Exhibit 10.1

 

 

MASTER LEASE

Between

THE ENTITIES IDENTIFIED ON SCHEDULE 1 HERETO,

collectively, as “Landlord”

and

THE ENTITIES IDENTIFIED ON SCHEDULE 2 HERETO,

collectively, as “Tenant”

May 30, 2014

 

 

[                         ]

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TABLE OF CONTENTS

 

          Page No.  

Article I MASTER LEASE; DEFINITIONS; PREMISES; TERM

     1   

1.1

   Recognition of Master Lease; Irrevocable Waiver of Certain Rights      1   

1.2

   Definitions      2   

1.3

   Lease of Premises; Ownership      2   

1.4

   Term      2   

1.5

   Net Lease      2    Article II RENT      3   

2.1

   Base Rent      3   

2.2

   Additional Rent      3   

2.3

   Method of Payment      3   

2.4

   Late Payment of Rent      3   

2.5

   Guaranty      4    Article III IMPOSITIONS AND OTHER CHARGES      4   

3.1

   Impositions      4   

3.2

   Utilities; CC&Rs      5   

3.3

   Insurance      5   

3.4

   Other Charges      5   

3.5

   Real Property Imposition Impounds      5   

3.6

   Insurance Premium Impounds      6    Article IV ACCEPTANCE OF PREMISES; NO
IMPAIRMENT      6   

4.1

   Acceptance of Premises      6   

4.2

   No Impairment      6    Article V OPERATING COVENANTS      7   

5.1

   Tenant Personal Property      7   

5.2

   Landlord Personal Property      7   

5.3

   Primary Intended Use      7   

5.4

   Compliance with Legal Requirements and Authorizations      7   

5.5

   Preservation of Business      8   

5.6

   Maintenance of Books and Records      8   

5.7

   Financial, Management and Regulatory Reports      8   

5.8

   Estoppel Certificates      9   

5.9

   Furnish Information      9   

5.10

   Affiliate Transactions      9   

5.11

   Waste      9   

5.12

   Additional Covenants      9   

5.13

   No Liens      10    Article VI MAINTENANCE AND REPAIR      10   

6.1

   Tenant’s Maintenance Obligation      10   

 

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TABLE OF CONTENTS

(continued)

 

          Page No.  

6.2

   Premises Condition Report      10   

6.3

   Notice of Non-Responsibility      11   

6.4

   Permitted Alterations      11   

6.5

   Capital and Material Alterations      12   

6.6

   Capital Expenditures      12   

6.7

   Additional Improvement Funds      13   

6.8

   Encroachments      15    Article VII PERMITTED CONTESTS      15    Article
VIII INSURANCE      15   

8.1

   Required Policies      15   

8.2

   General Insurance Requirements      17   

8.3

   Replacement Costs      17   

8.4

   Claims-Made Policies      18   

8.5

   Non-Renewal      18   

8.6

   Deductibles      18   

8.7

   Increase in Limits; Types of Coverages      18   

8.8

   No Separate Insurance      19    Article IX REPRESENTATIONS AND WARRANTIES   
  19   

9.1

   General      19   

9.2

   Anti-Terrorism Representations      19   

9.3

   Additional Representations and Warranties      20    Article X DAMAGE AND
DESTRUCTION      20   

10.1

   Notice of Damage or Destruction      20   

10.2

   Restoration      21   

10.3

   Insufficient or Excess Proceeds      21   

10.4

   Facility Mortgagee      21    Article XI CONDEMNATION      22    Article XII
DEFAULT      23   

12.1

   Events of Default      23   

12.2

   Remedies      25    Article XIII OBLIGATIONS OF TENANT ON EXPIRATION OR
TERMINATION OF LEASE      28   

13.1

   Surrender      28   

13.2

   Transition      28   

13.3

   Tenant Personal Property      30   

13.4

   Facility Trade Name      30   

13.5

   Holding Over      30    Article XIV INDEMNIFICATION      30   

 

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TABLE OF CONTENTS

(continued)

 

          Page No.   Article XV LANDLORD’S FINANCING      31   

15.1

   Grant Lien      31   

15.2

   Attornment      31   

15.3

   Cooperation; Modifications      32   

15.4

   Compliance with Facility Mortgage Documents      32    Article XVI ASSIGNMENT
AND SUBLETTING      33   

16.1

   Prohibition      33   

16.2

   Landlord Consent      33   

16.3

   Transfers to Affiliates      34   

16.4

   Permitted Occupancy Agreements      34   

16.5

   Costs      34    Article XVII CERTAIN RIGHTS OF LANDLORD      34   

17.1

   Right of Entry      34   

17.2

   Conveyance by Landlord      34   

17.3

   Granting of Easements, etc.      35    Article XVIII ENVIRONMENTAL MATTERS   
  35   

18.1

   Hazardous Materials      35   

18.2

   Notices      35   

18.3

   Remediation      35   

18.4

   Indemnity      35   

18.5

   Environmental Inspections      36    Article XIX RESERVED      36    Article
XX QUIET ENJOYMENT      36    Article XXI REIT RESTRICTIONS      36   

21.1

   General REIT Provisions      36   

21.2

   Characterization of Rents      36   

21.3

   Prohibited Transactions      36   

21.4

   Personal Property REIT Requirements      37    Article XXII NOTICES      37
   Article XXIII RESERVED      38    Article XXIV MISCELLANEOUS      38   

24.1

   Memorandum of Lease      38   

24.2

   No Merger      38   

24.3

   No Waiver      38   

24.4

   Acceptance of Surrender      38   

24.5

   Attorneys’ Fees      38   

24.6

   Brokers      38   

 

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TABLE OF CONTENTS

(continued)

 

          Page No.  

24.7

   Severability      38   

24.8

   Non-Recourse      38   

24.9

   Successors and Assigns      39   

24.10

   Governing Law; Jury Waiver      39   

24.11

   Entire Agreement      39   

24.12

   Headings      39   

24.13

   Counterparts      39   

24.14

   Joint and Several      39   

24.15

   Interpretation      39   

24.16

   Time of Essence      40   

24.17

   Further Assurances      40   

24.18

   California Specific Provisions      40   

EXHIBITS/SCHEDULES

 

Exhibit A Defined Terms

Exhibit B Description of the Land

Exhibit C The Landlord Personal Property

Exhibit D Financial, Management and Regulatory Reports

Exhibit E Fair Market Value

Schedule 1 LANDLORD ENTITIES

Schedule 2 TENANT ENTITIES; FACILITY INFORMATION

Schedule 3 TENANT OWNERSHIP STRUCTURE

Schedule 4 FORM OF REQUEST FOR ADVANCE

 

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MASTER LEASE

THIS MASTER LEASE (this “Lease”) is entered into as of May 30, 2014, by and
among each of the entities identified on Schedule 1 (collectively, “Landlord”),
and each of the entities identified as “Tenant” on Schedule 2 (individually and
collectively, “Tenant”). Notwithstanding anything in this Lease to the contrary,
Landlord and Tenant hereby agree that this Lease shall not be effective until
11:59 p.m. on May 31, 2014.

R E C I T A L S

A. Landlord desires to lease the Premises to Tenant and Tenant desires to lease
the Premises from Landlord upon the terms set forth in this Lease.

B. Pursuant to that certain Guaranty of Master Lease dated of even date herewith
(as amended, supplemented or otherwise modified from time to time, the
“Guaranty”), Guarantor has agreed to guaranty the obligations of each of the
entities comprising Tenant under this Lease.

C. A list of the Facilities covered by this Lease is attached hereto as Schedule
2.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as follows:

ARTICLE I

MASTER LEASE; DEFINITIONS; PREMISES; TERM

1.1 Recognition of Master Lease; Irrevocable Waiver of Certain Rights. Tenant
and Landlord each acknowledges and agrees that this Lease constitutes a single,
indivisible lease of the entire Premises, and the Premises constitutes a single
economic unit. The Base Rent, Additional Rent, other amounts payable hereunder
and all other provisions contained herein have been negotiated and agreed upon
based on the intent to lease the entirety of the Premises as a single and
inseparable transaction, and such Base Rent, Additional Rent, other amounts and
other provisions would have been materially different had the parties intended
to enter into separate leases or a divisible lease. Any Event of Default under
this Lease shall constitute an Event of Default as to the entire Premises. Each
of the entities comprising Tenant and Guarantor, in order to induce Landlord to
enter into this Lease, to the extent permitted by law:

(a) Agrees, acknowledges and is forever estopped from asserting to the contrary
that the statements set forth in the first sentence of this Section are true,
correct and complete;

(b) Agrees, acknowledges and is forever estopped from asserting to the contrary
that this Lease is a new and de novo lease, separate and distinct from any other
lease between any of the entities comprising Tenant and any of the entities
comprising Landlord that may have existed prior to the date hereof;

(c) Agrees, acknowledges and is forever estopped from asserting to the contrary
that this Lease is a single lease pursuant to which the collective Premises are
demised as a whole to Tenant;

(d) Agrees, acknowledges and is forever estopped from asserting to the contrary
that if, notwithstanding the provisions of this Section, this Lease were to be
determined or found to be in any proceeding, action or arbitration under state
or federal bankruptcy,

 

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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

(e) Forever knowingly waives and relinquishes any and all rights under or
benefits of the provisions of the Federal Bankruptcy Code Section 365 (11 U.S.C.
§ 365), or any successor or replacement thereof or any analogous state law, to
selectively or individually assume, reject or assign the multiple leases
comprising this Lease following a determination or finding in the nature of that
described in the foregoing Section 1.1(d).

1.2 Definitions. Certain initially-capitalized terms used in this Lease are
defined in Exhibit A. All accounting terms not otherwise defined in this Lease
have the meanings assigned to them in accordance with GAAP.

1.3 Lease of Premises; Ownership.

1.3.1 Upon the terms and subject to the conditions set forth in this Lease,
Landlord hereby leases to Tenant and Tenant leases from Landlord all of
Landlord’s rights and interest in and to the Premises.

1.3.2 Tenant acknowledges that the Premises are the property of Landlord and
that Tenant has only the right to the possession and use of the Premises upon
and subject to the terms and conditions of this Lease. Tenant will not, at any
time during the Term, take any position, whether in any tax return, public
filing, contractual arrangement, financial statement or otherwise, other than
that Landlord is the owner of the Premises for federal, state and local income
tax purposes and that this Lease is a “true lease”.

1.4 Term. The initial term of this Lease (the “Initial Term”) shall be for the
period commencing as of June 1, 2014 (the “Commencement Date”) and expiring at
11:59 p.m. on the last day of the calendar month in which the
                     (            ) anniversary of the Commencement Date occurs
(the “Initial Expiration Date”). The term of this Lease may be extended for
                     (    ) separate terms of five (5) years each (each, an
“Extension Term”) if: (a) at least twelve (12), but not more than twenty-four
(24) months prior to the end of the then current Term, Tenant delivers to
Landlord a written notice (an “Extension Notice”) that it desires to exercise
its right to extend the Term for one (1) Extension Term; and (b) no Event of
Default shall have occurred and be continuing on the date Landlord receives the
Extension Notice or on the last day of the then current Term. During any such
Extension Term, except as otherwise specifically provided for herein, all of the
terms and conditions of this Lease shall remain in full force and effect. Once
delivered to Landlord, an Extension Notice shall be irrevocable.

