth on Exhibit A.
Notwithstanding anything else in this Lease, Tenant shall not be held
responsible for reductions in the number of licensed beds where such reductions
were made by HHSC or other government authority having jurisdiction over the
Facilities and under circumstances in which Tenant could not have prevented the
reduction with the exercise of reasonable care and diligence.

13.4Within thirty (30) days of receipt, Tenant will deliver or mail to Landlord,
to the address and in the manner as provided herein for the giving of notices,
copies of all inspection reports, annual license renewals, surveys, deficiency
reports, and notices of administrative hearings and/or court actions from all
state, federal and local governmental bodies regarding all or any portion of the
Leased Property or any of the Facilities.  Tenant shall notify Landlord within
five (5) business days after receipt thereof of any notice from any governmental
agency terminating or suspending or threatening termination or suspension, of
any license, permit, provider agreement or certification relating to the Leased
Property and shall provide a copy of the same to Landlord (a “Material Notice”).

ARTICLE 14
DISCHARGE OF LIENS

 

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14.1Tenant will not create or permit to be created or to remain, and Tenant will
discharge, any lien, encumbrance or charge levied on account of any mechanic’s,
laborer’s or materialman’s lien or any conditional sale, security agreement or
chattel mortgage, or otherwise, that might be or become a lien, encumbrance or
charge upon the Leased Property or any part thereof or the income therefrom, for
work or materials or personal property furnished or supplied to, or claimed to
have been supplied to or at the request of Tenant.

14.2If any such lien, encumbrance or charge is created upon the Demised Premises
or any part thereof, then in addition to any other right or remedy, Landlord
may, upon ten (10) days’ notice, but shall not be obligated to, discharge the
same either by paying the amount claimed to be due or by processing the
discharge of such lien by deposit or by bonding proceedings.  Any amount so paid
by Landlord and all costs and expenses incurred by Landlord in connection
therewith, together with interest thereon at the Default Rate, shall be payable
by Tenant under this Lease and shall be paid by Tenant to Landlord on
demand.  Except as herein provided, nothing contained herein shall in any way
empower Tenant to do or suffer any act that can, may or shall cloud or encumber
Landlord’s or any Mortgagee’s interest in the Demised Premises.

ARTICLE 15
INSPECTIONS OF PREMISES BY LANDLORD

15.1At any time during reasonable business hours, Landlord and/or its authorized
representative shall have the right to enter the Demised Premises and inspect
the Leased Property; provided that Tenant shall be entitled to reasonable prior
notice of any such entry or inspection (which notice may be oral) except in the
event of an emergency or in the event Tenant is then in default under this Lease
in which case no notice shall be necessary.

15.2Landlord agrees that the person or persons entering the Demised Premises and
inspecting the Leased Property pursuant to Section 15.1 above will cause as
little inconvenience to Tenant as may reasonably be possible under the
circumstances.

15.3Tenant hereby acknowledges and agrees that any Mortgagee shall have the
right but not the obligation to enter the Demised Premises and inspect the
Leased Property to the extent such Mortgagee is entitled to do so under the
terms of its Mortgage.

ARTICLE 16
CONDEMNATION

16.1In the event the entirety of any Facility Property, or such portion thereof
that renders the Facility not able to be operated for its primary intended use
in compliance with this Lease, shall be taken or sold under the notice or threat
of such taking for any public use by act of any public authority (hereinafter
referred to as a “Taking”), then this Lease shall terminate as to the affected
Facility Property as of the date of such Taking.  Upon such Taking, the Base
Rent shall be reduced in accordance with Section 16.3, below. All damages
awarded for such Taking under the power of eminent domain shall be the property
of Landlord, whether such damages shall be awarded as compensation for
diminution in value of the leasehold or the fee of the

 

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Facility Property. Tenant shall be entitled, if provided by law, to pursue and
receive a separate award from the condemning authority for loss of Tenant’s
interest in the Facility Property, but only if the award to which Landlord would
have otherwise been entitled had Tenant not received or participated in such
award, is not diminished thereby, directly or indirectly, and, further, in no
event shall Tenant be entitled to an apportionment of any condemnation award or
settlement that Landlord would have been entitled to receive with respect to
such Taking but for the above provision and Tenant hereby assigns to Landlord
any and all right, title and interest Tenant may have in any and all such awards
or settlements.  

16.2In the event of a partial Taking of a Facility Property, the result of which
shall be a reduction in the number of licensed beds at the Facility Property by
fifty percent (50%) or more of the Facility Property’s licensed capacity
existing prior to such Taking, Landlord shall have the option (i) to terminate
this Lease, whereupon the Base Rent shall be reduced as provided in Section
16.3, below, or (ii) Landlord shall hold in trust that portion, if any, of such
award, settlement or compromise that shall be allocable to consequential damage
to buildings and improvements not taken, and Landlord shall pay out such portion
to Tenant for the cost of restoring the Facility Property as a complete
structural unit, as such restoration work progresses in accordance with the
procedure for making insurance proceeds available for restoration, repair or
rebuilding as set forth in ARTICLE 9 and ARTICLE 11.  Landlord shall be entitled
to retain any excess portion of such award, settlement or compromise. Tenant
shall be entitled, if provided by law, to pursue and receive a separate award
from the condemning authority for loss of Tenant’s interest in the Facility
Property, but only if the award to which Landlord would have otherwise been
entitled had Tenant not received or participated in such award, is not
diminished thereby, directly or indirectly, and, further, in no event shall
Tenant be entitled to an apportionment of any condemnation award or settlement
that Landlord would have been entitled to receive with respect to such Taking
but for the above provision and Tenant hereby assigns to Landlord any and all
right, title and interest Tenant may have in any and all such awards or
settlements.  In the event of a partial condemnation that does not result in any
termination of this Lease with respect to the Facility Property, the Base Rent
payable under Section 4.1 hereof shall be proportionally adjusted based upon the
number of licensed and certified beds lost to the number of licensed and
certified beds authorized in the Facility Property immediately prior to the
Taking.

16.3In the event this Lease is terminated as to any Facility Property in
accordance with Section 16.1 or Section 16.2, the Base Rent shall be reduced by
an amount equal to (i) the Base Rent immediately prior to the date of notice of
such Taking, multiplied by (ii) the ratio of the EBITDARM attributable to such
Facility Property for the twelve (12) month period immediately prior to such
Taking to the aggregate EBITDARM attributable to all of the Facilities for the
twelve (12) month period immediately prior to such Taking. The termination of
this Lease due to a Taking is the result of circumstances beyond the control of
Landlord and Tenant and the parties hereto affirm that, except for such specific
isolated situation, this Lease is intended to be a single indivisible lease.

ARTICLE 17
RENT ABSOLUTE

 

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17.1The Leased Property is leased to Tenant in an “AS IS, WHERE IS” condition,
subject to the rights of any parties in possession thereof, the state of the
title thereof as of the date of this Lease, any state of facts that an accurate
survey or physical inspection thereof might show, and to all zoning regulations,
restrictions, rules and ordinances, building restrictions and other laws and
regulations now in effect or hereafter adopted by any governmental authority
having jurisdiction thereof.  Tenant has examined the Leased Property and has
found the same satisfactory.  Tenant acknowledges that the Leased Property is
the property of Landlord and that Tenant has the leasehold rights as set forth
in the terms and conditions of this Lease.

17.2As a material inducement to Landlord in the making of and entry into this
Lease, Tenant hereby expressly agrees as follows:

(a)It is the responsibility of Tenant to be fully acquainted with the nature, in
all respects, of the Leased Property, including (but not by way of limitation);
the soil and geology thereof, the waters thereof and thereunder; the drainage
thereof; the manner of construction and the condition and state of repair and
lack of repair of all improvements of every nature; the nature, provisions and
effect of all health, fire, zoning, building, subdivision and all other use and
occupancy laws, ordinances, and regulations applicable thereto; and the nature
and extent of the rights of others with respect thereto, whether by way of
reversion, easement, right of way, prescription, adverse possession, profit,
servitude, lease, tenancy, lien, encumbrance, license, contract, reservation,
condition, right of re-entry, possibility of reverter, sufferance or
otherwise.  Landlord makes no representation as to, and has no duty to be
informed with respect to, any of the matters set forth in the preceding
sentence.  Tenant hereby accepts the Leased Property as suitable and adequate in
all respects for the conduct of the business and the uses of the Leased Property
as contemplated under the provisions of this Lease.

(b)Tenant expressly covenants and agrees that it hereby takes this Lease and the
leasehold estate hereby established upon and subject to Landlord’s title as it
exists on the date hereof (but subject to Landlord’s covenant of quiet enjoyment
in Section 33.1 hereof), including all rights, rights of way, easements,
profits, servitudes, reservations, restrictions, conditions, exceptions,
reversions, possibilities of reverter, liens, encumbrances, occupancies,
tenancies, licenses, clouds, claims and defects, known and unknown and whether
of record or not.

(c)Tenant hereby expressly waives any and all rights that it might have against
Landlord by reason of any of the foregoing, including (but not limited to) the
requirements of any inspection or examination by Tenant of the Leased Property.

17.3Except as otherwise specifically provided in this Lease, this Lease shall
continue in full force and effect, and the obligations of Tenant hereunder shall
not be released, discharged or otherwise affected, by reason of:  (i) any damage
to or destruction of the Leased Property or any part thereof or the taking of
the Leased Property or any part thereof by condemnation, requisition or
otherwise for any reason, (ii) any restriction or prevention of or interference
with any use of the Leased Property or any part thereof, including any
restriction or interference with or circumstance that prevents the use of the
Leased Property as contemplated by Section 8.1, (iii) any frustration of
Tenant’s purposes hereunder, (iv) any claim that Tenant has or might have

 

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against Landlord, or (v) any other occurrence whatsoever, whether similar or
dissimilar to the foregoing.

17.4Without limiting the generality of Section 17.3, Tenant shall continue to
pay Base Rent and to perform its obligations under this Lease even if Tenant
claims that Landlord has breached any obligation under this Lease or that Tenant
has been damaged by any act or omission of Landlord. Therefore, Tenant shall at
all times remain obligated to fully and faithfully pay and perform all its
obligations under this Lease, without any right of set-off, counterclaim,
abatement, deduction, or any other reduction. Tenant’s sole right to recover
damages against Landlord by reason of a breach or alleged breach of Landlord’s
obligations under this Lease shall be to pursue, prove and subsequently be
awarded by a court of competent jurisdiction a judgment for such damages in a
separate action against Landlord.

ARTICLE 18
ASSIGNMENT AND SUBLETTING

18.1During the Term, Tenant shall not, without the prior written consent of
Landlord, which may be withheld in the sole discretion of Landlord, assign this
Lease or in any manner whatsoever sublet, assign, sell, pledge, encumber or
transfer all or any part of the Leased Property or any interest in the Leased
Property or enter into any management or other similar agreement pursuant to
which a party shall undertake responsibility for the management and operation of
the Leased Property or any portion thereof.  For the purposes of this Lease, it
shall be deemed to be an assignment of this Lease if there shall occur any
change (voluntary or involuntary, by operation of law or otherwise) in the
persons or entities which Control the management and affairs of Tenant or
Guarantor as of the date of this Lease.  Further, and except for security
interests granted to Tenant’s senior secured lender, Tenant shall not cause or
permit any sale, transfer, pledge, assignment or encumbrance of ownership
interest or voting rights in Tenant which results in twenty percent (20%) or
more of the ownership interests or voting rights in Tenant being held by any
persons or entities that did not have such ownership as of the date of this
Lease, whether voluntarily, involuntarily, by operation of law or otherwise, and
any such act or occurrence shall be deemed to be an assignment of this Lease,
and shall require Landlord’s prior written consent, which may be withheld in
Landlord’s sole discretion.  Any violation or breach or attempted violation or
breach of the provisions of this Article by Tenant, or any acts inconsistent
herewith shall vest no right, title or interest herein or hereunder or in the
Leased Property, in any such transferee or assignee, and any such violation,
breach or attempted violation or breach shall constitute an Event of Default
hereunder permitting Landlord to terminate this Lease or to exercise any of its
other remedies in accordance with the provisions of ARTICLE 21 without any right
of Tenant to cure the same.  Landlord’s consent to any of the foregoing shall
not release Tenant from, or otherwise affect, Tenant’s obligations and
liabilities under this Lease.