1.5 Net Lease. This Lease is intended to be and shall be construed as an
absolutely net lease, commonly referred to as a “net, net, net” or “triple net”
lease, pursuant to which Landlord shall not, under any circumstances or
conditions, whether presently existing or hereafter arising, and whether
foreseen or unforeseen by the parties, be required to make any payment or
expenditure of any kind whatsoever or be under any other obligation or liability
whatsoever, except as expressly set forth herein, in connection with the
Premises. All Rent payments shall be absolutely net to Landlord, free of all
Impositions, utility charges, operating expenses, insurance premiums or any
other charges or expenses in connection with the Premises, all of which shall be
paid by Tenant.

 

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ARTICLE II

RENT

2.1 Base Rent. During the Term, Tenant will pay to Landlord as base rent
hereunder (the “Base Rent”), an annual amount equal to
                                              Dollars ($                    ).
Notwithstanding the foregoing, on the first day of the third (3rd) Lease Year
and the first day of each Lease Year thereafter during the Term (including,
without limitation, during any Extension Term), the Base Rent shall increase to
an annual amount equal to the sum of (a) the Base Rent for the immediately
preceding Lease Year, and (b) the Base Rent for the immediately preceding Lease
Year multiplied by the Adjusted CPI Increase. The Base Rent shall be payable in
advance in twelve (12) equal monthly installments on or before the first
(1st) Business Day of each calendar month; provided, however, the Base Rent
attributable to the first (1st) full calendar month of the Term and the calendar
month in which the Commencement Date occurs, which may be a partial month, shall
be payable on the Commencement Date. Notwithstanding anything herein to the
contrary, Base Rent shall be adjusted pursuant to Section 6.7.

2.2 Additional Rent. In addition to the Base Rent, Tenant shall also pay and
discharge as and when due and payable all other amounts, liabilities and
obligations which Tenant assumes or agrees to pay under this Lease. In the event
of any failure on the part of Tenant to pay any of those items referred to in
the previous sentence, Tenant will also promptly pay and discharge every fine,
penalty, interest and cost which may be added for non-payment or late payment of
the same. Collectively, the items referred to in the first two sentences of this
Section 2.2 are referred to as “Additional Rent.” Except as may otherwise be set
forth herein, any costs or expenses paid or incurred by Landlord on behalf of
Tenant that constitute Additional Rent shall be reimbursed by Tenant to Landlord
within ten (10) days after the presentation by Landlord to Tenant of invoices
therefor.

2.3 Method of Payment. All Rent payable hereunder shall be paid in lawful money
of the United States of America. Except as may otherwise be specifically set
forth herein, Rent shall be prorated as to any partial months at the beginning
and end of the Term. Rent to be paid to Landlord shall be paid by electronic
funds transfer debit transactions through wire transfer of immediately available
funds and shall be initiated by Tenant for settlement on or before the Payment
Date; provided, however, if the Payment Date is not a Business Day, then
settlement shall be made on the next succeeding day which is a Business Day. If
Landlord directs Tenant to pay any Base Rent to any party other than Landlord,
Tenant shall send to Landlord, simultaneously with such payment, a copy of the
transmittal letter or invoice and a check whereby such payment is made or such
other evidence of payment as Landlord may reasonably require.

2.4 Late Payment of Rent. Tenant hereby acknowledges that the late payment of
Rent will cause Landlord to incur costs not contemplated hereunder, the exact
amount of which is presently anticipated to be extremely difficult to ascertain.
Accordingly, if any installment of Rent other than Additional Rent payable to a
Person other than Landlord (or a Facility Mortgagee) shall not be paid within
five (5) days of its Payment Date, Tenant shall pay to Landlord, on demand, a
late charge equal to the lesser of (a) five percent (5%) of the amount of such
installment or (b) the maximum amount permitted by law. The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment by Tenant. The parties further
agree that such late charge is Rent and not interest and such assessment does
not constitute a lender or borrower/creditor relationship between Landlord and
Tenant. In addition, if any installment of Rent other than Additional Rent
payable to a Person other than Landlord (or a Facility Mortgagee) shall not be
paid within ten (10) days after its Payment Date, the amount unpaid, including
any late charges, shall bear interest at the Agreed Rate compounded monthly from
such Payment Date to the date of payment thereof, and Tenant shall pay such
interest to Landlord on demand. The payment of such late charge or such interest
shall neither constitute waiver of nor excuse or cure any default under this
Lease, nor prevent Landlord from exercising any other rights and remedies
available to Landlord.

 

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2.5 Guaranty. Tenant’s obligations under this Lease are guaranteed by The Ensign
Group, Inc., a Delaware corporation (such guarantor, together with its
successors and assigns, are herein referred to, individually and collectively,
as “Guarantor”) pursuant to the Guaranty.

ARTICLE III

IMPOSITIONS AND OTHER CHARGES

3.1 Impositions.

3.1.1 Subject to Section 3.5, Tenant shall pay all Impositions attributable to a
tax period, or portion thereof, occurring during the Term (irrespective of
whether the Impositions for such tax period are due and payable after the Term),
when due and before any fine, penalty, premium, interest or other cost may be
added for non-payment. Where feasible, such payments shall be made directly to
the taxing authorities. If any such Imposition may, at the option of the
taxpayer, lawfully be paid in installments (whether or not interest shall accrue
on the unpaid balance of such Imposition), Tenant may exercise the option to pay
same (and any accrued interest on the unpaid balance of such Imposition) in
installments (provided no such installments shall extend beyond the Term) and,
in such event, shall pay such installments during the Term before any fine,
penalty, premium, further interest or cost may be added thereto. Tenant shall
deliver to Landlord, not less than five (5) days prior to the due date of each
Imposition, copies of the invoice for such Imposition, the check delivered for
payment thereof and an original receipt evidencing such payment or other proof
of payment satisfactory to Landlord.

3.1.2 Notwithstanding Section 3.1.1 to the contrary, Landlord may elect to pay
those Impositions, if any, based on Landlord’s net income, gross receipts,
franchise taxes and taxes on its capital stock directly to the taxing authority
and within ten (10) Business Days of Landlord delivering to Tenant notice and
evidence of such payment, Tenant shall reimburse Landlord for such paid
Impositions. In connection with such Impositions, Tenant shall, upon request of
Landlord, promptly provide to Landlord such data as is maintained by Tenant with
respect to any Facility as may be necessary to prepare any returns and reports
to be filed in connection therewith.

3.1.3 Tenant shall prepare and file all tax returns and reports as may be
required by Legal Requirements with respect to or relating to all Impositions
(other than those Impositions, if any, based on Landlord’s net income, gross
receipts, franchise taxes and taxes on its capital stock).

3.1.4 Tenant may, upon notice to Landlord, at Tenant’s option and at Tenant’s
sole cost and expense, protest, appeal or institute such other proceedings as
Tenant may deem appropriate to effect a reduction of real estate or personal
property assessments and Landlord, at Tenant’s expense, shall reasonably
cooperate with Tenant in such protest, appeal or other action; provided,
however, that upon Landlord’s request in connection with any such protest or
appeal, Tenant shall post an adequate bond or deposit sufficient sums with
Landlord to insure payment of any such real estate or personal property
assessments during the pendency of any such protest or appeal.

3.1.5 Landlord or Landlord’s designee shall use reasonable efforts to give
prompt notice to Tenant of all Impositions payable by Tenant hereunder of which
Landlord at any time has knowledge, provided, however, that any failure by
Landlord to provide such notice to Tenant shall in no way relieve Tenant of its
obligation to timely pay the Impositions.

3.1.6 Impositions imposed or assessed in respect of the tax-fiscal period during
which the Term terminates shall be adjusted and prorated between Landlord and
Tenant, whether or not such Imposition is imposed or assessed before or after
such termination, and Tenant’s obligation to pay its prorated share thereof
shall survive such termination.

 

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3.2 Utilities; CC&Rs. Tenant shall pay any and all charges for electricity,
power, gas, oil, water and other utilities used in connection with each Facility
during the Term. Tenant shall also pay all costs and expenses of any kind
whatsoever which may be imposed against Landlord during the Term by reason of
any of the covenants, conditions and/or restrictions affecting any Facility or
any portion thereof, or with respect to easements, licenses or other rights
over, across or with respect to any adjacent or other property which benefits
any Facility, including any and all costs and expenses associated with any
utility, drainage and parking easements. If Landlord is billed directly for any
of the foregoing costs, Landlord shall send Tenant the bill and Tenant shall pay
the same before it is due.

3.3 Insurance. Subject to Section 3.6, Tenant shall pay or cause to be paid all
premiums for the insurance coverage required to be maintained by Tenant
hereunder.

3.4 Other Charges. Tenant shall pay all other amounts, liabilities, obligations,
costs and expenses paid or incurred with respect to the ownership, repair,
replacement, restoration, maintenance and operation of each Facility (“Other
Charges”).

3.5 Real Property Imposition Impounds.

3.5.1 If required under the terms of any Facility Mortgage Document, or at
Landlord’s option (to be exercised by thirty (30) days’ written notice to
Tenant) following (i) the occurrence and during the continuation of an Event of
Default, or (ii) following the occurrence of more than one (1) Event of Default
in any twelve (12) month period and for the remainder of the Term, and provided
Tenant is not already being required to impound such payments in accordance with
the requirements of Section 15.4 below, Tenant shall be required to deposit, at
the time of any payment of Base Rent, an amount equal to one-twelfth of Tenant’s
estimated annual real and personal property taxes required pursuant to
Section 3.1. Such amounts shall be applied to the payment of the obligations in
respect of which said amounts were deposited in such order of priority as
Landlord shall reasonably determine, on or before the respective dates on which
the same or any of them would become delinquent. The reasonable cost of
administering such impound account shall be paid by Tenant. Nothing in this
Section 3.5.1 shall be deemed to affect any right or remedy of Landlord
hereunder. If Landlord elects (to the extent permitted pursuant to this
Section 3.5.1), to require Tenant to impound Real Property Impositions
hereunder, Tenant shall, as soon as they are received, deliver to Landlord
copies of all notices, demands, claims, bills and receipts in relation to the
Real Property Impositions.

3.5.2 The sums deposited by Tenant under this Section 3.5 shall be held by
Landlord, shall not bear interest nor be held by Landlord in trust or as an
agent of Tenant, and may be commingled with the other assets of Landlord.
Provided no Event of Default then exists and is continuing under this Lease, and
provided that Tenant has timely delivered to Landlord copies of any bills,
claims or notices that Tenant has received, the sums deposited by Tenant under
this Section 3.5 shall be used by Landlord to pay Real Property Impositions as
the same become due. Upon the occurrence of any Event of Default, Landlord may
apply any funds held by it under this Section 3.5 to cure such Event of Default
or on account of any damages suffered or incurred by Landlord in connection
therewith or to any other obligations of Tenant arising under this Lease, in
such order as Landlord in its discretion may determine.

3.5.3 If Landlord transfers this Lease, it shall transfer all amounts then held
by it under this Section 3.5 to the transferee, and Landlord shall thereafter
have no liability of any kind with respect thereto. As of the Expiration Date,
any sums held by Landlord under this Section 3.5 shall be returned to Tenant
provided that there is no Event of Default and provided that any and all Real
Property Impositions due and owing hereunder have been paid in full.