18.2Notwithstanding the provisions of Section 18.1, Landlord agrees that Tenant
shall have the right to encumber, collaterally assign, pledge or hypothecate
Tenant’s interest in the leasehold estate created by this Lease without
Landlord’s prior written consent so long as such encumbrance, assignment or
pledge (hereinafter, a “Leasehold Mortgage”) is in favor of a real

 

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estate investment trust, bank, saving and loan association, investment bank,
insurance company, trust company, commercial credit corporation, pension plan,
pension fund or pension advisory firm, mutual fund, government entity or plan
that satisfies the Eligibility Requirements (defined below). All proceeds from
any Leasehold Mortgage shall remain the property of Tenant.  Landlord shall not
be obligated to subordinate any or all of Landlord’s right, title or interest in
and to the Demised Properties or this Lease to the lien of any Leasehold
Mortgage.  A Leasehold Mortgage shall encumber only Tenant’s leasehold interest
in the Demised Properties and shall not encumber Landlord’s right, title or
interest in the Demised Properties.  Landlord shall have no liability whatsoever
for the payment or performance of any obligation secured by any Leasehold
Mortgage or related obligations.  A Leasehold Mortgage shall be, and hereafter
shall continue at all times to be, subject and subordinate to each and all of
the covenants, conditions and restrictions set forth in this Lease (including
with regard to any attempted further assignment by the holder of the Leasehold
Mortgage, whether by foreclosure or otherwise), and junior, subject and
subordinate, in each and every respect, to all rights and interests of any
Landlord’s Mortgagee now or hereafter affecting any of the Demised Properties.
Should there be any conflict between the provisions of this Lease and the
provisions of any Leasehold Mortgage, the provisions of this Lease shall
control.  No Leasehold Mortgage shall be for a term longer than the then current
Lease Term.  Upon written request from Tenant, Landlord agrees to deliver an
estoppel certificate in favor of Tenant’s Lender regarding this Lease, in form
and substance reasonably acceptable to Landlord and Tenant’s Lender.  If
Landlord delivers to Tenant a Default notice under this Lease, Landlord shall
notify any Tenant’s Lender that has delivered to Landlord a prior written
request for such notice, and Landlord shall recognize and accept the performance
of any obligation of Tenant hereunder by Tenant’s Lender (provided said
performance occurs within the same cure periods as provided to Tenant under this
Lease); provided, however that nothing contained herein shall obligate Tenant’s
Lender to take any such actions.  Any act by Tenant or Tenant’s Lender in
violation of this Section 18.2 shall be null and void and of no force or
effect.  Tenant  shall, without charge, at any time and from time to time,
within twenty (20) days after any request by Landlord, obtain from Tenant’s
Lender and deliver to Landlord or any other Person specified by Landlord, duly
executed and acknowledged, an estoppel certificate certifying (x) copies of the
documents creating, evidencing and securing the debt secured by any Leasehold
Mortgage, (y) whether, to the knowledge of Tenant’s Lender, any default exists
under such Leasehold Mortgage and (z) such other matters relating to such
Leasehold Mortgage as Landlord may reasonably request.  This Section shall
survive termination of this Lease.  “Eligibility Requirements” as used in this
Section means, with respect to any entity, that such entity (i) has total assets
(in name or under management) in excess of $500,000,000 and (except with respect
to a pension advisory firm or similar fiduciary) either (x) capital/statutory
surplus or shareholder’s equity of $200,000,000 or (y) market capitalization of
at least $300,000,000, and (ii) is regularly engaged in the business of making
or owning commercial real estate loans (including mezzanine loans to direct or
indirect owners of commercial properties, which loans are secured by pledges of
direct or indirect ownership interests in the owners of such commercial
properties) or operating commercial real estate properties.

18.3Notwithstanding the provisions of Section 18.1, Landlord agrees that Tenant
shall have the right to engage Guarantor, as manager of the operations of the
Facilities; provided that

 

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(i) the management fee or other compensation payable to Guarantor for such
services with respect to any period shall accrue at a rate not to exceed six
percent (6%) of the lesser of (A) Net Patient Revenue of the Facilities, and (B)
actual collected revenue of the Facilities.

18.4Notwithstanding the provisions of Section 18.1, Tenant shall be permitted to
enter into one or more transactions (each, a “QIPP Transaction”), pursuant to
which Tenant shall sublease one or more of the Facilities to one or more
nonprofit hospital systems (each, a “QIPP Subtenant”), provided that, in each
case, (i) the QIPP Subtenant becomes the licensed operator of the subject
Facility, (ii) the subject Facility, as operated by such QIPP Subtenant, is
eligible to participate in the Texas Quality Incentive Payment Program (QIPP) or
other Intergovernmental Transfer (IGT) program as established by HHSC, (iii) the
proposed form of sublease agreement is approved in advance by Landlord, which
approval shall not be unreasonably withheld, and (iv) the operation of the
subject Facility is to be managed by Tenant pursuant to a management agreement
approved in advance by Landlord, which approval shall not be unreasonably
withheld.  Tenant shall not enter into any amendment or modification of any
sublease or management agreement entered into in connection with a QIPP
Transaction (each, a “QIPP Agreement”), or grant any waiver or release under or
with respect to any QIPP Agreement, without the prior written consent of
Landlord in each instance.  Tenant shall provide to Landlord, (i) simultaneously
with the giving of any such notice, a copy of any notice of default under any
QIPP Agreement given by Tenant to any QIPP Subtenant, and (ii) as promptly as
practicable upon receipt, but in any event with two (2) business days of
receipt, a copy of any notice of default given to Tenant by any QIPP Subtenant
pursuant to any of the QIPP Agreements.

18.5Reserved.

18.6Tenant hereby acknowledges and agrees that Landlord is not assuming and
shall have no obligation or liability whatsoever with respect to any QIPP
Agreement.  Moreover, and notwithstanding anything to the contrary in any QIPP
Agreement, Tenant shall remain fully responsible for the performance of all
terms, covenants and provisions of this Lease as applicable to all of the
Facility Properties.  

18.7This Lease shall be fully assignable by Landlord or its successors and
assigns, in whole as to all of the Demised Premises or in part with respect to
one or more of the Demised Premises (including to one or more Affiliates of
Landlord).  Tenant agrees to cooperate reasonably with Landlord in connection
with any such assignment, and agrees to execute and deliver (or cause to be
executed and delivered, as applicable) to Landlord any other instruments and
documents requested by Landlord in connection with the assignment, including any
commercially reasonable subordination, non-disturbance and attornment agreement
that may be requested by Landlord’s assignee’s lenders.  From and after the
effective date of any such Landlord assignment and notice thereof to Tenant,
Landlord shall be automatically released (without need for any further agreement
or other document) from any liability thereafter arising with respect to the
Demised Properties covered thereby.

ARTICLE 19
EVENTS OF DEFAULT

 

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19.1The occurrence of any of the following acts or events shall constitute an
event of default on the part of Tenant (“Event of Default”):

(a)The failure of Tenant to pay when due any payment of Base Rent, or any part
thereof, or any other sum or sums of money due or payable to Landlord under the
provisions of this Lease;

(b)The failure on the part of Tenant to maintain in effect any of the insurance
policies required to be maintained by Tenant under this Lease;

(c)Any unauthorized assignment, subletting or transfer of Tenant’s interest
under this Lease as a result of non-compliance with the provisions of Section
18.1;

(d)The failure of Tenant to comply with, or the violation by Tenant of, any of
the terms, conditions or provisions of any Mortgage, after notice thereof by
Landlord to Tenant if such failure or violation shall not be cured within ten
(10) days;

(e)The failure of Tenant to give any Material Notices pursuant to Section 13.4;

(f)The failure of Tenant to perform or comply in any material respect with any
other term or provision of this Lease not requiring the payment of money,
including, without limitation, the failure to comply in any material respect
with the provisions hereof pertaining to the use, operation and maintenance of
the Demised Premises; provided, however, if the default described in this
paragraph is curable same shall be deemed cured, if: (a) within three (3)
business days of Tenant’s receipt of a notice of default from Landlord, Tenant
gives Landlord notice of its intent to cure such default; and (b) Tenant cures
such default within thirty (30) days after such notice from Landlord, unless
such default cannot with the exercise of diligent efforts be cured within a
period of thirty (30) days because of the nature of the default or delays beyond
the control of Tenant, and cure after such thirty (30) day period will not have
a material and adverse effect upon the Premises, in which case such default
shall not constitute an Event of Default if Tenant uses its best efforts to cure
such default by promptly commencing and diligently pursuing such cure to the
completion thereof, provided, further however, no cure period for such default
shall continue for more than one hundred twenty (120) days from Tenant’s receipt
of a notice of default from Landlord;

(g)Any local, state or federal agency having jurisdiction over the operation of
any Facility orders the removal of ten percent (10%) or more of the patients
located in such Facility unless such removal shall have been ordered for reasons
beyond the control of Tenant;

(h)The voluntary transfer by Tenant of ten percent (10%) or more of the patients
located in any Facility and such transfer is not at the patients’ request or for
reasons relating to the health and well-being of the patients that were
transferred;

(i)The making by any Tenant or Guarantor of an assignment for the benefit of
creditors;

 

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(j)The levying of a writ of execution or attachment on or against the property
of any Tenant or Guarantor that is not discharged or stayed by action of Tenant
or Guarantor contesting same, within thirty (30) days after such levy or
attachment (provided if the stay is vacated or ended, this paragraph shall again
apply);

(k)If proceedings are instituted in a court of competent jurisdiction for the
reorganization, liquidation or involuntary dissolution of any Tenant or
Guarantor for its adjudication as a bankrupt or insolvent, or for the
appointment of a receiver of the property of any Tenant or Guarantor, and said
proceedings are not dismissed and any receiver, trustee or liquidator appointed
therein is not discharged within ninety (90) days after the institution of said
proceedings;

(l)The sale of any interest of Tenant in the Demised Premises or portion thereof
under a writ of execution or other legal process;

(m)The failure on the part of Tenant during the Term to cure or abate or receive
a waiver for any violation claimed by any governmental authority, or any officer
acting on behalf thereof, of any law, order, ordinance, rule or regulation
pertaining to the operation of any Facility, including without limitation, any
proceedings to revoke any license granted to Tenant for the operation of the
Permitted Use at such Facility Property or to decertify such Facility Property
from participation in the Medicare or Medicaid reimbursement programs, within
either (a) thirty (30) days prior to the date set forth in any notice from the
governmental authority for revocation, withdrawal or cancellation of any
license, certificate, permit or provider agreement, or, (b) if no date is set
forth for revocation, withdrawal or cancellation of any license, certificate,
permit or provider agreement, prior to the expiration of any time period
permitted by such authority for such cure or abatement, in each case, subject to
Tenant’s right to contest the same in accordance with ARTICLE 20; provided,
however, that in the event such authority requires such cure or abatement under
subsection (a) be completed in less than thirty (30) days, Tenant shall endeavor
to effect such cure or abatement as expeditiously as possible, but in no event
less than ten (10) days prior to the expiration of the time period permitted by
such authority for such cure or abatement;

(n)The abandonment of the Demised Premises, or any material portion thereof, by
Tenant;

(o)The termination of the right to receive Medicaid or Medicare reimbursements
based upon any actual or alleged fraud, misfeasance or malfeasance;

(p)The failure on the part of Tenant during the Term to cure or abate any
payment obligation claimed by any governmental authority pertaining to Medicaid
or Medicare recoupments or any other impositions, including, but not limited to
bed taxes, in connection with the provider agreements, certifications or
licenses for the Demised Premises, subject to Tenant’s right to contest the same
in accordance with ARTICLE 20;

(q)The failure of any Guarantor to perform, or the violation by any Guarantor of
any of the covenants of the Guaranty Agreement beyond any notice and cure
periods set forth

 

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therein or any representations or warranties by Guarantors under the Guaranty
Agreement shall prove to have been false in any material respect when made;

(r)The occurrence of a Material Adverse Change as to Tenant or the Guarantors,
which Material Adverse Change has not been remedied to the reasonable
satisfaction of Landlord within ten (10) days following written notice thereof
from Landlord; or

(s)The occurrence of an event of default under any senior secured credit
facility as to which Tenant, Guarantor, or any entity that Controls Tenant or
Guarantor, is a borrower or a guarantor, and such default is not waived in
writing or cured within any applicable cure period under such credit facility.

ARTICLE 20
RIGHT TO CONTEST

20.1Tenant shall have the right upon written notice thereof to Landlord, to
contest by appropriate legal proceedings, diligently conducted in good faith,
the validity or application of any law, regulation or rule mentioned herein, and
to delay compliance therewith pending the prosecution of such proceedings;
provided, however, that (a) no civil or criminal liability would thereby be
incurred by Landlord or any successor operator of all or any portion of the
Demised Premises and no lien or charge would thereby be imposed upon or
satisfied out of the Leased Property or any portion thereof, (b) the
effectiveness and good standing of any licenses, certificates, permits or
provider agreements affecting the Demised Premises or any portion thereof or the
nursing home operated at the applicable Facility Property would continue in full
force and effect during the period of such contest, and is cured not less than
thirty (30) days prior to the date set forth for revocation, withdrawal or
cancellation of any such licenses, certificates, permits or provider agreements,
and (c) Tenant satisfies any and all applicable requirements of any Mortgage.