 

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3.5.4 Notwithstanding anything herein which may be construed to the contrary, if
Landlord elects (to the extent permitted pursuant to Section 3.5.1) to require
Tenant to impound Real Property Impositions hereunder, Landlord shall have no
liability to Tenant for failing to pay any Real Property Impositions to the
extent that: (a) any Event of Default has occurred and is continuing,
(b) insufficient deposits under this Section 3.5 are held by Landlord at the
time such Real Property Impositions become due and payable, or (c) Tenant has
failed to provide Landlord with copies of the bills, notices, and claims for
such Real Property Impositions as required pursuant to Section 3.5.1.

3.6 Insurance Premium Impounds. Without limiting or expanding Tenant’s
obligation pursuant to Article 15, if required under the terms of any Facility
Mortgage Document, or at Landlord’s option (to be exercised by thirty (30) days’
written notice to Tenant) following (i) the occurrence and during the
continuation of an Event of Default, or (ii) following the occurrence of more
than one (1) Event of Default in any twelve (12) month period and for the
remainder of the Term, and provided Tenant is not already being required to
impound such payments in accordance with the requirements of Section 15.4 below,
Tenant shall be required to deposit, at the time of any payment of Base Rent, an
amount equal to one-twelfth of Tenant’s estimated annual insurance premiums
required pursuant to Section 3.6 and Article VIII. Such amounts shall be applied
to the payment of the obligations in respect of which said amounts were
deposited in such order of priority as Landlord shall reasonably determine, on
or before the respective dates on which the same or any of them would become
delinquent. The reasonable cost of administering such impound account shall be
paid by Tenant. Nothing in this Section 3.6 shall be deemed to affect any right
or remedy of Landlord hereunder. As applicable, the terms of Section 3.5 shall
govern the amounts deposited under this Section 3.6.

ARTICLE IV

ACCEPTANCE OF PREMISES; NO IMPAIRMENT

4.1 Acceptance of Premises. Tenant acknowledges receipt and delivery of
possession of the Premises and confirms that Tenant has examined and otherwise
has knowledge of the condition of the Premises prior to the execution and
delivery of this Lease and has found the same to be in good order and repair,
free from Hazardous Materials not in compliance with applicable Hazardous
Materials Laws and satisfactory for its purposes hereunder. Regardless, however,
of any examination or inspection made by Tenant and whether or not any patent or
latent defect or condition was revealed or discovered thereby, Tenant is leasing
the Premises “as is” in its present condition. Tenant waives any claim or action
against Landlord in respect of the condition of the Premises including any
defects or adverse conditions not discovered or otherwise known by Tenant as of
the Commencement Date. LANDLORD MAKES NO WARRANTY OR REPRESENTATION, EXPRESS OR
IMPLIED, IN RESPECT OF THE PREMISES, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, OR AS TO THE NATURE OR
QUALITY OF THE MATERIAL OR WORKMANSHIP THEREIN, OR THE EXISTENCE OF ANY
HAZARDOUS MATERIALS, IT BEING AGREED THAT ALL SUCH RISKS, LATENT OR PATENT, ARE
TO BE BORNE SOLELY BY TENANT.

4.2 No Impairment. The respective obligations of Landlord and Tenant shall not
be affected or impaired by reason of (a) any damage to, or destruction of, any
Facility, from whatever cause, or any Condemnation of any Facility (except as
otherwise expressly and specifically provided in Article X or Article XI);
(b) the interruption or discontinuation of any service or utility servicing any
Facility; (c) the lawful or unlawful prohibition of, or restriction upon,
Tenant’s use of any Facility due to the interference with such use by any Person
or eviction by paramount title; (d) any claim that Tenant has or might have
against Landlord on account of any breach of warranty or default by Landlord
under this Lease or any other agreement by which Landlord is bound; (e) any
bankruptcy, insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding up or other proceedings affecting Landlord or any assignee

 

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or transferee of Landlord; (f) any Licensing Impairment; or (g) for any other
cause whether similar or dissimilar to any of the foregoing. Tenant hereby
specifically waives all rights, arising from any occurrence whatsoever, which
may now or hereafter be conferred upon it by law or equity (x) to modify,
surrender or terminate this Lease or quit or surrender any Facility, or (y) that
would entitle Tenant to any abatement, reduction, offset, suspension or
deferment of Rent. The obligations of Landlord and Tenant hereunder shall be
separate and independent covenants and agreements and Rent shall continue to be
payable in all events until the termination of this Lease, other than by reason
of an Event of Default. Tenant’s sole right to recover damages against Landlord
under this Lease shall be to prove such damages in a separate action.

ARTICLE V

OPERATING COVENANTS

5.1 Tenant Personal Property. Tenant shall obtain and install all items of
furniture, fixtures, supplies and equipment not included as Landlord Personal
Property as shall be necessary or reasonably appropriate to operate each
Facility in compliance with this Lease (the “Tenant Personal Property”).

5.2 Landlord Personal Property. Consistent with Tenant’s maintenance obligations
hereunder, Tenant may, from time to time, in Tenant’s reasonable discretion,
without notice to or approval of Landlord, sell or dispose of any item of the
Landlord Personal Property; provided, however, that, unless such item is
functionally obsolete, Tenant shall promptly replace such item with an item of
similar or superior quality, use and functionality, and any such replacement
item shall, for all purposes of this Lease, continue to be treated as part of
the “Landlord Personal Property.” Tenant shall, promptly upon Landlord’s request
from time to time, provide such information as Landlord may reasonably request
relative to any sales, dispositions or replacements of the Landlord Personal
Property pursuant to this Section 5.2 and shall provide to Landlord with an
updated inventory of the Landlord Personal Property.

5.3 Primary Intended Use. During the entire Term, Tenant shall continually use
each Facility for its Primary Intended Use (subject to Articles X and XI) and
for no other use or purposes, and shall operate each Facility in a manner
consistent with the Ordinary Course of Business.

5.4 Compliance with Legal Requirements and Authorizations.

5.4.1 Tenant, at its sole cost and expense, shall promptly (a) comply in all
material respects with all Legal Requirements and Insurance Requirements
regarding the use, condition and operation of each Facility and the Tenant
Personal Property, and (b) procure, maintain and comply in all material respects
with all Authorizations. The Authorizations for any Facility shall, to the
maximum extent permitted by Legal Requirements, relate and apply exclusively to
such Facility, and Tenant acknowledges and agrees that, subject to all
applicable Legal Requirements, the Authorizations are appurtenant to the
Facilities to which they apply, both during and following the termination or
expiration of the Term.

5.4.2 Tenant and the Premises shall comply in all material respects with all
licensing and other Legal Requirements applicable to the Premises and the
business conducted thereon and, to the extent applicable, all Third Party Payor
Program requirements. Further, Tenant shall not commit any act or omission that
would in any way violate any certificate of occupancy affecting any Facility,
result in closure of the Facility, result in the termination or suspension of
Tenant’s ability to operate any Facility for its Primary Intended Use or result
in the termination, suspension, non-renewal or other limitation of any
Authorization, including, but not limited to, the authority to admit residents
to any Facility or right to receive reimbursement for items or services provided
at any Facility from any Third Party Payor Program.

 

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5.4.3 Tenant shall not transfer any Authorizations to any location other than
the Facility operated by such Tenant or as otherwise required by the terms of
this Lease nor pledge any Authorizations as collateral security for any loan or
indebtedness except as required by the terms of this Lease.

5.5 Preservation of Business. Tenant acknowledges that the diversion of
management or supervisory personnel, residents, patients or patient care
activities from any Facility to other facilities owned or operated by Tenant,
Guarantor, or any of their respective Affiliates will have a material adverse
effect on the value and utility of such Facility. Therefore, Tenant agrees that
during the Term and for a period of one (1) year thereafter, none of Tenant,
Guarantor, nor any of their respective Affiliates shall, without the prior
written consent of Landlord (which may not be unreasonably withheld), and except
as is necessary for medically appropriate reasons: (i) recommend or solicit the
removal or transfer of any resident or patient from any Facility to any other
nursing, health care, senior housing, or retirement housing facility (excluding,
however, any such facilities that are owned by Landlord (or any of its
Affiliates) and leased to Tenant, Guarantor, or any of their respective
Affiliates); or (ii) divert actual personnel, residents, patients or patient
care activities of any Facility to any other facilities owned or operated by
Tenant, Guarantor, or any of their respective Affiliates (excluding, however,
any such facilities that are owned by Landlord (or any of its Affiliates) and
leased to Tenant, Guarantor, or any of their respective Affiliates) or from
which Tenant, Guarantor, or any of their respective Affiliates receive any type
of referral fees or other compensation for transfers. In addition to the
foregoing, during the Nonsolicitation Period, none of Tenant, Guarantor, nor any
of their respective Affiliates shall directly or indirectly, induce any
management or supervisory personnel working on or in connection with any
Facility or the operations thereof to accept employment at any other nursing,
health care, senior housing, or retirement housing facility that is operated,
owned, developed, leased, managed, controlled, or invested in by Tenant,
Guarantor, or any of their respective Affiliates or in which Tenant, Guarantor,
or any of their respective Affiliates otherwise participates in or receives
revenues from; provided that advertisements and similar announcements by Tenant
seeking employees that are not directed solely to the Facility’s management and
supervisory personnel but rather to the public at large or to members of a trade
organization or industry or through advertisements in newspapers, periodicals or
the media in general shall not be deemed to be an inducement or prohibited
hereunder. The obligations of Tenant and Guarantor under this Section 5.5 shall
survive the expiration or earlier termination of this Lease.

5.6 Maintenance of Books and Records. Tenant shall keep and maintain, or cause
to be kept and maintained, proper and accurate books and records in accordance
with GAAP, and a standard modern system of accounting, in all material respects
reflecting the financial affairs of Tenant and the results from operations of
each Facility, individually and collectively. Landlord shall have the right,
from time to time during normal business hours after three (3) Business Days
prior oral or written notice to Tenant, itself or through any of Landlord’s
Representatives, to examine and audit such books and records at the office of
Tenant or other Person maintaining such books and records and to make such
copies or extracts thereof as Landlord or Landlord’s Representatives shall
request and Tenant hereby agrees to reasonably cooperate with any such
examination or audit at Tenant’s cost and expense.

5.7 Financial, Management and Regulatory Reports. Tenant shall provide Landlord
with the reports listed in Exhibit D within the applicable time specified
therein. All financial information provided shall be prepared in accordance with
GAAP and shall be submitted electronically using the applicable template
provided by Landlord from time to time or, if no such template is provided by
Landlord, in the form of unrestricted, unlocked “.xls” spreadsheets created
using Microsoft Excel (2003 or newer editions) or in such other form as Landlord
may reasonably require from time to time. For so long as Tenant or any Guarantor
is or becomes subject to any reporting requirements of the Securities and
Exchange Commission (the “SEC”) during the Term, the timely filing of any such
reports with the SEC and publication thereof by the SEC shall be deemed delivery
to Landlord hereunder.

 

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5.7.1 In addition to the reports required under Section 5.7 above, upon
Landlord’s request from time to time, Tenant shall provide Landlord with such
additional information and unaudited quarterly financial information concerning
each Facility, the operations thereof and Tenant and Guarantor as Landlord may
require for purposes of securing financing for the Premises or its ongoing
filings with the Securities and Exchange Commission, under both the Securities
Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended,
including, but not limited to, 10-Q Quarterly Reports, 10-K Annual Reports and
registration statements to be filed by Landlord during the Term. Notwithstanding
the foregoing, neither Tenant nor Guarantor shall be required to disclose
information that is material non-public information or is subject to the quality
assurance immunity or is subject to attorney-client privilege or the attorney
work product doctrine.