ARTICLE 21
LANDLORD’S REMEDIES UPON DEFAULT

21.1Upon the occurrence of an Event of Default, Landlord may exercise all rights
and remedies under this Lease and the laws of the state in which any Facility is
located available to a Landlord of real and personal property in the event of a
default by its tenant. Without limiting the foregoing, Landlord shall have the
right to do any of the following:

(a)Terminate this Lease and all rights of Tenant hereunder, provided that a
Proper Successor has been designated, by giving Tenant ten (10) days written
notice of such election to terminate, in which event Tenant shall immediately
surrender the Leased Property to the Proper Successor, and if Tenant fails to
surrender the Leased Property, Landlord may, without prejudice to any other
remedy which Landlord may have, expel or remove Tenant and any other person who
may be occupying the Demised Premises, or any part thereof. In such event
Landlord may seek such damages and remedies as are available at law or in equity
for Tenant’s breach of this Lease, including the recovery from Tenant of the
following:

 

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(i)the worth at the time of award of any unpaid Rent which has been earned at
the time of such termination; plus

(ii)the worth at the time of award of any amount by which the unpaid Rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that Tenant proves could have been reasonably
avoided; plus

(iii)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 the award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; plus

(iv)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 would be likely to result
therefrom; and

(v)at Landlord’s election, such other amounts in addition to or in lieu of the
foregoing as may be permitted from time to time by applicable law.

All Rent shall be computed on the basis on the amounts thereof payable on the
date of Tenant’s default, as the same are to be adjusted thereafter as
contemplated by this Lease. As used in subparagraphs “(i)” and “(ii)”, above,
the “worth at the time of award” is computed by allowing interest in the per
annum amount equal to the Default Rate.  As used in subparagraph (iii), above,
the “worth at the time of award” is computed by discounting such amount at the
Prime Rate.

21.2Enter upon and take possession of the Leased Property and expel or remove
Tenant and any other Person who may be occupying the Demised Premises or any
part thereof as well as any and all property, with or without terminating this
Lease, and any property may be removed and stored in a public warehouse or
elsewhere at the cost of and for the account of Tenant; and Landlord shall be
obligated to use commercially reasonable efforts to mitigate its damages by
reletting the Leased Property; and Tenant shall cooperate with Landlord in
connection with any proposed transfer to any Proper Successor to transfer
operations; and Tenant covenants and agrees to pay Landlord, on demand, any cost
or expense incurred by Landlord in connection with reletting the Leased Property
or any deficiency in Base Rent that may arise by reason of such reletting,
including, without limitation, brokerage fees, advertising expenses, preparation
expenses, alterations and repairs to the Leased Property, legal expenses, and
the cost of performing such of Tenant’s obligations as Landlord determines to be
necessary and reasonable.  Landlord’s obligation to mitigate Landlord’s damages
shall be subject to the following conditions: (i) Landlord shall be required to
only use reasonable efforts to mitigate damages by re-letting the Demised
Premises as a unitary whole, which efforts shall not exceed those that a
commercially reasonable landlord generally uses to re-let multi-site (10 or
more) portfolios of healthcare facilities that are treated as a single premises
under a unitary lease that has been terminated and sought to be re-let as a
single premises under a new unitary lease; (ii) notwithstanding clause (i),
Landlord shall not be deemed to have failed to mitigate as to any un-let portion
of the Demised Premises if Landlord or its affiliates re-let the Demised
Premises in individual sites or in smaller groups of sites which Landlord may in
its discretion deem

 

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appropriate; (iii) any failure to mitigate as described herein with respect to
any period of time shall only reduce the Base Rent and additional rent to which
Landlord is entitled hereunder by the actual sums collected for the same
components of fixed rent and additional rent from other tenants during such
period; any amounts collected as a result of any re-letting shall be applied
first to the payment of any costs and expenses of such re-letting, including
brokerage fees, attorneys’ fees, and the costs of any alterations and repairs
necessary to re-let the Demised Premises; and (iv) in no event shall Tenant be
entitled to any excess rental received by Landlord over and above charges
damages otherwise chargeable to Tenant. Without limiting the foregoing,
recognizing that the future value of Facility Properties comprising the Demised
Premises depends in part on the terms of new leases therefor, including the
rental rates stated therein, Landlord’s rejection of a prospective replacement
tenant for the Demised Premises or any part thereof based on an offer of rentals
below the greater of the fair market value rent or the rates provided in this
Lease, or otherwise containing substantive terms less favorable than those
contained herein, shall not give rise to a claim by Tenant that Landlord failed
to mitigate Landlord’s damages.

21.3In the event that Landlord shall elect to so relet, rentals received by
Landlord from such reletting shall be applied: first, to the payment of any
indebtedness other than rent due hereunder from Tenant to Landlord; second, to
the payment of any cost of such reletting; third, to the payment of the cost of
any alterations and repairs to the Leased Property; fourth, to the payment of
rent due and unpaid hereunder; and the remainder, if any, shall be held by
Landlord and applied in payment of future rent as the same may become due and
payable hereunder. Should that portion of such rentals received from such
reletting during any month, which is applied to the payment of rent hereunder,
be less than the rent payable during that month by Tenant hereunder, then Tenant
shall pay such deficiency to Landlord. Such deficiency shall be calculated and
paid in full immediately upon demand. Tenant shall also pay to Landlord, as soon
as ascertained, any costs and expenses incurred by Landlord in such reletting or
in making such alterations and repairs not covered by the rentals received from
such reletting. Notwithstanding any election by Landlord to re-take possession
of the Leased Property pursuant to this provision, Landlord may, at any time
thereafter, upon written notice to Tenant, terminate this Lease in all respects
and exercise other remedies available at law or in equity or herein relating to
such termination as a result of a Tenant default.

21.4Enter upon the Demised Premises and take such actions as may be required of
Tenant to cure the complained of default; and Tenant covenants and agrees to
reimburse Landlord on demand for any expenses, direct or indirect, which
Landlord may incur in thus effecting compliance with Tenant’s obligations under
this Lease.

21.5Pursue change of ownership applications and proceedings with regulatory
authorities regulating the licenses and any Medicare or Medicaid Contracts for
the applicable Facility and its Permitted Use.

21.6Before or after repossession of the Leased Property pursuant to Section
21.2, and whether or not this Lease has been terminated, Landlord shall have the
right (but shall be under no obligation) to relet any portion of the Leased
Property to such tenant or tenants, for such term

 

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or terms (which may be greater or less than the remaining balance of the Term),
for such rent, or such conditions (which may include concessions or free rent)
and for such uses, as Landlord, in its absolute discretion, may determine, and
Landlord may collect and receive any rents payable by reason of such
reletting.  Tenant agrees to pay Landlord, immediately upon demand, all expenses
incurred by Landlord in obtaining possession and in reletting any of the Leased
Property, including fees, commissions, tenant improvements, alterations,
repairs, and costs of attorneys, architects, agents and brokers.

21.7Landlord may pursue all of its legal and equitable remedies, including
specific performance.

21.8No re-entry or taking possession of the Leased Property by Landlord pursuant
to Section 21.2 or otherwise shall be construed as an election to terminate this
Lease unless a written notice of such intention be given to Tenant or unless the
termination thereof be decreed by a court of competent jurisdiction.
Notwithstanding any reletting without termination by Landlord because of any
default of Tenant, Landlord may at any time after such reletting elect to
terminate this Lease for any such default.

 

ARTICLE 22
CUMULATIVE REMEDIES OF LANDLORD

22.1The specific remedies to which Landlord may resort under the terms of this
Lease are cumulative and are not intended to be exclusive of any other remedies
or means of redress to which Landlord may be lawfully entitled in case of any
breach or threatened breach by Tenant of any provision or provisions of this
Lease.  The failure of Landlord to insist, in any one or more cases, upon the
strict performance of any of the terms, covenants, conditions, provisions or
agreements of this Lease, or to exercise any option herein contained, shall not
be construed as a waiver or relinquishment for the future of any such term,
covenant, condition, provisions, agreement or option.

ARTICLE 23
SECURITY FOR RENT

23.1Landlord shall have a first lien paramount to all others on every right and
interest of Tenant in and to this Lease, and, except for any lien in favor of a
Mortgagee, on Tenant’s furnishings, equipment, fixtures, accounts receivable,
books and records. Tenant hereby consents to Landlord filing such financing
statements and other documents reasonably required to perfect such security
interest.  Such lien is granted for the purpose of securing the payments of Base
Rent, charges, penalties, and damages herein covenanted to be paid by Tenant,
and for the purpose of securing the performance of all of Tenant’s obligations
under this Lease.  Such lien shall be in addition to all rights to Landlord
given and provided by law. This Lease shall constitute a security agreement
under the Uniform Commercial Code granting Landlord a security interest in any
furnishings, equipment, fixtures, accounts receivable, and books and

 

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records, and Tenant shall execute such other instruments and financing
statements as Landlord may request to evidence or perfect said security
interest.

23.2Notwithstanding the foregoing provisions of Section 23.1 of this Lease to
the contrary, Landlord hereby agrees that it will subordinate its security
interest in Tenant’s accounts receivable to any secured lender of Tenant that is
providing working capital to Tenant in connection with Tenant’s operation of the
Demised Premises (“Tenant’s Accounts Receivable Financing”), provided that
Landlord’s consent and subordination to Tenant’s Accounts Receivable Financing
shall be subject to the following conditions precedent: (a) Tenant’s Accounts
Receivable Financing shall be from a bona fide third party lender; and (b)
Tenant’s Accounts Receivable lender shall execute and deliver to Landlord an
intercreditor and subordination agreement in form and substance reasonably
satisfactory to Landlord.

23.3Tenant shall deposit with Landlord an amount equal to two (2) months of Base
Rent (as increased in accordance with this Section, the “Security Deposit”) as
security for the faithful performance and observance by Tenant of the terms,
provisions and conditions of this Lease.  Such Security Deposit may be made by
Tenant in 48 equal installments during the initial Lease Year, with each such
installment to be paid simultaneously with each of the four installments of Base
Rent to be paid during each calendar month of the initial Lease Year.  On the
first day of the second (2nd) Lease Year, and on the first day of each Lease
Year thereafter, Tenant shall deposit with Landlord the additional amount
necessary to increase the Security Deposit to an amount equal to two (2) monthly
payments of Base Rent for the upcoming Lease Year and any such deposit shall
become part of the Security Deposit.  It is agreed that upon the occurrence of
an Event of Default, Landlord may use, apply or retain the whole or any part of
the Security Deposit to the extent required for the payment of any Base Rent or
any other sum as to which Tenant is in default or for any sums which Landlord
may expend or may be required to expend by reason of Tenant’s default in respect
of any of the terms, covenants and conditions of this Lease, including but not
limited to, any damage or deficiency in the reletting of the Demised Premises,
whether such damage or deficiency accrued before or after summary proceedings or
other re-entry by Landlord.  In the event Landlord uses or applies the whole or
any part of the Security Deposit, Tenant shall replenish the Security Deposit to
its original sum (as increased in accordance with this Section) within ten (10)
days after written notice from Landlord to Tenant of the sum due.  Tenant shall
be in default under this Lease if the amount due is not paid within the required
time period.  Provided that no Event of Default exists at the expiration of this
Lease, and Tenant has paid all sums to Landlord which Tenant is required to pay
prior to the expiration of this Lease and there is not otherwise any term,
covenant or condition which is required to be performed by Tenant as of the
expiration of this Lease (including, without limitation, any alteration or
repair required pursuant to Section 11.2(c)), then any portion of the Security
Deposit then remaining on deposit with Landlord shall be returned to Tenant
after delivery of exclusive possession of the Demised Premises to Landlord.  In
the event of the sale of the Demised Premises and the purchaser’s assumption of
Landlord’s obligations hereunder, Landlord shall have the right to transfer the
Security Deposit to the purchaser, Landlord shall thereupon be deemed to be
released by Tenant from all liability for the return of such Security Deposit,
and Tenant agrees to look solely to the new landlord for the return of said
Security Deposit.  It is agreed that the provisions hereof shall apply to every
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Deposit to a new landlord.  Tenant further covenants that it will not assign or
encumber the monies deposited herein as security and that neither Landlord nor
its successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.

23.4Tenant hereby assigns and transfers to Landlord all right, title and
interest, whether now existing or hereafter arising, in and to any and all
security interests granted to Tenant pursuant to any QIPP Agreement (the
“Assigned Collateral”).  Additionally, in connection with any QIPP Transaction
hereafter entered into by Tenant, Tenant shall use commercially reasonable
efforts to cause each QIPP Subtenant to grant to Tenant a security interest and
lien on every right and interest of such QIPP Subtenant in and to its sublease
of such Facility, and in and to its personal property and intangible property,
to secure its obligations under its sublease.  Tenant shall assign to Landlord
any such security interest granted by each QIPP Subtenant to secure Tenant’s
obligations under this Master Lease.