5.7.2 Tenant specifically agrees that Landlord may include Tenant’s financial
information and such information concerning the operation of any Facility which
does not violate the confidentiality of the facility-patient relationship and
the physician-patient privilege under applicable laws, in Landlord’s public
filings and informational publications, as necessary or prudent to comply with
any reporting requirements under applicable federal or state laws, including
those of any successor to Landlord.

5.8 Estoppel Certificates. Tenant shall, at any time upon not less than five
(5) days prior written request by Landlord, have an authorized representative
execute, acknowledge and deliver to Landlord or its designee a written statement
certifying (a) that this Lease, together with any specified modifications, is in
full force and effect, (b) the dates to which Rent and additional charges have
been paid, (c) that no default by either party exists or specifying any such
default and (d) as to such other matters as Landlord may reasonably request.

5.9 Furnish Information. Tenant shall promptly notify Landlord of any condition
or event that constitutes a breach of any term, condition, warranty,
representation, or provision of this Lease and of any adverse change in the
financial condition of any Tenant or Guarantor and of any Event of Default.

5.10 Affiliate Transactions. No Tenant shall enter into, or be a party to, any
transaction with an Affiliate of any Tenant or any of the partners, members or
shareholders of any Tenant except in the Ordinary Course of Business and on
terms that are fully disclosed to Landlord in advance and are no less favorable
to any Tenant or such Affiliate than would be obtained in a comparable
arm’s-length transaction with an unrelated third party; provided that this
covenant shall not apply to or restrict guarantees by Tenant of debt financing
issued or incurred by the Guarantor.

5.11 Waste. No Tenant shall commit or suffer to be committed any waste on any of
the Premises, nor shall any Tenant cause or permit any nuisance thereon.

5.12 Additional Covenants. Tenant shall satisfy and comply with the following
covenants throughout the Term:

5.12.1 Tenant shall not, directly or indirectly, create, incur, assume,
guarantee or otherwise become or remain directly or indirectly liable with
respect to (i) any Debt except for Permitted Debt; or (ii) any Contingent
Obligations except for Permitted Contingent Obligations. Tenant shall not
default on the payment of any Permitted Debt or Permitted Contingent
Obligations.

5.12.2 Tenant shall not, directly or indirectly, (i) acquire or enter into any
agreement to acquire any assets other than in the Ordinary Course of Business,
or (ii) engage or enter into any agreement to engage in any joint venture or
partnership with any other Person.

 

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5.12.3 Tenant shall not cancel or otherwise forgive or release any material
claim or material debt owed to any Tenant by any Person, except for adequate
consideration and in the Ordinary Course of Business. If any proceedings are
filed seeking to enjoin or otherwise prevent or declare invalid or unlawful
Tenant’s occupancy, maintenance, or operation of a Facility or any portion
thereof for its Primary Intended Use, Tenant shall cause such proceedings to be
vigorously contested in good faith, and shall, without limiting the generality
of the foregoing, use all reasonable commercial efforts to bring about a
favorable and speedy disposition of all such proceedings and any other
proceedings.

5.12.4 Tenant shall maintain a Portfolio Coverage Ratio equal to or greater than
the Minimum Rent Coverage Ratio.

5.12.5 After the occurrence of an Event of Default under Section 12.1.1 or
Section 12.1.16 arising as a result of a breach of Section 5.12.4 or, upon
written notice from the Landlord, after the occurrence of any other Event of
Default, and, in each case, until such Event of Default is cured, no Tenant
shall make any payments or distributions (including salaries, bonuses, fees,
principal, interest, dividends, liquidating distributions, management fees, cash
flow distributions or lease payments) to any Guarantor or any Affiliate of any
Tenant or any Guarantor, or any shareholder, member, partner or other equity
interest holder of any Tenant, any Guarantor or any Affiliate of any Tenant or
any Guarantor.

5.13 No Liens. Subject to the provisions of Article VII relating to permitted
contests and excluding the applicable Permitted Encumbrances, Tenant will not
directly or indirectly create or allow to remain and will promptly discharge at
its expense any lien, encumbrance, attachment, title retention agreement or
claim upon any Facility, this Lease or Tenant’s interest in any Facility or any
attachment, levy, claim or encumbrance in respect of the Rent.

ARTICLE VI

MAINTENANCE AND REPAIR

6.1 Tenant’s Maintenance Obligation. Tenant shall (a) keep and maintain each
Facility in good appearance, repair and condition, and maintain proper
housekeeping, (b) promptly make all repairs (interior and exterior, structural
and nonstructural, ordinary and extraordinary, foreseen and unforeseen)
necessary to keep each Facility in good and lawful order and condition and in
compliance with all Legal Requirements, Insurance Requirements and
Authorizations and to maintain each Facility in a high quality operating and
structural condition for use for its Primary Intended Use, and (c) keep and
maintain all Landlord Personal Property and Tenant Personal Property in good
condition and repair and replace such property consistent with prudent industry
practice. All repairs performed by Tenant shall be done in a good and
workmanlike manner. Landlord shall under no circumstances be required to repair,
replace, build or rebuild any improvements on any Facility, or to make any
repairs, replacements, alterations, restorations or renewals of any nature or
description to any Facility, whether ordinary or extraordinary, structural or
non-structural, foreseen or unforeseen, or to make any expenditure whatsoever
with respect thereto, or to maintain any Facility in any way. Tenant hereby
waives, to the extent permitted by law or any equitable principle, the right to
make repairs at the expense of Landlord pursuant to any law currently in effect
or hereafter enacted.

6.2 Premises Condition Report. Landlord, may from time to time and at Tenant’s
sole expense (but, no more than once every twenty-four (24) months at Tenant’s
expense, and in no event at a cost to Tenant in excess of Two Thousand Five
Hundred Dollars ($2,500) per inspection, with such amount to escalate annually
during the Term and any Extension by the same method and at the same rate of
increase as the Base Rent as set forth in Section 2.1), cause an engineer
designated by Landlord, in its sole discretion, to inspect any Facility and
issue a report (a “Premises Condition Report”) with respect to such Facility’s
condition. Tenant shall, at its own expense, make any and all repairs or
replacements that are recommended by such Premises Condition Report that relate
to life safety or are otherwise required to be performed by Tenant under
Section 6.1 above.

 

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6.3 Notice of Non-Responsibility. Nothing contained in this Lease and no action
or inaction by Landlord shall be construed as (a) constituting the consent or
request of Landlord, expressed or implied, to any contractor, subcontractor,
laborer, materialman or vendor to or for the performance of any labor or
services or the furnishing of any materials or other property for the
construction, alteration, addition, repair or demolition of or to any Facility
or any part thereof; or (b) giving Tenant any right, power or permission to
contract for or permit the performance of any labor or services or the
furnishing of any materials or other property in such fashion as would permit
the making of any claim against Landlord in respect thereof or to make any
agreement that may create, or in any way be the basis for, any right, title,
interest, lien, claim or other encumbrance upon the estate of Landlord in any
Facility or any portion thereof. Landlord may post, at Tenant’s sole cost, such
notices of non-responsibility upon, or of record against, any Facility to
prevent the lien of any contractor, subcontractor, laborer, materialman or
vendor providing work, services or supplies to Tenant from attaching against
such Facility. Tenant agrees to promptly execute and record any such notice of
non-responsibility at Tenant’s sole cost.

6.4 Permitted Alterations. Without Landlord’s prior written consent, which
consent shall not be unreasonably withheld, Tenant shall not make any Capital
Alterations or Material Alterations. Tenant may, without Landlord’s consent,
make any other Alterations provided the same (a) do not decrease the value of
the applicable Facility, (b) do not adversely affect the exterior appearance of
such Facility and (c) are consistent in terms of style, quality and workmanship
to the original Leased Improvements and Fixtures of such Facility, and provided
further that the same are constructed and performed in accordance with the
following:

6.4.1 Such construction shall not commence until Tenant shall have procured and
paid for all municipal and other governmental permits and authorizations
required therefor (as well as any permits or approvals required in connection
with any Permitted Encumbrance of such Facility); provided, however, that any
Plans and Specifications required to be filed in connection with any such
permits or authorizations that require the approval of Landlord shall have been
so approved by Landlord.

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

6.4.3 All work done in connection with such construction shall be done promptly
and in a good and workmanlike manner using materials of appropriate grade and
quality consistent with the existing materials and in conformity with all Legal
Requirements.

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

6.4.5 Upon completion of any Alteration, Tenant shall promptly deliver to
Landlord final lien waivers from each and every general contractor and, with
respect to Alterations costing in excess of One Hundred Thousand Dollars
($100,000), each and every subcontractor that provided goods or services costing
in excess of One Hundred Thousand Dollars ($100,000) in connection with such
Alterations indicating that such contractor or subcontractor has been paid in
full for such goods or services, together with such other evidence as Landlord
may reasonably require to satisfy Landlord that no liens have been or may be
created in connection with such Alteration.

 

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6.5 Capital and Material Alterations. If Landlord consents to the making of any
Capital Alterations or Material Alterations, Landlord may impose commercially
reasonable conditions thereon in connection with its approval thereof. In
addition to any such imposed conditions, all such Alterations shall be
constructed and performed in accordance with Sections 6.4.1 through 6.4.5 above,
together with the following:

6.5.1 Prior to commencing any such Alterations, Tenant shall have submitted to
Landlord a written proposal describing in reasonable detail such proposed
Alteration and shall provide to Landlord for approval such plans and
specifications, permits, licenses, construction budgets and other information
(collectively, the “Plans and Specifications”) as Landlord shall request,
showing in reasonable detail the scope and nature of the proposed Alteration.

6.5.2 Such construction shall not, and prior to commencement of such
construction Tenant’s licensed architect or engineer (to the extent the services
of a licensed architect or engineer are required in connection with such
Alterations) shall certify to Landlord that such construction shall not, impair
the structural strength of such Facility or overburden or impair the operating
efficiency of the electrical, water, plumbing, HVAC or other building systems of
such Facility.

6.5.3 Prior to commencing any such Alterations, Tenant’s licensed architect or
engineer (to the extent the services of a licensed architect or engineer are
required in connection with such Alterations) shall certify to Landlord that the
Plans and Specifications conform to and comply with all applicable Legal
Requirements and Authorizations.

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

6.6 Maintenance and Repairs.

6.6.1 With respect to each Facility, and without limiting Tenant’s obligations
to maintain the Premises under this Lease, within sixty (60) days following the
end of each Lease Year, Tenant shall deliver to Landlord a report (a
“Maintenance Expenditures Report”), certified as true, correct and complete by
an officer of Tenant, summarizing and describing in reasonable detail all of the
Maintenance Expenditures made by Tenant during the preceding Lease Year on each
Facility, and such receipts and other information as Landlord may reasonably
request relative to the Maintenance Expenditures made by Tenant during the
applicable Lease Year, in form and content satisfactory to Landlord in the
reasonable exercise of Landlord’s discretion, confirming that Tenant has in such
Lease Year spent, with respect to the Premises, at least an aggregate amount of
Four Hundred Dollars ($400.00) per operational bed or unit, as applicable (the
“Minimum Aggregate Maintenance Amount”), minus the Overage Amount (as
hereinafter defined), for repair and maintenance of the Facilities excluding
normal janitorial and cleaning but including such expenditures to the Facilities
and replacements to Landlord’s Personal Property at the Facilities as Tenant
deems to be necessary in the exercise of its reasonable discretion. If Tenant
fails in any Lease Year to expend the Minimum Aggregate Maintenance Amount minus
the Overage Amount, and fails to either (i) cure such default within sixty
(60) days after receipt of a written demand from Landlord, or (ii) obtain
Landlord’s written approval, in its reasonable

 

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discretion, of a repair and maintenance program satisfactory to cure such
deficiency, then the same shall be deemed an Event of Default hereunder. As used
herein “Overage Amount” means the sum of amounts expended by Tenant pursuant to
this Section 6.6.1 in the two (2) immediately preceding Lease Years in excess,
if any, of the Minimum Aggregate Maintenance Amount for such prior Lease Years
(excluding any such amounts that are financed by Tenant and secured by a lien on
the personal property relating thereto).

6.6.2 Tenant’s obligation to deliver the Maintenance Expenditures Report
applicable to the last Lease Year shall survive the expiration or termination of
this Lease.

6.7 Additional Improvement Funds. In the event Tenant elects to make Capital
Alterations at a Facility during a Lease Year in which Tenant has, for such
Lease Year, made Maintenance Expenditures in excess of the applicable Minimum
Aggregate Maintenance Amount minus the Overage Amount for such Facility, then
Tenant may request, in writing, for Landlord to provide Tenant with funds (the
“Improvement Funds”) for the cost to complete the Alterations to which said
additional Capital Alterations apply. Landlord shall provide Tenant with such
Improvement Funds subject to the following terms and conditions:

6.7.1 Notwithstanding anything herein to the contrary, Landlord shall have no
obligation to disburse Improvement Funds with respect to a Facility to the
extent that disbursement of any such Improvement Funds would result in Landlord
having disbursed Improvement Funds during the Term and with respect to such
Facility in an aggregate amount exceeding the Facility Improvement Fund Cap
applicable to such Facility.

6.7.2 In connection with any Alterations for which Improvement Funds are or may
be requested by Tenant, Tenant shall comply with the provisions of Section 6.4
and, to the extent any such Alterations would constitute Capital Alterations or
Material Alterations, Tenant shall comply with the provisions of Section 6.5.
Prior to commencing any capital repairs or improvements for which Tenant will
request disbursement of Improvement Funds, Tenant shall provide Landlord with
such written documentation as may be reasonably requested by Landlord with
respect to such capital repairs or improvements, which may include, without
limitation, plans and specifications, budgets, a work completion schedule,
copies of all permits required in connection with such capital repairs or
improvements and the names of all contractors to be engaged by Tenant in
connection therewith, together with evidence of insurance for each (in form,
substance and amount reasonably required by Landlord), and Landlord shall have a
reasonable period of time to review and approve the same. Landlord shall not be
obligated to disburse the Improvement Funds for any Alterations until Landlord
has approved such Alterations in writing, which approval: (i) with respect to
any Alterations that are not Material Alterations or Capital Alterations, may
not be unreasonably withheld, conditioned or delayed, and (ii) with respect to
any Alterations which are Capital Alterations or Material Alterations, may be
granted, withheld or conditioned in Landlord’s sole and absolute discretion.

6.7.3 Tenant shall have the right to request disbursement of the Improvement
Funds not more than once per calendar month, in increments of not less than
Fifteen Thousand Dollars ($15,000) (unless the disbursement is the final one for
a particular project, in which case the full amount of such disbursement may be
requested). All such disbursement requests shall be in writing and in the form
of the request for advance contained in Schedule 4 attached hereto (“Request for
Advance”) and shall be accompanied with (i) the following supporting
documentation: (A) an itemized account of expenditures to be paid or reimbursed
from the requested disbursement, certified by Tenant to be true and correct
expenditures which have already been paid or are due and owing and for which no
previous disbursement was made hereunder, and (B) copies of invoices or purchase
orders from each payee with an identifying reference to the applicable vendor or
supplier, which invoices or purchase orders shall support the full

 

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amount of costs contained in the requested disbursement; and (ii) mechanic’s
lien waivers (conditional and unconditional, as applicable), in form and
substance reasonably satisfactory to Landlord, in connection with any repairs,
renovations or improvements in excess of Five Thousand Dollars ($5,000) for
which a mechanic’s lien may be filed. Landlord shall have the right to make
payment directly to any or all applicable vendors or suppliers if so desired by
Landlord. No failure by Landlord to insist on Tenant’s strict compliance with
the provisions of this Section 6.7 with respect to any request for advance or
disbursement of the Improvement Funds shall constitute a waiver or modification
of such provisions with respect to any future or other request for advance or
disbursement.

6.7.4 Landlord shall, within twenty (20) calendar days of Tenant’s delivery of a
Request for Advance and compliance with the conditions for disbursement set
forth in this Section 6.7, make disbursements of the requested Improvement Funds
to pay or reimburse Tenant for the costs of the applicable capital repairs or
improvements.

6.7.5 No Event of Default or event which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default, including,
without limitation, the recordation of any mechanic’s or other lien against the
Premises (or any portion thereof) in connection with the capital repairs or
improvements to be funded by the Improvement Funds, shall have occurred and be
continuing at the time of any request for disbursement (or the date of
disbursement) of the Improvement Funds.

6.7.6 All repairs or improvements funded with the Improvement Funds shall be
completed in a good, workmanlike and lien-free manner pursuant to Plans and
Specifications or other similar documents provided to and approved by Landlord
as set forth above, subject to change orders made in the ordinary course of a
project of the size and scope of the applicable capital repair or improvement
and approved by Landlord (with respect to change orders in excess of $10,000).
If any of such repairs or improvements is completed in a manner not in
compliance with this Section 6.7 and the other applicable provisions of this
Lease, Tenant shall, promptly after obtaining knowledge thereof or Landlord’s
demand therefor, repair or remediate the applicable work to the extent necessary
to attain such compliance at its sole cost and expense.

6.7.7 Each and every renovation or improvement funded by Landlord under this
Section 6.7 shall immediately become a part of the Premises and shall belong to
Landlord subject to the terms and conditions of this Lease.

6.7.8 No disbursement of the Improvement Funds shall be used to remedy any
condition which constitutes a default by Tenant under the provisions of this
Lease.

6.7.9 In connection with any request for Improvement Funds delivered to Landlord
during the last five (5) years of the then Term, Landlord shall have no
obligation to disburse any Improvement Funds with respect to any such request
unless and until Tenant shall have delivered to Landlord an Extension Notice for
the next applicable Extension Term, if any.

6.7.10 From and after the date of disbursement of any Improvement Funds by
Landlord, the annual amount of Base Rent then payable under this Lease shall be
increased by the product of: (i) the amount of the Improvement Funds disbursed
by Landlord, and (ii) the then Improvement Fund Rate. Such increased Base Rent
shall commence to be payable on the next Payment Date following disbursement of
such Improvement Funds (together with any prorated portion of the Base Rent
payable with respect to the month in which such Improvement Funds were
advanced).

 

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6.8 Encroachments. If any of the Leased Improvements of any Facility shall, at
any time, encroach upon any property, street or right-of-way adjacent to such
Facility, then, promptly upon the request of Landlord, Tenant shall, at its
expense, subject to its right to contest the existence of any encroachment and,
in such case, in the event of any adverse final determination, either (a) obtain
valid waivers or settlements of all claims, liabilities and damages resulting
from each such encroachment, whether the same shall affect Landlord or Tenant,
or (b) make such changes in such Leased Improvements, and take such other
actions, as Tenant, in the good faith exercise of its judgment, deems reasonably
practicable, to remove such encroachment, including, if necessary, the
alteration of any of such Leased Improvements, and in any event take all such
actions as may be necessary to be able to continue the operation of such Leased
Improvements for the Primary Intended Use of such Facility substantially in the
manner and to the extent such Leased Improvements were operated prior to the
assertion of such encroachment. Any such alteration shall be made in conformity
with the applicable requirements of Sections 6.4 and 6.5.

ARTICLE VII

PERMITTED CONTESTS

Tenant, upon prior written notice to Landlord and at Tenant’s expense, may
contest, by appropriate legal proceedings conducted in good faith and with due
diligence, the amount, validity or application, in whole or in part, of any
licensure or certification decision, Imposition, Legal Requirement, Insurance
Requirement, lien, attachment, levy, encumbrance, charge or claim; provided,
however, that (a) in the case of an unpaid Imposition, lien, attachment, levy,
encumbrance, charge, or claim, the commencement and continuation of such
proceedings shall suspend the collection thereof from Landlord and from the
applicable Facility, (b) neither the applicable Facility nor any Rent therefrom
nor any part thereof or interest therein would be reasonably likely to be in
danger of being sold, forfeited, attached or lost pending the outcome of such
proceedings, (c) in the case of a Legal Requirement, neither Landlord nor Tenant
would be in any danger of civil or criminal liability for failure to comply
therewith pending the outcome of such proceedings; (d) Tenant shall give such
security as may be demanded by Landlord to insure ultimate payment of, or
compliance with, the same and to prevent any sale or forfeiture (or risk
thereof) of the applicable Facility or the Rent by reason of such non-payment or
non-compliance; (e) in the case of the contest of an Insurance Requirement, the
coverage required by Article VIII shall be maintained, and (f) if such contest
is resolved against Landlord or Tenant, Tenant shall pay to the appropriate
payee the amount required to be paid, together with all interest and penalties
accrued thereon, and otherwise comply with the applicable Legal Requirement or
Insurance Requirement. Landlord, at Tenant’s expense, shall execute and deliver
to Tenant such authorizations and other documents as may reasonably be required
in any such contest, and, if reasonably requested by Tenant or if Landlord so
desires, shall join as a party therein. The provisions of this Article VII shall
not be construed to permit Tenant to contest the payment of Rent or any other
amount payable by Tenant to Landlord hereunder. Tenant shall indemnify, defend,
protect and hold harmless Landlord from and against any Losses of any kind that
may be imposed upon Landlord in connection with any such contest and any Losses
resulting therefrom and the provisions of this Article VII shall survive the
termination or expiration of this Lease.