ARTICLE 24
INDEMNIFICATION

24.1Tenant shall defend, protect, indemnify and save harmless Landlord, its
Affiliates, and their respective partners, members, managers, officers,
stockholders, trustees, directors and employees (collectively, “Indemnified
Parties”), from and against and shall reimburse such parties for:

(a)any and all liabilities, obligations, losses, penalties, costs, charges,
judgments, claims, causes of actions, suits, damages and expenses (collectively,
“Claims”) that

(i)arise from or under this Lease or Tenant’s use, occupancy and operations of,
in or about the Premises during the Term, or

(ii)arise from the ownership, operation, maintenance, management, use,
regulation, development, expansion or construction of the Facilities and/or
provision of health services from or at the Facilities during the Term of this
Lease, including without limitation, Claims of Health Care Regulatory Agencies
and Third Party Payors, Recoupment Claims, Claim by or through patients,
residents, customers of such Facilities or services, and Professional Liability
and General Liability (“PLGL”) Claims, in each case which are attributable to
occurrences during the Term that the Facilities are leased by Tenant (or any
period prior to the Term during which the Facilities, or any portion thereof,
are managed by the Tenant or any Subtenant), provided, however, that with
respect to PLGL Claims, such indemnification shall not extend to unaffiliated
third party beneficiaries, or

(iii)that may be imposed upon or incurred or paid by or asserted against the
Indemnified Parties by reason of or in connection with (A) any accident, injury,
death or damage to any person or property occurring in; on or about the Premises
or any portion thereof or any adjacent street, alley, sidewalk, curb, or
passageway; (B) any changes, Alterations, repairs and anything done in, on or
about the Premises or any part thereof in connection with such changes,
Alterations and repairs; (C) the use, non-use, occupation, condition, operation,

 

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maintenance or management of the Premises or any part thereof, or any adjacent
street, alley, sidewalk, curb, or passageway; (D) any negligent act on the part
of Tenant or any of its agents, contractors, servants, employees, space tenants,
licensees, assignees, or subtenants; (E) the performance of any labor or
services or the furnishing of any materials or other property in respect of the
Premises or any part thereof, (F) any violation by Tenant (or by any agent,
contractor, or licensee then upon or using the Premises) of any provision of
this Lease (beyond the expiration of all applicable notice and cure periods) or
any breach of any law, regulation, or ordinance by Tenant or its agents,
concessionaires, contractors, servants, vendors, materialmen or suppliers; or
(G) the condition of the Premises, or of any Buildings or other structures now
or hereafter situated thereon, or the fixtures or personal property thereon or
therein, to the extent such events described in the foregoing clauses (A)
through (G) occur during the Term (excluding from this clause (G) any
environmental or other condition of the Premises existing on the Commencement
Date); and

(b)all costs, expenses and liabilities incurred, including actual, customary and
reasonable attorney’s fees and disbursements through and including appellate
proceedings, in or in connection with any of such Claims.  

24.2If any action or proceeding shall be brought against any of the Indemnified
Parties by reason of any such Claims, Tenant, upon notice from any of the
Indemnified Parties, shall resist and defend such action or proceeding, at its
sole cost and expense by counsel to be selected by Tenant but otherwise
satisfactory to such Indemnified Party in its reasonable discretion.  Tenant or
its counsel shall keep each Indemnified Party fully apprised at all times of the
status of such defense.  If Tenant shall fail to defend such action or
proceeding, such an Indemnified Party may retain its own attorneys to defend or
assist in defending any such claim, action or proceeding and Tenant shall pay
the actual, customary and reasonable fees and disbursements of such
attorneys.  The terms and provisions of this Article 24 shall not in any way be
affected by the absence of insurance covering such occurrence or claim or by the
failure or refusal of any insurance company to perform any obligation on its
part.  The provisions of this Article 24 shall survive the expiration or earlier
termination of this Lease.  Neither Landlord nor Tenant shall enter into any
settlement of a Claim which would impose a monetary liability on the other
party, without the written consent of such other party.  Any insurance proceeds
actually received by an Indemnified Party shall be credited against the
indemnification otherwise to be provided herein.  An Indemnified Party shall
give prompt written notice to Tenant of any Claim for which it seeks
indemnification hereunder, but delay in providing such notice shall not relieve
Tenant of its indemnification obligations, except to the extent such delay
materially prejudiced Tenant’s ability to defend such Claim.  Notwithstanding
the foregoing, neither Tenant nor any of its Affiliates shall assume any
obligation for PLGL Claims that result from occurrences prior to the
Commencement Date (except for such claims which arise during Tenant’s or any
Subtenant’s management in a Facility or portion thereof managed by Tenant or any
Subtenant).

ARTICLE 25
SUBORDINATION PROVISIONS

 

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25.1This Lease (and Tenant’s interest in the Leased Property) shall be subject
and subordinate to any and all mortgages or deeds of trust now or hereafter in
force and affecting the Demised Premises (or any portion thereof) and/or
Landlord’s Personal Property, and to all renewals, modifications,
consolidations, replacements and extensions thereof (any such mortgage or deed
of trust, as it may be renewed, modified, consolidated, replaced and extended is
hereinafter referred to as “a Mortgage” or “any such Mortgage”, and the holder
or beneficiary of a Mortgage is hereinafter referred to as a
“Mortgagee”).  Tenant agrees to execute and deliver upon demand such further
instruments subordinating this Lease to any such Mortgage, or other liens or
encumbrances as shall be desired by Landlord; provided, that Landlord shall
deliver to Tenant a subordination, nondisturbance and attornment executed by any
such Mortgagee, in form reasonably satisfactory to Tenant and such
Mortgagee.  Tenant agrees further that any Mortgagee shall have the right to
subordinate its Mortgage and its rights thereunder to this Lease, except that
such Mortgagee shall be entitled to expressly exclude from such subordination
the Mortgagee’s rights, if any, to insurance proceeds and eminent domain awards
in the event of a loss or casualty or eminent domain taking of the Leased
Property, or any portion thereof.  If such Mortgagee executes and records an
instrument that purports to effect a partial or complete subordination of its
Mortgage to this Lease, this Lease shall not be terminated by a foreclosure of
such Mortgage, but any rights of such Mortgagee to insurance proceeds or eminent
domain awards that are expressly excluded from such subordination shall remain
superior to the rights of Tenant.

25.2During the existence of any material uncured default on the part of Tenant
under this Lease, all fees, payments or other obligations of Tenant to any of
the Guarantors or to any of the members of a Guarantor shall be subordinate to
the prior payment in full of all obligations owing to Landlord under this Lease.

25.3Tenant also acknowledges and agrees that all rights and payments due under
any management, consulting or similar agreement or agreements relative to the
operation of a Facility by or on behalf of Tenant are to be and are hereby made
subordinate to Tenant’s full payment and performance of all obligations under
this Master Lease to Landlord.  As a result, if an Event of Default occurs and
during the continuance of an Event of Default or if an event or circumstance
occurs, which with notice or the passage of time or both would become and Event
of Default, then any and all payments otherwise due and owing to the manager or
other party to such agreement(s) by Tenant shall cease and remain suspended
until the Event of Default is cured or, if applicable, such other event or
circumstance which might become an Event of Default no longer exists.  Upon
resumption of payments, any applicable arrearage may be repaid in accordance
with a payment schedule as agreed between Tenant and such manager with
Landlord’s approval which shall not be unreasonably withheld.

ARTICLE 26
TENANT’S FAITHFUL COMPLIANCE WITH MORTGAGE

26.1Anything in this Lease contained to the contrary notwithstanding, Tenant
shall at all times and in all respects fully, timely and faithfully comply with
and observe each and all of the conditions, covenants, and provisions required
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which this Lease is subordinate or to which it later may become subordinate, a
copy of which has been provided to Tenant, including, without limitation, such
conditions, covenants and provisions of such Mortgage that relate to the care,
maintenance, repair, insurance, restoration, preservation and condemnation of
the Demised Premises, provided that such conditions, covenants and provisions do
not require compliance and observance to a standard or degree materially in
excess of that required by the provisions of this Lease, and Tenant shall not do
or permit to be done anything that would constitute a breach of or default under
any obligation of Landlord under any Mortgage.  However, nothing in this Article
contained shall be construed to obligate Tenant, except as may otherwise be
provided in this Lease, to pay any Base Rent due or part of the principal or
interest secured by any Mortgage.  Tenant further covenants and agrees as
follows:  (a) if requested by Landlord in writing, Tenant shall give any
Mortgagee notice of any Landlord default that occurs under this Lease, (b)
Tenant shall not terminate this Lease as a result of Landlord’s default, without
giving such Mortgagee  written notice of Landlord’s default under this Lease at
the same time that Landlord is given notice of such default, and (c) if Landlord
fails to cure such default within the applicable grace period, if any, contained
in this Lease, such Mortgagee shall have thirty (30) days after notice thereof
to cure any such default.

ARTICLE 27
HUD Financings

27.1Tenant acknowledges that Landlord may enter into one or more Mortgage loans
insured through HUD under the provisions of Section 232 of the National Housing
Act, and the regulations thereunder (each, a “HUD Loan”).  Tenant shall execute
and deliver any agreement, document or instrument, or take any action, that is
reasonably required to effectuate or confirm any of the transactions or
amendments in connection with any HUD Loan.  Landlord agrees to reimburse Tenant
for its reasonable and documented attorneys’ fees and expenses incurred in
connection with the review and execution of the aforementioned documents and
instruments.

ARTICLE 28
TENANT’S ATTORNMENT

28.1Tenant covenants and agrees that, if by reason of a default upon the part of
Landlord herein in the performance of any of the terms and conditions of any
Mortgage, and the estate of Landlord thereunder is terminated by summary
dispossession proceedings or otherwise, Tenant will attorn to the then Mortgagee
or the purchaser in such foreclosure proceedings, as the case may be, and will
recognize such Mortgagee or such purchaser as the lessor under this
Lease.  Tenant covenants and agrees to execute and deliver, at any time and from
time to time, upon the request of Landlord or of any Mortgagee or the purchaser
in foreclosure proceedings, any instrument that may be necessary or appropriate
to evidence such attornment.  Tenant further waives the provisions of any
statute or rule of law now or hereafter in effect that may terminate this Lease
or give or purport to give Tenant any right of election to terminate this Lease
or to surrender possession of the Demised Premises in the event any such
proceedings are brought against Landlord under such Mortgage or by any
Mortgagee, and agrees that this Lease shall not be affected in any way
whatsoever by any such proceedings.

 

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ARTICLE 29
REPRESENTATIONS AND WARRANTIES

29.1Tenant represents, warrants and covenants to Landlord as follows:

(a)Tenant is a Texas limited liability company duly organized and validly
existing and in good standing in the State of Texas.

(b)Tenant has the full right and power to enter into and perform Tenant’s
obligations under this Lease, and has taken all requisite company action to
authorize the execution, delivery and performance of this Lease.

29.2Landlord represents, warrants and covenants to Tenant as follows:

(a)Landlord is a Delaware limited liability company duly organized and validly
existing and in good standing in the State of Delaware.

(b)Landlord has the full right and power to enter into and perform Landlord’s
obligations under this Lease, and has taken all requisite company action to
authorize the execution, delivery and performance of this Lease.

ARTICLE 30
STATEMENTS AND REPORTS

30.1Within one hundred twenty (120) days after the end of each calendar year,
Tenant shall cause Guarantor to furnish to Landlord a full and complete audited
combined financial statement of the Guarantor Group for such year, which
financial statement (i) shall contain a balance sheet and detailed income and
expense statement, as well as supplemental combining schedules, (ii) shall be
duly certified by an officer of Guarantor as fairly representing the combined
financial condition and results of operations of the Guarantor Group as of and
for the year then ended, in accordance with GAAP, and (iii) shall be accompanied
by a statement of a nationally recognized accounting firm acceptable to Landlord
in its sole discretion that such financial statement presents fairly, in all
material respects, the combined financial condition, results of operations, and
cash flows of the Guarantor Group as of and for the year then ended and was
prepared in conformity with GAAP (collectively called “Financial
Statements”).  In addition, within one hundred twenty (120) days after the
expiration or earlier termination of the Term, Tenant shall deliver to Landlord
the Financial Statements of each Tenant covering the period of time from the
last day of the immediately preceding fiscal year to the date on which the Term
expires or terminates, and any such obligation shall survive the expiration or
earlier termination of this Lease.

30.2Within thirty (30) days after each calendar month during the Term, Tenant
shall furnish to Landlord an unaudited Financial Statement and a detailed
statistical report for each of the Facilities for the preceding calendar month
and year to date in sufficient detail to show average daily payor mix and
patient acuity for such month, as well as such other information as may from
time to time be reasonably requested by Landlord.

 

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30.3Upon Landlord’s written request, but not more than one time per calendar
quarter, Tenant shall furnish to Landlord an aged accounts receivable report of
each of the Facilities in sufficient detail to show amounts due in the account
age classification of 30 days, 60 days, 90 days, 120 days and over 120 days,
within ten (10) days of such request.

30.4Upon Landlord’s written request, Tenant shall furnish to Landlord all
Medicare and Medicaid cost reports and any amendments thereto filed or received
with respect to the Facilities and all responses, audit reports, rate letters,
correspondence or inquiries with respect to such cost reports, within ten (10)
days of such request.

30.5Within twenty (20) days after the close of each calendar quarter during the
Term, Tenant shall deliver to Landlord a certificate, signed by a responsible
officer of the Tenant, certifying, as of the close of such quarterly period,
compliance on the part of the Tenant with each of the covenants set forth in
Section 32.1 of this Lease, and providing in reasonable detail the calculation
of such compliance.

At all times, Tenant shall keep and maintain full and correct records and books
of account of the operations of Tenant at the Demised Premises and records and
books of account of the entire business operations of Tenant in accordance with
sound accounting practices.  Upon request by Landlord, Tenant shall make
available for inspection by Landlord or its designee not more than once per
Lease Year (except that such limitation shall not apply after the occurrence of
an Event of Default), during reasonable business hours, said records and books
of account covering the entire business operations of Tenant at the Demised
Premises.  In the event Landlord determines in its reasonable opinion that the
Financial Statements may contain a material discrepancy, error or
misrepresentation, Landlord shall have the right from time to time to cause a
certified public accountant to audit any Financial Statements and said records
and books of account.  To the extent that such audit confirms a material
discrepancy, error or misrepresentation, such audit shall be at Tenant’s
expense.  A “material” discrepancy, error or misrepresentation means any
discrepancy, error or misrepresentation which results in a misstatement of
Tenant’s results from operations reflected in the Financial Statements being
equal to or greater than 5%.

ARTICLE 31
[RESERVED]

ARTICLE 32
ADDITIONAL CovenantS

32.1Tenant covenants and agrees that, as of each Test Date,

(a)Tenant’s Rent Coverage Ratio for the twelve (12) month period then ended
shall be not less than 1.2 to 1.0;

(b)Tenant’s Fixed Charge Coverage Ratio for the twelve (12) month period then
ended shall be not less than 1.0 to 1.0;

 

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32.2Tenant covenants and agrees that it shall not make any distributions or
other payments to any of its members, in cash or property (a “Distribution”), at
any time during the Term of this Lease, unless immediately prior to and after
giving effect to such distribution or payment, both of the following conditions
are satisfied:

(a)all payments required under this Lease to have been paid by Tenant shall have
been paid and there shall not have occurred an Event of Default or any event
that, with the giving of notice or the passage of time, would constitute and
Event of Default under this Lease; and

(b)EBITDAR for the then most recently completed 12-calendar month period, minus
the sum of (i) the amount of the proposed Distribution, and (ii) all other
Distributions made by Tenant during such 12-calendar month period, shall be not
less than the aggregate Base Rent for such 12-calendar month period.

32.3Except as provided in Section 23 of this Lease, and except for dispositions
of inventory and replacements of personal property in accordance with this
Lease, each Tenant shall maintain sole ownership of its assets, free and clear
of all liens and encumbrances.

32.4Tenant shall not voluntarily transfer a resident of any of the Facilities to
any other nursing facility operated by a member of the Guarantor Group, unless
such transfer is at the request of such resident or due to medical necessity.

ARTICLE 33
MISCELLANEOUS

33.1Tenant, upon paying the Base Rent and all other charges herein provided, and
for observing and keeping the covenants, agreements, terms and conditions of
this Lease on its part to be performed, shall lawfully and quietly hold, occupy
and enjoy the Demised Premises during the Term, and subject to its terms,
without hindrance by Landlord or by any other person or persons claiming under
Landlord.

33.2It is understood and agreed that the granting of any consent by Landlord to
Tenant to perform any act of Tenant requiring Landlord’s consent under the terms
of this Lease, or the failure on the part of Landlord to object to any such
action taken by Tenant without Landlord’s consent, shall not be deemed a waiver
by Landlord of its rights to require such consent for any further similar act by
Tenant, and Tenant hereby expressly covenants and warrants that as to all
matters requiring Landlord’s consent under the terms of this Lease, Tenant shall
secure such consent for each and every happening of the event requiring such
consent, and shall not claim any waiver on the part of Landlord of the
requirement to secure such consent.

33.3Tenant represents to Landlord that it did not deal with any broker in
connection with this Lease, and hereby indemnifies Landlord against the claims
or demands of any broker claimed through a relationship with Tenant.  Landlord
hereby represents to Tenant that it did not deal with any broker in connection
with this Lease, and hereby indemnifies Tenant against the claims or demands of
any broker claimed through a relationship with Landlord.

 

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33.4If an action shall be brought by Landlord to recover any rental under this
Lease, or for or on account of any breach of or to enforce or interpret any of
the terms, covenants or conditions of this Lease, or for the recovery of
possession of the Demised Premises, or otherwise, the prevailing party shall be
entitled to recover from the other, as part of its costs, reasonable attorney’s
fees.

33.5Should Tenant hold possession hereunder after the expiration of the Term
without the consent of Landlord, Tenant shall become a tenant on a
month-to-month basis upon all the terms, covenants and conditions herein
specified, excepting however that Tenant shall pay Landlord a monthly rental,
for the period of such month-to-month tenancy, in an amount equal to 125% of the
last Base Rent specified.  Notwithstanding the foregoing or anything contained
in ARTICLE 33 or elsewhere in this Lease, if Tenant is unable to surrender the
Demised Premises because Landlord fails to provide a Proper Successor (as
defined below) for the Facilities at the end of the Lease Term to take over the
operation and management of the Facility, Tenant shall have the right, but shall
not be obligated to, remain in possession of the Demised Premises and continue
to operate and manage the same if Tenant would be legally prohibited from
abandoning the Demised Premises or in Tenant’s judgment, based on reasonable
commercial standards in the nursing facility industry, abandoning the Demised
Premises without a Proper Successor in place to continue the operations of the
Facilities would jeopardize its (or its affiliates’ or subsidiaries’) reputation
as a provider of nursing facility care or could otherwise subject it (or its
affiliates or subsidiaries) to liability for negligence or mistreatment of
residents at the Demised Premises.  In the event Tenant remains in possession of
the Demised Premises pursuant to the immediately preceding sentence, Tenant
shall, during such occupancy, pay to Landlord rent at a rate equal to the annual
Base Rent payable by Tenant in the last year of the Lease Term, and Tenant shall
surrender possession of the Demised Premises within ten (10) business days after
Landlord provides a Proper Successor for the Facilities.  As used herein,
“Proper Successor” means a qualified and duly licensed operator of the
Facilities, or one as to which the applicable state licensing authority has
indicated its willingness to issue a License upon transfer of possession of the
Facilities.

33.6Except as otherwise specifically permitted herein, all notices, or demands
required to be given by either party to the other shall be in writing and shall
be sent by (a) personal delivery, (b) expedited delivery service with proof of
delivery, (c) United States registered/certified mail, return receipt requested,
(d) nationwide courier guaranteeing overnight delivery, such as Federal Express
or United Parcel Service, or (e) prepaid telecopy, telegram, telex or fax,
addressed to the other party hereto at the address set forth below:

 

If to Landlord:

c/o MedEquities Realty Trust, Inc.
3100 West End Avenue, Suite 1000
Nashville, TN 37203
Attention: John McRoberts, CEO
Telephone:  (615) 627-4715
Facsimile No.: None
E-mail:   jmcroberts@medequities.com

 

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with copy to:

Michael S. Blass, Esq.
Arent Fox LLP
1301 Avenue of the Americas, 42nd Floor
New York, NY 10019
Telephone:  (212) 484-3902
Facsimile No.:  (212) 484-3990
E-mail:   michael.blass@arentfox.com

 

If to Tenant:

MRT I Enterprises, LLC

 

4150 International Plaza, Suite 600

 

Fort Worth, Texas 76109

 

Attn: Gary Blake

 

 

With a copy to:

Rawls Law Office, P.C.

 

c/o Caleb Rawls

 

3010 LBJ Freeway, Suite 1200

 

Dallas, Texas 75234

 

caleb@calebrawlslaw.com

 

or if written notification of a change of address has been sent, to such other
party and/or to such other address as may be designated in that written
notification.  Any such notice or demand shall be deemed to have been given
either at the time of personal delivery or in the case of service by mail, as of
the date of first attempted delivery at the address and in the manner provided
herein, or in the case of telecopy, telegram or telex, upon receipt.
Notwithstanding the foregoing, notice sent by telecopy shall be deemed given and
effective when sent if and only if a PDF copy of any such notice is also
e-mailed immediately to the intended recipients at the e-mail addresses noted
above or to such other e-mail addresses as may be designated in a written
notification of a change of address.

33.7Upon demand by either party, Landlord and Tenant agree to execute and
deliver a short form lease in recordable form so that the same may be recorded
by either party.

33.8Each party agrees at any time and from time to time, upon not less than ten
(10) days prior written request from the other party, to execute, acknowledge
and deliver to the other party a statement in writing, certifying that this
Lease is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified, and
stating the modifications), the dates to which the Base Rent has been paid, the
amount of the Base Rent and security deposit held by Landlord, and whether this
Lease is then in default or whether any events have occurred that, with the
giving of notice or the passage of time, or both, could constitute a default
hereunder and any and all other information reasonably required by Landlord or
its Mortgagee; it being intended that any such statement delivered pursuant to
this paragraph may be relied upon by any prospective assignee, Mortgagee or
purchaser of the fee interest in the Demised Premises or of this Lease.

 

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33.9All of the provisions of this Lease shall be deemed and construed to be
“conditions” and “covenants” as though the words specifically expressing or
importing covenants and conditions were used in each separate provision hereof.

33.10Any reference herein to the termination of this Lease shall be deemed to
include any termination hereof by expiration or pursuant to the provisions
hereof referring to early termination.

33.11The headings and titles in this Lease are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of this Lease, nor in any way affect this Lease.

33.12This Lease contains the entire agreement between the parties and any
executory agreement hereafter made shall be ineffective to change, modify or
discharge it in whole or in part unless such executory agreement is in writing
and signed by the party against whom enforcement of the change, modification or
discharge is sought.  This Lease cannot be changed orally or terminated orally.

33.13Except as otherwise herein expressly provided, the covenants, conditions
and agreements in this lease shall bind and inure to the benefit of Landlord and
Tenant and their respective successors and assigns.

33.14All nouns and pronouns and any variations thereof shall be deemed to refer
to the masculine, feminine, neuter, singular or plural as the identity of the
person or persons, firm or firms, corporation or corporations, entity or
entities or any other thing or things may require.

33.15If any term or provision of this Lease shall be held invalid or
unenforceable to any extent, the remaining terms and provisions of this Lease
shall not be affected thereby, and each term and provision shall be valid and
enforceable to the fullest extent permitted by law.

33.16This Lease may be executed in counterparts, each of which shall be deemed
to be an original, and all of which taken together shall constitute one and the
same instrument. Counterparts may be executed in either original or
electronically transmitted form (e.g., faxed or emailed portable document format
(PDF) form), and the parties hereby adopt as original any signatures received
via electronically transmitted form.

ARTICLE 34
TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE

34.1The date on which (i) this Lease either terminates or expires pursuant to
its terms or is terminated by either party whether pursuant to a right granted
to it hereunder or otherwise, (ii) the date on which Tenant’s right to
possession of the Demised Premises is terminated pursuant to a right granted to
it hereunder or otherwise, or (iii) the date on which Tenant otherwise abandons
the Demised Premises shall be referred to as the “Transition Closing Date” in
this Article.  On the Transition Closing Date, this Lease shall be deemed and
construed as an absolute assignment for purposes of vesting in Landlord (or
Landlord’s designee – for purposes

 

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of this ARTICLE 34 the term Landlord shall be deemed to mean Landlord’s
designee, if applicable)) all of Tenant’s right, title and interest in and to
the following intangible property that is now or hereafter used in connection
with the operation of the Demised Premises (the “Intangibles”) and an assumption
by Landlord of Tenant’s obligations under the Intangibles from and after the
Transition Closing Date; provided that, from and after the Transition Closing
Date, Tenant shall indemnify, defend and hold harmless Landlord and the other
Indemnified Parties from and against any claims, losses, costs or damages,
including reasonable attorneys’ fees incurred or arising by reason of Tenant’s
obligations under the Intangibles prior to the Transition Closing Date:

(a)service contracts and equipment leases for the benefit of the Demised
Premises to which Tenant is a party, and that can be terminated without penalty
by Tenant within sixty (60) or fewer days’ notice or that Landlord requests be
assigned to Landlord pursuant to this ARTICLE 34;

(b)any provider agreements with Medicare, Medicaid or any other third-party
payor programs (excluding the right to any reimbursement for periods prior to
the Transition Closing Date, as defined above) entered in connection with the
Demised Premises to the extent assignable by Tenant;

(c)all existing agreements with residents of the Facilities and any guarantors
thereof, to the extent assignable by Tenant (excluding the right to any payments
for periods prior to the Transition Closing Date) and any and all patient trust
fund accounts; and

(d)at Landlord’s option, the business of Tenant as conducted at the Demised
Premises as a going concern, including but not limited to the name of the
business conducted thereon and all telephone numbers presently in use therein.