ARTICLE VIII

INSURANCE

8.1 Required Policies. During the Term, Tenant shall maintain the following
insurance with respect to each Facility at its sole cost and expense:

8.1.1 Fire and Extended Coverage against loss or damage by fire, vandalism and
malicious mischief, extended coverage perils commonly known as “Special Risk,”
and all physical loss perils normally included in such Special Risk insurance,
including but not limited to sprinkler leakage and windstorm, all with an
aggregate loss limit per occurrence of not less than Four Hundred Million
Dollars ($400,000,000) and coverage for flood (only if such Facility is located
in whole or in part within a designated 100-year flood plain area and such
coverage is available at commercially reasonable premiums) with an aggregate
loss limit per occurrence of not less than Two Hundred Fifty Million Dollars
($250,000,000);

 

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8.1.2 If such Facility contains steam boilers, pressure vessels or similar
apparatus, insurance with an agreed amount endorsement (such that the insurance
carrier has accepted the amount of coverage and has agreed that there will be no
co-insurance penalty), covering the major components of the central heating, air
conditioning and ventilating systems, boilers, other pressure vessels, high
pressure piping and machinery, elevators and escalators, if any, and other
similar equipment installed in such Facility, which policy shall insure against
physical damage to and loss of occupancy and use of such Facility arising out of
an accident, explosion, or breakdown covered thereunder all with an aggregate
loss limit per occurrence of not less than Four Hundred Million Dollars
($400,000,000);

8.1.3 If there is any storage tank, whether above ground or below ground,
located at such Facility, whether or not in use, Storage Tank Insurance
affording the parties protection of not less than One Million Dollars
($1,000,000) per occurrence and in the annual aggregate;

8.1.4 Business Interruption and Extra Expense Coverage for loss of business
income on an actual loss sustained basis for no less than twelve (12) months,
including either an agreed amount endorsement or a waiver of any co-insurance
provisions, so as to prevent Tenant, Landlord and any other insured thereunder
from being a co-insurer, and containing an extended period indemnity endorsement
that provides that the continued loss of business income will be insured until
such income returns to the same level it was prior to the loss or the expiration
of not fewer than six (6) months after the date of the completed repairs all
with an aggregate loss limit per occurrence of not less than Four Hundred
Million Dollars ($400,000,000);

8.1.5 Commercial General Liability Coverage (including products and completed
operations liability and broad form coverage, broad form property damage,
blanket contractual liability, independent contractors liability, personal
injury and advertising injury coverage) against claims for bodily injury, death,
medical expenses, property damage occurring on, in or about such Facility,
affording the parties protection of not less than One Million Dollars
($1,000,000) per claim and Three Million Dollars ($3,000,000) in the annual
aggregate;

8.1.6 Professional Liability Coverage for damages for injury, death, loss of
service or otherwise on account of professional services rendered or which
should have been rendered, in a minimum amount of One Million Dollars
($1,000,000) per claim and Three Million Dollars ($3,000,000) in the annual
aggregate;

8.1.7 Worker’s Compensation Coverage for injuries sustained by Tenant’s
employees in the course of their employment and otherwise consistent with all
applicable Legal Requirements and employer’s liability coverage with limits of
not less than $1,000,000 each accident, One Million Dollars ($1,000,000) bodily
injury due to disease each employee and One Million Dollars ($1,000,000) policy
limit; and

8.1.8 During such time as Tenant is constructing any improvements, Tenant, at
its sole cost and expense, shall carry, or cause to be carried (a) a completed
operations endorsement to the commercial general liability insurance policy
referred to above, (b) builder’s risk insurance, completed value form, covering
all physical loss, in an amount and subject to policy conditions satisfactory to
Landlord, and (c) such other insurance, in such amounts, as Landlord deems
necessary to protect Landlord’s interest in the Premises from any act or
omission of Tenant’s contractors or subcontractors.

 

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8.2 General Insurance Requirements.

8.2.1 All of the policies of insurance required to be maintained by Tenant under
this Article VIII shall (a) be written in form satisfactory to Landlord and any
Facility Mortgage and issued by insurance companies (i) with a policyholder and
financial rating of not less than “A-”/“X” in the most recent version of Best’s
Key Rating Guide and (ii) authorized to do insurance business in the applicable
Situs State; (b) include a waiver of all rights of subrogation and recovery
against Landlord.

8.2.2 All liability type policies (with the exception of Tenant’s workers’
compensation/employer’s liability insurance and professional liability
insurance) must name Landlord as an “additional insured.” All property policies
shall name Landlord as “loss payee.” All business interruption policies shall
name Landlord as “loss payee” with respect to Rent only. Losses shall be payable
to Landlord and/or Tenant as provided herein. In addition, the policies, as
appropriate, shall name as an “additional insured” or “loss payee” any Facility
Mortgagee by way of a standard form of mortgagee’s loss payable endorsement. Any
loss adjustment shall require the written consent of Landlord, Tenant, and each
Facility Mortgagee unless the amount of the loss is less than $100,000 in which
event no consent shall be required.

8.2.3 Tenant shall provide Landlord copies of the original policies or a
satisfactory ACORD evidencing the existence of the insurance required by this
Lease and showing the interest of Landlord (and any Facility Mortgagee(s)) prior
to the commencement of the Term or, for a renewal policy, not less than ten
(10) days prior to the expiration date of the policy being renewed. If Landlord
is provided with an ACORD certificate, it may demand that Tenant provide a
complete copy of the related policy within ten (10) days of the later of
Landlord’s written request or the date of the issuance of the policy.

8.2.4 Tenant’s obligations to carry the insurance provided for herein may be
brought within the coverage of a so-called “blanket” policy or policies of
insurance carried and maintained by Tenant; provided, however, that the coverage
afforded Landlord will not be reduced or diminished or otherwise be materially
different from that which would exist under a separate policy meeting all other
requirements hereof by reason of the use of the blanket policy, and provided
further that the requirements of this Article VIII (including satisfaction of
the Facility Mortgagee’s requirements and the approval of the Facility
Mortgagee) are otherwise satisfied, and provided further that Tenant maintains
specific allocations acceptable to Landlord.

8.2.5 Each insurer under the insurance policies maintained by Tenant pursuant to
this Article VIII shall agree, by endorsement on the policy or policies issued
by it, or by independent instrument furnished to Landlord, that it will give to
Landlord thirty (30) days’ written notice before the policy or policies in
question shall be altered or cancelled except in the event of nonpayment of
premiums in which case each insurer shall provide ten (10) days’ written notice
before the policy or policies in question shall be altered or cancelled.

8.3 Replacement Costs. The term “replacement cost” shall mean the actual
replacement cost of the insured property from time to time with new materials
and workmanship of like kind and quality (including the cost of compliance with
changes in zoning and building codes and other laws and regulations, demolition
and debris removal and increased cost of construction). If Landlord believes
that the replacement cost has increased at any time during the Term, it shall
have the right to have such replacement cost redetermined by an impartial
national insurance company reasonably acceptable to both parties (the “impartial
appraiser”). The determination of the impartial appraiser shall be final and
binding, and, as necessary, Tenant shall increase, but not decrease, the amount
of the insurance carried pursuant to this Article VIII to the amount so
determined by the impartial appraiser. Each party shall pay one-half (1/2) of
the fee, if any, of the impartial appraiser. If Tenant has made Alterations,
Landlord may at Tenant’s expense have the replacement cost redetermined at any
time after such Alterations are made.

 

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8.4 Claims-Made Policies. If Tenant obtains and maintains the commercial general
liability coverage and/or professional liability coverage described in
Sections 8.1.5 and 8.1.6 above on a “claims-made” basis, Tenant shall provide
continuous liability coverage for claims arising during the Term and providing
for an extended reporting period reasonably acceptable to Landlord for a minimum
of two (2) years after expiration of the Term. If such policy is canceled or not
renewed for any reason whatsoever, Tenant must provide evidence of a replacement
policy reflecting coverage with retroactive coverage back to the commencement
date of the term and maintain such coverage for a period of at least two
(2) years beyond the expiration of the Term or Tenant must obtain tail coverage
for the length of the remaining term plus at least two (2) years beyond the
expiration of the Term.

8.5 Non-Renewal. If Tenant fails to cause the insurance required under Article
VIII to be issued in the names herein called for, fails to pay the premiums
therefor or fails to deliver such policies or certificates thereof to Landlord,
at the times required, Landlord shall be entitled, but shall have no obligation,
to obtain such insurance and pay the premiums therefor, in which event the cost
thereof, together with interest thereon at the Agreed Rate, shall be repayable
to Landlord upon demand therefor.

8.6 Deductibles. Deductibles/self-insured retentions for the insurance policies
required under this Article VIII shall not be greater than $2,000,000;.

8.7 Increase in Limits; Types of Coverages. If, from time to time after the
Commencement Date, Landlord determines in the exercise of its commercially
reasonable judgment that the limits of the insurance required to be maintained
by Tenant hereunder are no longer commensurate to the limits being regularly
required by institutional landlords of similar properties in the applicable
Situs State or their institutional lenders or that a particular type of
insurance coverage is being regularly required by institutional landlords of
similar properties in the applicable Situs State or their institutional lenders
and is not then required hereunder, Landlord may notify Tenant of the same,
indicating the particular limit or type of coverage that Landlord has determined
should be increased or carried by Tenant, as applicable. Unless Tenant, in the
exercise of its commercially reasonable judgment, objects to Landlord’s
determination, then within thirty (30) days after the receipt of such notice,
Tenant shall thereafter increase the particular limit or obtain the particular
coverage, as applicable, unless and until further modified pursuant to the
provisions of this Section 8.7. Notwithstanding anything herein to the contrary,
Landlord shall not request a modification of the insurance requirements of this
Lease more frequently than once every three (3) years. If Tenant, in the
exercise of its commercially reasonable judgment, objects to Landlord’s
determination made under this Section 8.7 and Landlord and Tenant are unable to
agree upon the matter within fifteen (15) days of Tenant’s receipt of the
applicable notice from Landlord, such determination shall be made by a reputable
insurance company, consultant or expert (an “Insurance Arbitrator”) with
experience in the skilled nursing and/or assisted living insurance industry as
mutually identified by Landlord and Tenant in the exercise of their reasonable
judgment. As a condition to a determination of commercial reasonableness with
respect to any particular matter, the Insurance Arbitrator shall be capable of
providing, procuring or identifying particular policies or coverages that would
be available to Tenant and would satisfy the requirement in issue. The
determinations made by any such experts shall be binding on Landlord and Tenant
for purposes of this Section 8.7, and the costs, fees and expenses of the same
shall be shared equally by Tenant and Landlord. If Tenant and Landlord are
unable to mutually agree upon an Insurance Arbitrator, each party shall within
ten (10) days after written demand by the other select one Insurance Arbitrator.
Within ten (10) days of such selection, the Insurance Arbitrators so selected by
the parties shall select a third (3rd) Insurance Arbitrator who shall be solely
responsible for rendering a final determination with respect to the insurance
requirement in issue. If either party fails to select an Insurance Arbitrator
within the time period set forth above, the Insurance Arbitrator selected by the
other party shall alone render

 

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the final determination with respect to the insurance requirement in issue in
accordance with the foregoing provisions and such final determination shall be
binding upon the parties. If the Insurance Arbitrators selected by the parties
are unable to agree upon a third (3rd) Insurance Arbitrator within the time
period set forth above, either party shall have the right to apply at Tenant’s
and Landlord’s joint expense to the presiding judge of the court of original
trial jurisdiction in the county in which any Facility is located to name the
third (3rd) Insurance Arbitrator.

8.8 No Separate Insurance. Tenant shall not, on Tenant’s own initiative or
pursuant to the request or requirement of any third party, (a) take out separate
insurance concurrent in form or contributing in the event of loss with that
required in this Article VIII to be furnished by, or which may reasonably be
required to be furnished by, Tenant or (b) increase the amounts of any then
existing insurance by securing an additional policy or additional policies,
unless all parties having an insurable interest in the subject matter of the
insurance, including in all cases Landlord and all Facility Mortgagees, are
included therein as additional insureds and the loss is payable under such
insurance in the same manner as losses are payable under this Lease.
Notwithstanding the foregoing, nothing herein shall prohibit Tenant from
insuring against risks not required to be insured hereby, and as to such
insurance, Landlord and any Facility Mortgagee need not be included therein as
additional insureds, nor must the loss thereunder be payable in the same manner
as losses are payable hereunder except to the extent required to avoid a default
under the Facility Mortgage.