34.2Landlord shall be responsible for and shall pay all expenses with respect to
the Demised Premises accruing on or after 12:01 a.m. on the day of the
Transition Closing Date and shall be entitled to receive and retain all revenues
from the Demised Premises accruing on or after the Transition Closing
Date.  Within fifteen (15) business days after the Transition Closing Date, the
following adjustments and prorations shall be determined as of the Transition
Closing Date:

(a)Taxes and Assessments, if any.  If the information as to the actual amount of
any of the foregoing taxes and assessments are not available for the tax year in
which the Transition Closing Date occurs, the proration of such taxes shall be
estimated based upon reasonable information available to the parties, including
information disclosed by the local tax office or other public information, and
an adjustment shall be made when actual figures are published or otherwise
become available.

(b)Tenant will terminate the employment of all employees on the Transition
Closing Date and shall be and remain liable for any and all wages, accrued
vacation and sick leave pay for employees of the Demised Premises with respect
to the period prior to and including the Transition Closing Date.

 

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(c)Landlord shall receive a credit equal to any advance payments by patients of
the Facilities to the extent attributable to periods on and after the Transition
Closing Date.

(d)The present insurance coverage on the Demised Premises shall be terminated as
of the Transition Closing Date and there shall be no proration of insurance
premiums.

(e)All other income from, and expenses of, the Demised Premises (other than
mortgage interest and principal), including but not limited to public utility
charges and deposits, maintenance charges and service charges shall be prorated
between Tenant and Landlord as of the Transition Closing Date.  Tenant shall, if
possible, obtain final utility meter readings as of the Transition Closing
Date.  To the extent that information for any such proration is not available,
Tenant and Landlord shall effect such proration within ninety (90) days after
the Transition Closing Date.

(f)Tenant shall be and remain responsible for any employee severance pay and
accrued benefits that may be payable as the result of any termination of an
employee’s employment on or prior to the Transition Closing Date.

34.3All necessary arrangements shall be made to provide possession of the
Demised Premises to Landlord on the Transition Closing Date, at which time of
possession Tenant shall deliver to Landlord all medical records, patient records
and other personal information concerning all patients residing at the
Facilities as of the Transition Closing Date and other relevant records used or
developed in connection with the business conducted at the Demised
Premises.  Such transfer and delivery shall be in accordance with all applicable
laws, rules and regulations concerning the transfer of medical records and other
types of patient records.

34.4For the period commencing on the Transition Closing Date and ending on the
date Landlord, or its designee, obtains any and all appropriate state or other
governmental licenses and certifications required to operate the Facilities,
Tenant hereby agrees that Landlord, or Landlord’s designee, shall have the
right, but not the obligation, to manage and operate the Demised Premises, on a
triple net basis, and shall be entitled to all revenues of the Demised Premises
during such period, and to use any and all licenses, certifications and provider
agreements issued to Tenant by any federal, state or other governmental
authority for such operation of the Demised Premises, if permitted by any such
governmental authorities.  If Landlord or its designee exercises the right
described above in this Section 33.4, the provisions of this Section 34.4 shall
be self-operative and shall constitute a management agreement between Tenant, on
the one hand, and Landlord or its designee, on the other hand, on the terms set
forth above in this Section 34.4 provided, however, that upon the request of
Landlord or its designee, Tenant shall enter into a separate management
agreement on the terms set forth in this Section 34.4 and on such other terms
and provisions as may be specified by Landlord or its designee.

34.5Tenant shall provide Landlord with an accounting within fifteen (15) days
after the Transition Closing Date of all funds belonging to patients at the
Facilities that are held by Tenant in a custodial capacity.  Such accounting
shall set forth the names of the patients for whom such funds are held, the
amounts held on behalf of each such patient and Tenant’s

 

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warranty that the accounting is true, correct and complete.  Additionally,
Tenant, in accordance with all applicable rules and regulations, shall make all
necessary arrangements to transfer such funds to a bank account designated by
Landlord, and Landlord shall in writing acknowledge receipt of and expressly
assume all Tenant’s financial and custodial obligations with respect
thereto.  Notwithstanding the foregoing, Tenant will indemnify, defend and hold
Landlord and any other Indemnified Party harmless from and against all
liabilities, claims and demands, including reasonable attorney’s fees, in the
event the amount of funds, if any, transferred to Landlord’s bank account as
provided above, did not represent the full amount of the funds then or
thereafter shown to have been delivered to Tenant as custodian that remain
undisbursed for the benefit of the patient for whom such funds were deposited,
or with respect to any matters relating to patient funds that accrued during the
Term.

34.6All cash, checks and cash equivalent at the Demised Premises and deposits in
bank accounts (other than patient trust accounts) relating to the Demised
Premises on the Transition Closing Date shall remain Tenant’s property after the
Transition Closing Date.  Subject to the provisions of ARTICLE 23, all accounts
receivable, loans receivable and other receivables of Tenant, whether derived
from operation of the Demised Premises or otherwise, shall remain the property
of Tenant after the Transition Closing Date.  Tenant shall retain full
responsibility for the collection thereof.  Landlord shall assume responsibility
for the billing and collection of payments on account of services rendered by it
on and after the Transition Closing Date.  In order to facilitate Tenant’s
collection efforts, Tenant agrees to deliver to Landlord, within a reasonable
time after the Transition Closing Date, a schedule identifying all of those
private pay balances owing for the month prior to the Transition Closing Date
and Landlord agrees to apply any payments received that are specifically
designated as being applicable to services rendered prior to the Transition
Closing Date to reduce the pre-Transition Closing Date balances of said patients
by promptly remitting said payments to Tenant.  All other payments received
shall be retained by Landlord as being applicable to services rendered after the
Transition Closing Date.  Landlord shall cooperate with Tenant in Tenant’s
collection of its preclosing accounts receivable.  Landlord shall have no
liability for uncollectible receivables and shall not be obligated to bear any
expense as a result of such activities on behalf of Tenant.  Subject to the
provisions of ARTICLE 23, Landlord shall remit to Tenant or its assignee those
portions of any payments received by Landlord that are specifically designated
as repayment or reimbursement arising out of cost reports filed for the cost
reporting periods ending on or prior to the Transition Closing Date.

34.7With respect to residents at the Facilities on the Transition Closing Date,
Landlord and Tenant agree as follows:

(a)With respect to Medicare and Medicaid residents, Landlord and Tenant agree
that subject to the provisions of ARTICLE 23, payment for in-house residents
covered by Medicare or Medicaid on the Transition Closing Date will be made (on
a per diem basis) by Medicare or Medicaid under current regulations directly to
Tenant for services rendered at the Demised Premises prior to the Transition
Closing Date.  Said payments shall be the sole responsibility of Tenant and
Landlord shall in no way be liable therefor.  After the Transition Closing Date,
Landlord and Tenant shall each have the right to review supporting books,
records

 

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and documentation that are in the possession of the other relating to Medicaid
or Medicare payments.

(b)If, following the Transition Closing Date, Landlord receives payment from any
state or federal agency or third-party provider that represents reimbursement
with respect to services provided at the Demised Premises prior to the
Transition Closing Date, Landlord agrees that, subject to the provisions of
ARTICLE 23, it shall remit such payments to Tenant.  Payments by Landlord to
Tenant shall be accompanied by a copy of the appropriate remittance.

(c)If, following the Transition Closing Date, Tenant receives payment from any
state or federal agency or third-party provider that represents reimbursement
with respect to services provided at the Facilities on or after the Transition
Closing Date, Tenant agrees that, it shall remit such payments to
Landlord.  Payments by Tenant to Landlord shall be accompanied by a copy of the
appropriate remittance.

34.8In addition to the obligations required to be performed hereunder by Tenant
and Landlord on and after the Transition Closing Date, Tenant and Landlord agree
to perform such other acts, and to execute, acknowledge, and/or deliver
subsequent to the Transition Closing Date such other instruments, documents and
materials, as the other may reasonably request in order to effectuate the
consummation of the transaction contemplated herein, including but not limited
to any documents or filings that may be required to be delivered by Tenant to
Landlord or be filed in order for the transaction contemplated hereunder to be
in compliance with all local, state and federal laws, statutes, rules and
regulations.

34.9Tenant for itself, its successors and assigns hereby indemnifies and agrees
to defend and hold Landlord and the other Indemnified Parties and their
respective successors and assigns harmless from and against any and all claims,
demands, obligations, losses, liabilities, damages, recoveries and deficiencies
(including interest, penalties and reasonable attorney’s fees, costs and
expenses) that any of them may suffer as a result of the breach by Tenant in the
performance of any of its commitments, covenants or obligations under this
ARTICLE 34, or with respect to any suits, arbitration proceedings,
administrative actions or investigations that relate to the use by Tenant of the
Demised Premises during the Term or for any liability that may arise from
operation of the Demised Premises as nursing homes during the Term, including
without limitation, any amounts due or to be reimbursed to any governmental
authority based upon any audit or review of Tenant or of any Facility or the
operation thereof and pertaining to the period prior to the Transition Closing
Date or any amounts recaptured under Titles XVIII or XIX based upon applicable
Medicaid/Medicare recapture regulations.  The rights of Landlord under this
paragraph are without prejudice to any other remedies not inconsistent herewith
that Landlord may have against Tenant pursuant to the terms of this Lease.  The
foregoing indemnity shall survive the expiration or termination of this Lease,
whether due to lapse of time or otherwise.

34.10So long as the termination of this Lease is not due to a default by Tenant
hereunder and provided further that Tenant has performed in accordance with this
ARTICLE 34, Landlord for itself, its successors and assigns hereby indemnifies
and agrees to defend and hold

 

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Tenant and its successors and assigns harmless from any and all claims, demands,
obligations, losses, liabilities, damages, recoveries and deficiencies
(including interest, penalties and reasonable attorney’s fees, costs and
expenses) that any of them may suffer as a result of the breach by Landlord in
the performance of any of its commitments, covenants or obligations under this
ARTICLE 34, or with respect to any suits, arbitration proceedings,
administrative actions or investigations that relate to the use of the Demised
Premises after the Term or for any liability that may arise from operation of
the Demised Premises as a nursing home after the Term.  The rights of Tenant
under this paragraph are without prejudice to any other remedies not
inconsistent herewith that Tenant may have against Landlord pursuant to the
terms of this Lease or otherwise.

34.11Landlord shall have the right, upon five (5) business days’ prior notice to
Tenant (unless the facts and circumstance giving rise to the implementation of
this ARTICLE 34 involve an Event of Default, in which case no prior notice shall
be required), to offset against any monies due Tenant pursuant to the terms of
this ARTICLE 34, any amounts due by Tenant to Landlord pursuant to this Lease,
including without limitation any amounts due for taxes or insurance premiums.

34.12Anything to the contrary contained in this ARTICLE 34 notwithstanding, in
the event the termination of this Lease is due to a default by Tenant hereunder,
none of the provisions of this ARTICLE 34 shall in any way limit, reduce,
restrict or modify the rights granted to Landlord pursuant to ARTICLE 21,
ARTICLE 22, and ARTICLE 23.

34.13Landlord and Tenant agree to cooperate with each other in order to
effectuate the terms and provisions of this ARTICLE 34.

ARTICLE 35
HAZARDOUS SUBSTANCES

35.1Tenant shall not install, permit to be installed, generate, transport,
store, treat or dispose of, at the Leased Property any asbestos or
asbestos-containing substance or any hazardous substance (as hereinafter
defined).  Except with respect to any hazardous substance or condition that
existed at or with respect to the Leased Property as of the Commencement Date,
Tenant shall promptly either:  (a) remove or remediate any such hazardous
substance or condition; or (b) otherwise comply with such federal, state or
local laws, rules, regulations or orders, in all such events at Tenant’s sole
expense, and provide evidence thereof that is satisfactory to Landlord.  If
Tenant shall fail to so remove or otherwise comply, Landlord may, after notice
to Tenant and the expiration of the earlier of (i) the applicable cure period
hereunder or (ii) the cure period permitted under the applicable law, rule,
regulation or order, either declare this Lease to be in default or do whatever
is necessary to remove or remediate said hazardous substance(s) or condition(s)
from the Leased Property or otherwise comply with the applicable law, rule,
regulation or order, and Landlord’s costs and expenses in respect thereof shall
be due and payable upon demand.  Tenant shall give to Landlord and its agents
and employees access to the Leased Property for purposes of removing or
remediating said asbestos or other hazardous substance(s) or condition(s) and
conducting appropriate tests for the purpose of ascertaining

 

50

 

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compliance with the terms hereof.  Tenant shall promptly provide Landlord copies
of all communications, permits or agreements with any governmental authority or
agency (federal, state or local) or any private entity relating in any way to
any hazardous substance or condition.

35.2For purposes of this ARTICLE 34 “hazardous substance” means any material,
chemical, compound or other substance defined or regulated as a hazardous toxic
or dangerous substance, contaminant, chemical waste (including medical waste)
waste, pollutant or material, or otherwise giving rise to liability, under the
Resource Conservation and Recovery Act (“RCRA”), 42 U.S.C. Section 6901 et seq.,
the Comprehensive Environmental Response, Compensation and Liability Act
(“CERCLA”), 52 U.S.C. Section 9601 et seq. or any other federal, state or local
law, ordinance or regulation relating to the protection of public health or
safety, the environment or natural resources, including without limitation any
common law theory based on nuisance or strict liability now or at any time in
effect applicable to the jurisdiction affecting the Demised Premises
(collectively, the “environmental laws”).

35.3Except as reasonably necessary for or consistent with the permitted use of
the Leased Property, Tenant shall not conduct or authorize the generation,
transportation, storage, treatment or disposal at the Leased Property of any
hazardous substance, without prior written authorization by Landlord, and
Tenant’s failure to comply with the foregoing prohibition shall constitute a
default under this Lease.

35.4Except with respect to any hazardous substance or condition that existed at
or with respect to the Leased Property as of the Commencement Date, if the
presence, release, threat of release or placement on or in the Leased Property,
or the generation, transportation, storage, treatment or disposal at the Leased
Property of any hazardous substance:  (i) gives rise to liability (including,
but not limited to, a response action, remedial action or removal action) under
any of the environmental laws, (ii) poses a significant threat to public health
or safety, or (iii) pollutes or threatens to pollute the environment, then
Tenant shall promptly take any and all remedial and removal action necessary to
eliminate such liability, threat to public health or safety or pollution, as the
case may be, and take all actions to mitigate to the maximum extent possible,
liability arising from the hazardous substance, whether or not required by law.

35.5Tenant shall defend (with counsel reasonably satisfactory to Landlord),
indemnify the Indemnified Parties and hold the Indemnified Parties harmless from
and against all loss, cost, damage and expense (including, without limitation,
attorneys’ fees and costs incurred in the investigation, defense and settlement
of claims) that any Indemnified Party may incur as a result of or in connection
with (a) the assertion against any Indemnified Party of any claim relating to
the presence or removal of any asbestos or other hazardous substance at the
Leased Property that did not exist at or with respect to the Leased Property as
of the Commencement Date, or (b) failure of the Leased Property or any portion
of the Leased Property to comply with any and all environmental laws (except
with respect to conditions that existed at or with respect to the Leased
Property as of the Commencement Date), or (c) the breach by Tenant of any of its
covenants contained in this ARTICLE 35.  The foregoing indemnity shall survive
the expiration or termination of this Lease.

 

51

 

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ARTICLE 36
LIMITATION OF LANDLORD’S LIABILITY

36.1In the event of any conveyance or other divestiture of title to the Leased
Property the grantor or the person who is divested of title shall be entirely
freed and relieved of all covenants and obligations thereafter accruing
hereunder, and the grantee or the person who otherwise succeeds to title shall
be deemed to have assumed the covenants and obligations of Landlord thereafter
accruing hereunder and shall then be Landlord under this Lease.  Notwithstanding
anything to the contrary provided in this Lease, if Landlord or any successor in
interest of Landlord shall be an individual, partnership, limited liability
company, corporation, trust, tenant in common or mortgagee, there shall be
absolutely no personal, corporate or entity liability on the part of Landlord or
any individual or member of Landlord or any manager, stockholder, director,
officer, employee, partner or trustee of Landlord with respect to the terms,
covenants or conditions of this Lease, and Tenant shall look solely to the
interest of Landlord in the Leased Property for the satisfaction of each and
every remedy that Tenant may have for the breach of this Lease; such exculpation
from personal, corporate or entity liability to be absolute and without any
exception, whatsoever. Anything to the contrary notwithstanding, under no
circumstances shall any personal liability attach to or be imposed upon Landlord
or any partners, officers, directors, managers, members, agents or employees of
Landlord with respect to the terms, covenants or conditions of this Lease.

 

 

[SIGNATURE PAGES FOLLOW]

 

 

52

 

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IN WITNESS WHEREOF, the parties hereto have caused this Amended and Restated
Master Lease to be signed by persons authorized so to do on behalf of each of
them respectively the day and year first above written.

 

 

LANDLORD:

 

MRT OF SAN ANTONIO TX – SNF I, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF SAN ANTONIO TX – SNF II, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF GRAHAM TX – SNF, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF KEMP TX – SNF, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF KERENS TX – SNF, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

53

 

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MRT OF BROWNWOOD TX – SNF, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF EL PASO TX – SNF, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF KAUFMAN TX – SNF, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF LONGVIEW TX – SNF, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF MT. PLEASANT TX – SNF, LLC

a Delaware limited liability company

By:/s/ Jeffery C. Walraven

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

54

 

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TENANT:

Brownwood IV Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

El Paso VI Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

Graham I Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

Kaufman I Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

Kemp I Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

Kerens I Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

 

 

55

 

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Longview III Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

San Antonio I Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

San Antonio II Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

Mt. Pleasant V Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager

 

The undersigned, a Tenant under the Original Lease, hereby agrees to the
substitution of Mt. Pleasant V Enterprises, L.L.C., in place of the undersigned
as a Tenant under this Amended and Restated Master Lease:

 

Mt. Pleasant I Enterprises, L.L.C.

a Texas limited liability company

By:/s/ Gary Blake

Gary Blake

Manager   

 

56

 

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EXHIBIT “A”

FACILITIES

 

 

Facility Name

Address

Lic. Beds

Medicare Beds

Medicaid

Beds

Dually

Certified

Casa Rio Health Care and Rehabilitation

6211 S New Braunfels Avenue, San Antonio TX, 78223 (Bexar County)

124

26

0

98

 

 

 

 

 

 

Graham Oaks Care Center

1325 First Street, Graham TX 76450

(Young County)

120

3

0

117

 

 

 

 

 

 

Greenhill Villas

2530 Greenhill Road, Mount Pleasant, TX 75455 (Titus County)

150

37

0

113

 

 

 

 

 

 

Kemp Care Center

1351 South Elm Street, Kemp, TX 75143 (Kaufman County)

124

43

0

81

 

 

 

 

 

 

Kerens Care Center

809 NE 4th Street, Kerens, TX 75144 (Navarro County)

70

0

0

67

 

 

 

 

 

 

River City Care Center

921 Nolan Street, San Antonio, TX 78202 (Bexar County)

100

8

0

92

 

 

 

 

 

 

Songbird Lodge

2500 Songbird Circle, Brownwood, TX 76801 (Brown County)

121

16

0

105

 

 

 

 

 

 

Sunflower Park Health Care

1803 Highway 243 East, Kaufman, TX 75142 (Kaufman County)

92

2

0

90

 

 

 

 

 

 

St. Teresa Nursing and Rehabilitation Center

10350 Montana Avenue, El Paso, TX 79925 (El Paso County)

124

34

0

90

 

 

 

 

 

 

Whispering Pines Lodge

2131 Alpine Road, Longview, TX 75601 (Gregg County)

116

16

0

100

 

 

 

A-1

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EXHIBIT “B”

LEGAL DESCRIPTIONS OF LAND

(See attached)

 

 

B-1

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[gfbxjquuuoz5000001.jpg]

Exhibit A

Legal Description

Tract 1:

All of that certain 4.00 acre tract, lot, or parcel of land being out of the
Taylor Smith Survey No. 600, Abstract No. 821, being situated in the City of
Brownwood, Brown County, Texas, 3.06895 miles, S 12°29'22.8" W, of the Court
House of Brown County, Texas, and being 23.37513 miles, N 39 39°03'04.8"E, of
the Geographical Center of the State of Texas, and being more particularly
described by metes and bounds on Exhibit "A-1" attached hereto and made a part
hereof.

Tract 2:

Those certain non-exclusive easements for ingress to and from Tract 1 as
described herein and a recognized public roadway, and being described in three
parcels as follows:

Parcel 1:

Along the Northwest 25 feet of what is depicted as "Alamo Street" on that
certain plat prepared by George M. Amthor, Ill, R.P.L.S. dated August 23, 1991,
which said plat is attached hereto as Exhibit "B" and made a part hereof
beginning at the intersection of the centerline of the said "Alamo Street", and
continuing Northeasterly to the intersection of said centerline with the
Northwest line of an unnamed street adjoining the 4.0 acre tract hereby conveyed
along its Northeast line;

Parcel 2:

A 50 foot wide roadway along the Northeast line of the 4.0 acre tract hereby
conveyed, the centerline of which begins at the intersection of the centerline
of an unnamed street and the centerline of "Alamo Street" as shown on the said
George M. Amthor, Ill, plat, and running South 21 degrees, 24 minutes, 00
seconds East 398.95 feet to the end of this; and

Parcel 3:

A 50 foot wide roadway along the Southwest line of the 4.0 acre tract hereby
conveyed, the centerline of which begins at the intersection of the centerline
of another unnamed street and the center line of the said "Alamo Street" as
shown on the said George M. Amthor, Ill,

 

B-2

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plat, and running North 21 degrees, 19 minutes, 38 seconds, West 398.95 feet to
the end of this.

 

 

B-3

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[gfbxjquuuoz5000002.jpg]

Exhibit A

Legal Description

Lot 1, Block 1, Montana Skilled Nursing Subdivision, an addition to the City of
El Paso, El Paso County, Texas, according to the map thereof recorded under
Instrument No. 20120023088, Real Property Records of El Paso County, Texas.

 

 

 

B-4

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[gfbxjquuuoz5000003.jpg]

Exhibit A

Legal Description

PARCEL ONE:

All that certain lot, tract or parcel of land, situated in the City of Kerens,
Navarro County, Texas, a part of the Daniel Addition according to the Plat
recorded in Volume 493, Page 185, Navarro County, Texas, Deed Records, and which
is more particularly described as follows:

BEGINNING at the intersection of the North line of 4th Street and the East line
of Margaret Avenue;

THENCE Eastward with the North line of 4th Street 300 feet to the intersection
of the West line of Lelia Avenue and North line of 4th Street;

THENCE North with the West line of Lelia Avenue 600 feet to the intersection of
the South line of 6th Street and West line of Lelia Avenue;

THENCE Westward 300 feet to the intersection of East line of Margaret Avenue and
South line of 6th Street;

THENCE with the East line of Margaret Avenue 600 feet to the PLACE OF BEGINNING.

PARCEL TWO:

A right of way over and across all that certain lot, tract or parcel of land
being a 33' wide strip of land, a portion of that certain 95,6 acre tract in the
Hiram Bush Survey, Navarro County, Texas, known as the Joe M. Daniel Block 3,
described in Volume 621, Page 585, Deed Records of Navarro County, Texas, with
the center line of said right of way being a straight line described as follows:

BEGINNING at the Southwest corner of the Joe M. Daniel Block 3;
THENCE N. 29 deg. 50' W a distance of 1,240 feet to a point;

THENCE N 60 deg. 10' E a distance of 255 feet 3 inches to a point for the PLACE
OF BEGINNING of the center line of such right of way;

THENCE N 29 deg. 50' W to the point of intersection with the existing City of
Kerens, Texas, sewer line, the PLACE OF ENDING of the center line of such right
of way,

 

 

 

B-5

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Exhibit A

Legal Description

Lot 1, Block 1, of Kemp Health Care Addition, an addition to the City of Kemp,
in Kaufman County, Texas, according to the Map or Plat thereof recorded in
Cabinet 3, Page 164, Plat Records of Kaufman County, Texas, and Document No.
2012-0018091 of the Official Public Records of Kaufman County, Texas.