ARTICLE IX

REPRESENTATIONS AND WARRANTIES

9.1 General. Each party represents and warrants to the other that: (a) this
Lease and all other documents executed or to be executed by it in connection
herewith have been duly authorized and shall be binding upon it; (b) it is duly
organized, validly existing and in good standing under the laws of the state of
its formation and is duly authorized and qualified to perform this Lease within
the applicable Situs State; and (c) neither this Lease nor any other document
executed or to be executed in connection herewith violates the terms of any
other agreement of such party.

9.2 Anti-Terrorism Representations.

9.2.1 Tenant hereby represents and warrants that neither Tenant, nor any persons
or entities holding any legal or beneficial interest whatsoever in Tenant, are
(a) the target of any sanctions program that is established by Executive Order
of the President or published by the Office of Foreign Assets Control, U.S.
Department of the Treasury (“OFAC”); (b) designated by the President or OFAC
pursuant to the Trading with the Enemy Act, 50 U.S.C. App. § 5, the
International Emergency Economic Powers Act, 50 U.S.C. §§ 1701-06, the Patriot
Act, Public Law 107-56, Executive Order 13224 (September 23, 2001) or any
Executive Order of the President issued pursuant to such statutes; or (c) named
on the following list that is published by OFAC: “List of Specially Designated
Nationals and Blocked Persons” (collectively, “Prohibited Persons”). Tenant
hereby represents and warrants to Landlord that no funds tendered to Landlord by
Tenant under the terms of this Lease are or will be directly or indirectly
derived from activities that may contravene U.S. federal, state or international
laws and regulations, including anti-money laundering laws. If the foregoing
representations are untrue at any time during the Term, an Event of Default will
be deemed to have occurred, without the necessity of notice to Tenant.

9.2.2 Tenant will not during the Term of this Lease engage in any transactions
or dealings, or be otherwise associated with, any Prohibited Persons in
connection with the use or occupancy of the Premises. A breach of the
representations contained in this Section 9.2 by Tenant shall constitute a
material breach of this Lease and shall entitle Landlord to any and all remedies
available hereunder, or at law or in equity.

 

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9.3 Additional Representations and Warranties. To induce Landlord to execute
this Lease and perform its obligations hereunder, Tenant hereby represents and
warrants to Lender that the following are true and correct as of the
Commencement Date:

9.3.1 No consent or approval of, or filing, registration or qualification with
any Governmental Authority or any other Person is required to be obtained or
completed by Tenant or any Affiliate in connection with the execution, delivery,
or performance of this Lease that has not already been obtained or completed.

9.3.2 The identity of the holders of the partnership or membership interests or
shares of stock, as applicable, in Tenant and their respective percentage of
ownership as of the Commencement Date are set forth on Schedule 3. No
partnership or limited liability company interests, or shares of stock, in
Tenant, other than those described above, are issued and outstanding. There are
no preemptive or other outstanding rights, options, warrants, conversion rights
or similar agreements or understandings for the purchase or acquisition from
Tenant of any partnership or limited liability company interest of or shares of
stock in Tenant except as may be set forth in Tenant’s organizational and
formation documents, complete, true and accurate copies of which have been
provided to Landlord.

9.3.3 Neither Tenant nor Guarantor is insolvent and there has been no Bankruptcy
Action by or against any of them. Tenant’s assets do not constitute unreasonably
small capital to carry out its business as conducted or as proposed to be
conducted.

9.3.4 All financial statements and other documents and information previously
furnished by or on behalf of any Tenant or Guarantor to Landlord in connection
with the Facilities and this Lease are true, complete and correct in all
material respects and fairly present on a consistent basis with the financial
conditions of the subjects thereof for the immediately prior periods as of the
respective dates thereof and do not fail to state any material fact necessary to
make such statements or information not misleading, and no material adverse
change with respect to any Facility, Tenant or Guarantor has occurred since the
respective dates of such statements and information. Neither Tenant nor any
Guarantor has any material liability, contingent or otherwise, not disclosed in
such financial statements and which is required to be disclosed in such
financial statements in accordance with GAAP.

9.3.5 Tenant has each Authorization and other rights from, and has made all
declarations and filings with, all applicable Governmental Authorities, all
self-regulatory authorities and all courts and other tribunals necessary to
engage in the management and operation of the Facilities for the Primary
Intended Use. No Governmental Authority is, to Tenant’s knowledge, considering
limiting, suspending or revoking any such Authorization. All such Authorizations
are valid and in full force and effect and Tenant is in material compliance with
the terms and conditions of all such Authorizations.

ARTICLE X

DAMAGE AND DESTRUCTION

10.1 Notice of Damage or Destruction. Tenant shall promptly notify Landlord of
any damage or destruction of any Facility in excess of $250,000. Said
notification shall include: (a) the date of the damage or destruction and the
Facility or Facilities damaged, (b) the nature of the damage or destruction
together with a description of the extent of such damage or destruction, (c) a
preliminary estimate of the cost to repair, rebuild, restore or replace the
Facility, and (d) a preliminary estimate of the schedule to complete the repair,
rebuilding, restoration or replacement of the Facility. Damage or destruction
shall not terminate this Lease.

 

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10.2 Restoration. Tenant shall diligently repair or reconstruct any Facility
that has been damaged or destroyed to a like or better condition than existed
prior to such damage or destruction in accordance with Section 6.5; provided
however, that in the event any Capital Alterations made and funded solely by
Tenant are damaged or destroyed, Tenant shall have the option to either repair
or replace such Capital Alterations or to remove the same and restore the
Facility to substantially the same condition as existed prior to the making of
such Capital Alterations. Any net insurance proceeds payable with respect to
such damage or destruction shall be paid directly to Landlord and; provided
Tenant is diligently performing the restoration and repair work with respect to
such Facility and no Event of Default has occurred hereunder, shall be used for
the repair or reconstruction of such Facility. Landlord shall disburse any such
net insurance proceeds as and when required by Tenant in accordance with normal
and customary practice for the payment of a general contractor in connection
with construction projects similar in scope and nature to the work being
performed by or on behalf of Tenant, including, without limitation, the
withholding of ten percent (10%) of each disbursement until the required work is
completed as evidenced by a certificate of occupancy or similar evidence issued
upon an inspection by the applicable Governmental Authority and proof has been
furnished to Landlord that no lien has attached or will attach to the applicable
Facility in connection with the restoration and repair work.

10.3 Insufficient Proceeds. If the net insurance proceeds paid to Landlord in
connection with any such damage or destruction are insufficient to restore the
affected Facilit(ies), Tenant shall nevertheless remain responsible, at its sole
cost and expense, to repair and reconstruct the applicable Facilit(ies) as
required in this Article X and Tenant shall provide the required additional
funds. Tenant expressly assumes all risk of loss in connection with any damage
or destruction to a Facility, whether or not such damage or destruction is
insurable or insured against. Tenant shall pay any insurance deductible and any
other uninsured Losses. Proceeds of business interruption or similar insurance,
if any, shall belong to Tenant, provided that such proceeds shall be used in the
first instance to timely pay Base Rent and otherwise satisfy Tenant’s
obligations under this Lease, and notwithstanding anything in this Lease to the
contrary, Tenant shall not have any right under this Lease, and hereby waives
all rights under applicable law, to abate, reduce, or offset rent by reason of
any damage or destruction of any Facility by reason of an insured or uninsured
casualty.

10.4 Facility Mortgagee. Notwithstanding anything in this Lease to the contrary,
Tenant hereby acknowledges and agrees that any Facility Mortgagee may retain and
disburse any net insurance proceeds payable in connection with any damage or
destruction to a Facility. In such event, Tenant shall comply with the requests
and requirements of such Facility Mortgagee in connection with the performance
of the repair and restoration work and the disbursement of the net insurance
proceeds in connection therewith. If, in connection with any damage or
destruction to a Facility that results in the loss of fifty percent (50%) or
more of the licensed beds (in the case of a skilled nursing facility) or units
(in the case of an assisted or independent living facility) at the affected
Facility or that would cost more than fifty percent (50%) of the value of such
Facility to restore, any Facility Mortgagee elects to require that any net
insurance proceeds payable in connection with such damage or destruction to a
Facility be applied by Landlord to reduce the outstanding principal balance of
any Facility Mortgage, Landlord may elect, in its sole discretion and by notice
to Tenant delivered promptly after the receipt by Landlord of notice of such
election from Facility Mortgagee, to terminate this Lease as to the affected
Facility, in which event the current Rent shall be equitably abated as of the
effective date of such termination based on the allocable share of Landlord’s
initial investment in the Premises to the affected Facility. Notwithstanding
anything in this Lease to the contrary, Tenant shall remain liable for any
uninsured portion of any damage or destruction if this Lease is so terminated as
to the applicable Facility. If Landlord elects not to terminate this Lease as to
the affected Facility (despite the applicable Facility Mortgagee having made the
election to require that any net insurance proceeds payable in connection with
such damage or destruction to a Facility be applied by Landlord to reduce the
outstanding principal balance of such Facility Mortgage), Landlord’s own funds
shall be disbursed to Tenant from time to time as, when, and subject to the
satisfaction of the same terms, conditions and requirements as would have
governed the disbursement of net insurance proceeds that Landlord’s funds
replace.

 

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10.5 Impossibility; Tenant’s Obligations Following Casualty. Following a
casualty loss, if Tenant cannot within a reasonable time after diligent efforts
obtain the necessary government approvals needed to restore such Facility to
substantially the same condition which existed prior to such damage (the
“Required Reconstruction Approvals”), then Tenant shall pay to Landlord an
amount (the “Compensatory Payment”) equal to the greater of (a) the sum of:
(i) the Fair Market Value of the affected Facility immediately before such
damage or destruction less (ii) the Fair Market Value of the affected Facility
immediately after such damage or destruction (the “Post-Casualty Facility”) less
(iii) any insurance proceeds received by Landlord, or (b) (i) 89.95% of the Fair
Market Value of the Premises as of the Commencement Date less (B) the sum of the
present value of (1) the Base Rent and (2) Additional Rent paid to Landlord and
not passed through to a third party, received by Landlord as of the Occurrence
Date (determined using a discount rate of six percent (6%) per annum) less
(iii) any insurance proceeds received by Landlord. Unless, within nine
(9) months following the date of any applicable casualty, Tenant has provided
Landlord with satisfactory evidence that it has obtained, or is in the process
of and continuing to diligently obtain, the Required Reconstruction Approvals,
Tenant shall be deemed to be unable to secure the Required Reconstruction
Approvals and to be obligated to make the Compensatory Payment to Landlord (the
“Compensatory Payment Date”). Landlord shall have a period of three (3) months
after the Compensatory Payment Date to attempt to sell the affected Facility to
an independent third party in an arms-length transaction and the gross purchase
price payable to Landlord in connection with such transaction shall be deemed to
be the Fair Market Value of the Post-Casualty Facility (a “Casualty Sale”). In
the event a Casualty Sale occurs within such three (3) month period, Landlord
shall provide Tenant with notice of the closing thereof and a written demand for
the Compensatory Payment setting forth in reasonable detail the calculation
thereof (the “Compensatory Payment Statement”). In the event a Casualty Sale
does not occur within such three (3) month period, then the Fair Market Value of
the Post-Casualty Facility shall be determined in the manner otherwise set forth
in this Lease. The Compensatory Payment shall be due and payable thirty
(30) days after the later of (i) Tenant’s receipt of the Compensatory Payment
Statement or (ii) the date of determination of the Fair Market Value of the
Post-Casualty Facility. Upon Landlord’s receipt of the Compensatory Payment (or
upon the occurrence of a Casualty Sale, if earlier), this Lease shall terminate
as to the affected Facility and Tenant shall have no further rights or
obligations with respect thereto.