 

Special Warranty Deed- Kemp Investor Holdings, LLC (Kemp Care Center)

 

 

B-6

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[gfbxjquuuoz5000004.jpg]

Exhibit A

Legal Description

Tract 1: Fee Simple Estate

BEING all that certain tract or parcel of land situated in the Prior Herron
Survey, A 265, located about 2.35 miles N 6° W from the City of Mt. Pleasant,
Titus County, Texas; being a part of that certain 20.594 acres described in a
Deed Mt. Pleasant Land Development, LLC to Mt. Pleasant

 

B-7

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Operators, LLC dated August 7, 2012, recorded in Clerk's File Doc. #20084907,
Official Public Records of Titus County, Texas, being all of Lot 3 of Senior
Community Addition to the City of Mount Pleasant, Texas, as reflected in Plat of
said addition recorded in Plat # 561 and filed on June 6, 2012, in the Plat
Records of Titus County, Texas; and being more particularly described as
follows:

BEGINNING at a 1/2" rebar marked with a "Cooper" cap found on the South East
corner of said Lot 3, being on the North boundary line of a 6 acre tract
described as First Tract In a Deed to Cathy Lynn Shurbet Parr, dated October 19,
2005, recorded in Vol. 1773, Page 2, Real Property Records;

THENCE S 88° 47' 07" W along the South boundary line of said Lot 3 a distance of
465.59 feet to a 1/2'' rebar marked with a "Cooper" cap found on the most South
West corner of said Lot 3, being on the North boundary line of said 6 acre
tract, and being on the South East corner of a Called 2 acre tract described in
a Deed to Mrs. Lida E. Moore, dated August 7, 1951, recorded in Vol. 185, Page
490, Deed Records;

THENCE in a Northerly direction along the West boundary line of said Lot 3 as
follows:

 

B-8

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

 

N1° 41' 53" W a distance of 291.43 feet to a 1/2" rebar marked with a "COOPER"
cap found on the most South West corner of said Lot 3, and being on the
Northeast corner of said CALLED 2 acre tract,

S88° 42' 02" W a distance of 15.26 feet to a 1/2" rebar marked with a "Cooper"
cap found on an external corner of said Lot 3 and being on the South East corner
of Lot 2 of said Addition, and

N14° 03' 39" W a distance of 252.36 feet to a X!" rebar marked with a "Cooper"
cap found on the North West corner of said Lot 3, being on the North East corner
of Lot 2 of said Addition, and being on the South boundary line of Senior
Community Drive;

THENCE S 89° 52' 28" E along the South boundary line of said Senior Community
Drive a distance of 562.97 feet to a "PK" nail found on the North East corner of
said Lot 3;

THENCE in a Southerly direction along the East boundary line of said Lot 3 as
follows: S 0° 03' 41" W a distance of 47.44 feet to a "PK" nail found for a
corner;

 

B-9

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S15° 12' 06" E a distance of 351.02 feet to a 1W rebar marked with a "Cooper"
cap found for a corner; S 74° 49' 18" W a distance of 132.03 feet to a'/2' rebar
marked with a "Cooper" cap found for a corner;

S12° 33' 33" E a distance of 106.45 feet to the PLACE OF BEGINNING and
containing 6.471 acres of land.

Tract 2: Easement Estate

As established and defined by an Access Easement Agreement dated January 16,
2015, between Fredo Enterprises I, LLC and Mt. Pleasant Operators, LLC and
recorded January 23, 2015 in Clerk's File No. 20150257 of the Public Records of
Titus County, Texas.

 

B-10

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Tract 3: Easement Estate

As established and defined by Easement Deed executed by Cathy Lynn Shurbet Parr
to Mt. Pleasant Land Development, L.L.C., filed for record on February 7, 2008,
and recorded under County Clerk's File No. 200800000729, Real Property Records
of Titus County, Texas.

 

B-11

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Special Warranty Deed- Mt. Pleasant Operators, LLC (Greenhill Villas)

[gfbxjquuuoz5000005.jpg]

Exhibit A

Legal Description

0.992 of an acre of land, more or less, being comprised of Lots 15, 16, 17 and
18, Block G, New City Block 1659, ORIGINAL CITY LOT 11, RANGE 4, DISTRICT 1, San
Antonio, Bexar County, Texas; as shown on the City of San Antonio Engineers
Section Map No. 28, and being the same tract of land conveyed to River City Life
Care, Inc. of record in Volume 10463, Page 1816, Official Public Records of
Bexar County, Texas. Said 0.992 acre tract being more particularly described by
metes and bounds in Exhibit "A-1" attached hereto and made a part hereof.

 

 

B-12

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[gfbxjquuuoz5000006.jpg]

Exhibit A

Legal Description

Tract 1: Fee Simple Estate

Lot 2, Block 1, New City Block 10934, Highland Hills Village, in the City of San
Antonio, Bexar County, Texas, according to the map or plat thereof recorded in
Volume 9609, Page 34, of the Deed and Plat Records of Bexar County, Texas.

Tract 2: Easement Estate

Easement rights as established and defined under the terms and provisions of
Pipeline Easement Agreement (Sanitary Sewer) executed by and between Texas
Department of State Health Services and Dos Rios Trust, Brooks Hardee, Trustee,
filed March 31, 2009, recorded in Volume 13918, Page 2444, amended in Volume
14656, Page 2167, of the Official Public Records of Bexar County, Texas.

 

 

 

B-13

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[gfbxjquuuoz5000007.jpg]

 

Exhibit A

Legal Description

BEING 4.96 acres of land located in the Alex Jordan Survey, A-262, City of
Longview, Gregg County, Texas, said 4.96 acres being all of Lot 1 and part of
Lot 2, Block 8215, Jefferson Village East, Unit 1 according to the Correction
Plat of said Block 8215 recorded in Volume 1255, Page 307, Deed Records, Gregg
County, Texas, also being a part of a called 14.48 acre tract recorded in Volume
2499, Page 327, Public Official Records, Gregg County, Texas, said 4.96 acres
being more particularly described as follows:

BEGINNING at a 1/2" iron rod set at the intersection of the South ROW line of
Eden Drive and the West ROW line of Alpine Road for corner, said corner being
the Northeast corner of said Lot 1, Block 8215 of said Jefferson Village East -
Unit 1, same being the Northeast corner of said called 14,48 acre tract and
PLACE OF BEGINNING of the herein described 4.96 acre tract of land;

THENCE S 45 deg. 20 min. 00 sec. W, 329.80 feet along the West ROW line of said
Alpine road, same being the East line of said Lot 1, Block 8215 and said called
14.48 acre tract to a 1/2 inch iron rod set in same for angle point of this
tract;

THENCE S 47 deg. 50 min. 00 sec. W, 389.63 feet along the West ROW line of said
Alpine Road, same being the East line of said Lot 2 and Lot 2, Block 8215, and
called 7.24 acre tract to a 1/2 inch iron rod set in same for the Southwest
corner of the herein described 4.96 acre tract of land;

THENCE N 42 deg. 10 min 00 sec. W, 250.00 feet to a 1/2 inch iron rod set for an
angle point of this tract;

THENCE N 01 deg. 09 min. 00 sec. W, 245.50 feet to a 1/2 inch iron rod set in
the South ROW line of said Eden Drive for corner, said corner also being in the
North line of said Lot 2, Block 8215 and said 14.48 acre tract for the Northwest
corner of the herein described 4.96 acre tract of land;

THENCE N 88 deg. 50 min. 26 sec. E, 88.21 feet along the South ROW line of said
Eden Drive to a 1/2 inch iron rod set in same for angle point of this tract;

THENCE S 87 deg. 46 min. 01 sec. E, 84.50 feet along the South ROW line of said
Eden Drive to a PK nail set in concrete for angle point of this tract;

THENCE S 86 deg. 06 min. 00 sec. E, 526.70 feet along the South ROW line of said
Eden Drive to the PLACE OF BEGINNING and containing 4.96 acres of land.

 

 

B-14

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[gfbxjquuuoz5000008.jpg]

Exhibit A

Legal Description

Tract 1:

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey,
Abstract No. 21, Kaufman County, Texas, part of that certain called 7.338 acre
tract conveyed to Ricky R. Vrzalik, et al from Andrew J. Kupper, and wife on
January 13, 1988 and recorded in Volume 917, Page 85 of the Deed Records of
Kaufman County, Texas, and being more particularly described by metes and bounds
on Exhibit "A-1" attached hereto and made a part hereof.

Tract 2:

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey,
Abstract No. 21, Kaufman County, Texas, part of that certain called 3,551 acre
tract conveyed to Dorothea Spencer by Ricky R. Vrzalik, etal on March 30, 1990,
recorded in Volume 987, Page 334 of the Deed Records of Kaufman County, Texas,
and being more particularly described by metes and bounds on Exhibit "A-2"
attached hereto and made a part hereof.

Tract 3:

All that certain lot, tract or parcel of land, part of the Thomas Beedy Survey,
Abstract No. 21, Kaufman County, Texas, part of that certain called 3.551 acre
tract conveyed to Dorothea Spencer by Ricky R. Vrzalik, etal on March 30, 1990,
recorded in Volume 987, Page 334 of the Deed Records of Kaufman County, Texas,
and being more particularly described by metes and bounds on Exhibit "A-3"
attached hereto and made a part hereof.

 

 

 

B-15

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EXHIBIT "A"

A tract of land containing 6,05 acres, more or less, being part of Bloch 114 mit
or the Ben 11111Survey, Abstract Nu. 137 and being the Sallie tract as
describvil in a deed front Graham Oaks, Inc, to Graham Oohs Associates, LA,
recorded in Volume 754, Page 153, of the Deed Records of Young County, 'resits,
being more particalorly described as follows:

Beginning at a 5/8 inch it,dt rod set in (he north line of First Street and at
the southeast corner of a 20 foot alley as Shtli111 on it plat of Morningside
Addition to the City of Craham, recorded In Whiffle 1, Page 179, of the Phil
Records of Voting county, Texas, said iron rod being the southwest corner of the
tract described In a deed from Graham Oaks, Inc., io Cruham Oaks Associates, LP.
recorded in Volume 754, Inge 153, of the Deed Retort's of Young County, Texas;

Thence with the east line of said alley, North 00 degrees 19 minutes 31 seconds
FAA fora distance of 599.00 feel to an "X" set in concrete for corner In the
south line of a called 8,5 acre met described in a deed recorded in Volume 404,
Page 538, of the Deed Records of Young Counly,TeNnSt

Thence with the south line of said 8,5 acre tenet, South 89 degrees 40 minutes
29 seconds East for a illsittace of 440,00 feet to a 518 inch iron rod set for
corner at the northwest corner of a called 47.8 acre tract

Thence with the northernmost west line of said 47.8 acre tract, South 00 degrees
19 minutes 31 seconds West for a distance of 599,00 to a 5/8 inch iron rod set
for corner in the north ROA We of First Street;

Thence with the North R,O.W. line of First Streets North 89 degrees 40 minutes
29 seconds West for It distance of 440,00 feet to (he point of beginning.

 

 

B-16

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EXHIBIT "C"

 

DECLARATION OF COMMENCEMENT DATE

 

This Declaration of Commencement Date ("Declaration") is made this ___ day of
_______________, 20__, by and among MRT of San Antonio TX - SNF I, LLC, MRT of
San Antonio TX - SNF II, LLC, MRT of Graham TX - SNF, LLC, MRT of Kemp TX - SNF,
LLC, MRT of Kerens TX - SNF, LLC, MRT of Brownwood TX - SNF, LLC, MRT of El Paso
TX - SNF, LLC, MRT of Kaufman TX - SNF, LLC, MRT of Longview TX - SNF, LLC, and
MRT of Mt. Pleasant TX - SNF, LLC, each a Delaware limited liability company
(collectively, the “Landlord”), and Brownwood IV Enterprises, L.L.C., El Paso VI
Enterprises, L.L.C., Graham I Enterprises, L.L.C., Kaufman I Enterprises,
L.L.C., Kemp I Enterprises, L.L.C., Kerens I Enterprises, L.L.C., Longview III
Enterprises, L.L.C., San Antonio I Enterprises, L.L.C., San Antonio II
Enterprises, L.L.C. and Mt. Pleasant V Enterprises, L.L.C., each a Texas limited
liability company (collectively, the “Tenant”).

 

WHEREAS, Landlord and Tenant entered into that certain Amended and Restated
Lease Agreement dated November 20, 2018 (hereinafter referred to as the
"Lease"), for certain Premises more particularly described therein;

 

NOW, THEREFORE, Landlord and Tenant mutually declare and confirm as follows:

 

1.  Tenant is in possession of, and has accepted, the Demised Premises.  

 

2.  The Commencement Date of the Lease is _______________, 20__.  

 

4.  Capitalized terms used but not otherwise defined herein shall have the
meaning set forth in the Lease.

 

[Signature pages follow]

 

 

C-1

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

 

IN WITNESS WHEREOF, Landlord and Tenant have signed this Declaration as of the
date first set forth above.

 

LANDLORD:

 

MRT OF SAN ANTONIO TX – SNF I, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF SAN ANTONIO TX – SNF II, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF GRAHAM TX – SNF, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF KEMP TX – SNF, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF KERENS TX – SNF, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

C-2

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

 

MRT OF BROWNWOOD TX – SNF, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF EL PASO TX – SNF, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF KAUFMAN TX – SNF, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF LONGVIEW TX – SNF, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

MRT OF MT. PLEASANT TX – SNF, LLC

a Delaware limited liability company

By:

Jeffery C. Walraven,

Executive Vice President and Chief Financial Officer

 

C-3

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

 

TENANT:

 

Brownwood IV Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

El Paso VI Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

Graham I Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

Kaufman I Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

Kemp I Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

 

C-4

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

 

Kerens I Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

Longview III Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

San Antonio I Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

San Antonio II Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

Mt. Pleasant V Enterprises, L.L.C.

a Texas limited liability company

By:

Gary Blake

Manager

 

C-5

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EXHIBIT "D"

 

LANDLORD’S WIRE INSTRUCTIONS

 

 

Name of Bank: Pinnacle Bank

 

Bank’s Address: 150 Third Avenue South

Nashville, TN 37201

 

Account Holder:  MedEquities Realty Operating Partnership, LP

ABA No.  064008637

Account No.  5838310

 

 

C-6