ARTICLE XI

CONDEMNATION

Except as provided to the contrary in this Article XI, a Condemnation of any
Facility or any portion thereof shall not terminate this Lease, which shall
remain in full force and effect, and Tenant hereby waives all rights under
applicable law to abate, reduce or offset Rent by reason of any such
Condemnation. Following a Complete Taking of any Facility, Tenant may at its
election, made within thirty (30) days of the effective date of such Complete
Taking, terminate this Lease with respect to such Facility and the current Rent
shall be equitably abated as of the effective date of such termination based on
the allocable share of Landlord’s initial investment in the Premises to the
Facility subject to the Complete Taking. Following a Partial Taking of any
Facility, the Rent shall be abated to the same extent as the resulting
diminution in the Fair Market Value of such Facility and, as necessary (as
reasonably determined by Landlord), Tenant at its sole cost shall restore such
Facility in accordance with Section 6.5. Landlord alone shall be entitled to
receive and retain any award for a Condemnation other than a Temporary Taking;
provided, however, Tenant shall be entitled to submit its own claim in the event
of any such Condemnation with respect to the relocation costs incurred by Tenant
as a result thereof. In the event of a Temporary Taking of any Facility, Tenant
shall be entitled to receive and retain any and all awards for the Temporary
Taking; provided, however, that Base Rent shall not be abated during the period
of such Temporary Taking.

 

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ARTICLE XII

DEFAULT

12.1 Events of Default. The occurrence of any of the following shall constitute
an “Event of Default” and there shall be no cure period therefor except as
otherwise expressly provided in this Section 12.1:

12.1.1 Tenant shall fail to pay any installment of Rent within five (5) calendar
days of its Payment Date;

12.1.2 (a) The revocation or termination of any Authorization that would have a
material adverse effect on the operation of any Facility for its Primary
Intended Use; (b) except as permitted pursuant to the terms of Article X or
Article XI in connection with a casualty or Condemnation, the voluntarily
cessation of operations at any Facility for a period in excess of 30 days;
(c) the sale or transfer of all or any portion of any Authorization; or (d) the
use of any Facility other than for its Primary Intended Use;

12.1.3 Any material suspension, limitation or restriction placed upon Tenant,
any Authorization, any Facility, the operations at any Facility or Tenant’s
ability to admit residents or patients at the Premises (e.g., an admissions ban
or non-payment for new admissions by any Thirty Party Payor Program resulting
from an inspection survey); provided, however, if any such material suspension,
limitation or restriction is curable by Tenant under the applicable
Authorization or Legal Requirement, it shall not constitute an Event of Default
if Tenant promptly commences to cure such breach and thereafter diligently
pursues such cure to the completion thereof within the greater of: (a) the time
period in which the applicable governmental agency has given Tenant to undertake
corrective action, including the additional time allotted under any appeal right
so long as (i) Tenant has duly and timely filed an appeal and preserved such
appeal right, and (ii) any adverse governmental action is stayed pending appeal,
up to the moment such appeal is granted, withdrawn or denied, or (b) thirty
(30) days after the occurrence of any such material suspension, limitation or
restriction;

12.1.4 an “Event of Default” (as defined in the applicable agreement) shall
occur and is continuing under any other lease or agreement between Landlord or
an Affiliate of Landlord and Tenant (or Guarantor) or an Affiliate of Tenant (or
Guarantor) where the default is not cured within any applicable grace period set
forth therein;

12.1.5 an “Event of Default” (as defined in the applicable agreement) shall
occur and is continuing under any letter of credit, guaranty, mortgage, deed of
trust, or other instrument executed by Tenant (or Guarantor) or an Affiliate of
Tenant (or Guarantor) in favor of Landlord or an Affiliate of Landlord, in every
case, whether now or hereafter existing, where the default is not cured within
any applicable grace period set forth therein;

12.1.6 an “Event of Default” (as defined in the applicable agreement) by Tenant,
any Guarantor or any Affiliate of Tenant or any Guarantor shall occur and is
continuing under any lease, guaranty, loan or financing agreement with any other
party that is not cured within any applicable cure period provided for therein;

12.1.7 Tenant, any Guarantor, or any Affiliate of Tenant or any Guarantor shall
(a) admit in writing its inability to pay its debts generally as they become
due; (b) file a petition in bankruptcy or a petition to take advantage of any
insolvency act; (c) make an assignment for the benefit of its creditors;
(d) consent to the appointment of a receiver of itself or of the whole or any
substantial part of its property; or (e) file a petition or answer seeking
reorganization or arrangement under the Federal bankruptcy laws or any other
applicable law or statute of the United States of America or any state thereof;

 

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12.1.8 Any petition is filed by or against any Tenant, any Guarantor, or any
Affiliate of any Tenant or any Guarantor under federal bankruptcy laws, or any
other proceeding is instituted by or against any Tenant, any Guarantor or any
Affiliate of any Tenant or any Guarantor seeking to adjudicate it a bankrupt or
insolvent, or seeking liquidation, reorganization, arrangement, adjustment or
composition of it or its debts under any law relating to bankruptcy, insolvency
or reorganization or relief of debtors, or seeking the entry of an order for
relief or the appointment of a receiver, trustee, custodian or other similar
official for any Tenant, any Guarantor or any Affiliate of any Tenant or any
Guarantor, or for any substantial part of the property of any Tenant, any
Guarantor or any Affiliate of any Tenant or any Guarantor, and Tenants fails to
notify Landlord of such proceeding within three (3) Business Days of the
institution thereof and such proceeding is not dismissed within sixty (60) days
after institution thereof;

12.1.9 Any Tenant, any Guarantor or any Affiliate of any Tenant or any Guarantor
shall take any action to authorize or effect any of the actions set forth above
in the preceding Section 12.1.8, or fails thereafter to vigorously oppose such
actions;

12.1.10 The estate or interest of Tenant in the Premises or any part thereof
shall be levied upon or attached in any proceeding and the same shall not be
vacated or discharged within the later of ninety (90) days after commencement
thereof or thirty (30) days after receipt by Tenant of notice thereof from
Landlord (unless, in either case, Tenant is in the process of contesting such
lien in a good faith manner in accordance to Article VII); provided, however,
that such notice shall be in lieu of and not in addition to any notice required
under applicable law;

12.1.11 Tenant, any Guarantor or any Affiliate of Tenant or any Guarantor shall
be liquidated or dissolved, or begins proceedings towards liquidation or
dissolution, or has filed against it a petition or other proceeding to cause it
to be liquidated or dissolved and the proceeding is not dismissed within thirty
(30) days thereafter, or, in any manner, permits the sale or divestiture of
substantially all of its assets except in connection with a dissolution or
liquidation following or related to a merger or transfer of substantially all of
the assets and liabilities of Tenant with or to its parent corporation or with
or to another direct or indirect wholly owned subsidiary of its parent
corporation;

12.1.12 Tenant fails to (a) maintain or protect the Premises and Landlord’s
interest therein as required under this Lease, including without limitation the
obligations to maintain, repair and restore the Premises under this Lease, and
any such failure in this clause (a) is not cured by Tenant within thirty
(30) days after notice thereof from Landlord, (b) maintain in force at any time
during the Term or any extensions thereof the insurance coverages required under
Article VIII and any such failure in this clause (b) is not cured by Tenant
within five (5) Business Days after notice thereof from Landlord, or (c) fails
to return the Premises to Landlord or its designee at the expiration or earlier
termination of the Lease, as required by Article XIII, whether or not such
failure is due to a casualty and any such failure in this clause (c) is not
cured by Tenant within thirty (30) days after notice thereof from Landlord;

12.1.13 Any of the representations or warranties made by Tenant in this Lease or
by Guarantor in the Guaranty proves to be untrue when made that would result in
a material adverse effect of Tenant’s ability to perform its obligations under
this Lease;

 

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12.1.14 Tenant fails to observe or perform any term, covenant or other
obligation of Tenant set forth in Section 5.7 and such failure is not cured
within ten (10) days after receipt of notice of such failure from Landlord;

12.1.15 Any local, state or federal agency having jurisdiction over the
operation of any Facility removes ten percent (10%) or more of the patients or
residents located in such Facility other than during any period of repair or
restoration following damage, destruction or a Partial Taking;

12.1.16 Tenant fails to perform or comply with the provisions of Section 5.4.3,
Section 5.5, Section 5.11, Section 5.12 or Article XVI, and any such failure is
not cured by Tenant within thirty (30) days after notice thereof from Landlord;
provided further that upon any failure by Tenant to perform or comply with the
provisions of Section 5.12.4, if Tenant submits to Landlord a plan of correction
for Landlord’s review and approval within fifteen (15) days of the end of the
second consecutive quarter in which the Portfolio Coverage Ratio is less than
the Minimum Rent Coverage Ratio, and uses commercially reasonable efforts to
comply with any a plan of correction approved by Landlord, which shall set forth
a period of time not to exceed 90 days in which Tenant shall succeed in
achieving a Portfolio Coverage Ratio that meets the applicable Minimum Rent
Coverage Ratio, then Tenant’s failure shall not be deemed to be an Event of
Default under the Lease;

12.1.17 Tenant fails to observe or perform Tenant’s obligations under Article XV
where the default is not cured within the shorter of (i) thirty (30) days after
notice thereof from Landlord or the Facility Mortgagee and (ii) the any
applicable grace period set forth in the Facility Mortgage Documents;

12.1.18 Tenant fails to observe or perform any other term, covenant or condition
of this Lease not previously enumerated in this Section 12.1 and such failure is
not cured by Tenant within thirty (30) days after notice thereof from Landlord,
unless such failure cannot with due diligence be cured within a period of thirty
(30) days or failure to cure after such thirty (30) day period will not have a
material adverse effect upon the Facility, in which case such failure shall not
be deemed to be an Event of Default if Tenant proceeds promptly and with due
diligence to cure the failure and diligently completes the curing thereof;
provided, however, that such notice shall be in lieu of and not in addition to
any notice required under applicable law.

12.2 Remedies. Upon the occurrence of an Event of Default, Landlord may exercise
all rights and remedies under this Lease and the laws of the applicable Situs
State that are available to a lessor of real and personal property in the event
of a default by its lessee, and as to the Lease Collateral, all remedies granted
under the laws of the applicable Situs State to a secured party under its
Uniform Commercial Code. Landlord shall have no duty to mitigate damages unless
required by applicable law and shall not be responsible or liable for any
failure to relet any Facility or to collect any rent due upon any such
reletting. Tenant shall pay Landlord, immediately upon demand, all expenses
incurred by it in obtaining possession and reletting any Facility, including
fees, commissions and costs of attorneys, architects, agents and brokers.

12.2.1 Without limiting the foregoing, Landlord shall have the right (but not
the obligation) to do any of the following upon an Event of Default: (a) sue for
the specific performance of any covenant of Tenant as to which it is in breach,
including without limitation a Limited Remedy Event of Default (as defined
below); (b) enter upon any Facility, terminate this Lease, dispossess Tenant
from any Facility and/or collect money damages by reason of Tenant’s breach,
including the acceleration of all Rent which would have accrued after such
termination and all obligations and liabilities of Tenant under this Lease which
survive the termination of the Term; (c) elect to leave this Lease in place and
sue for Rent and other money damages as the same come due; (d) (before or after
repossession of a Facility pursuant to clause (b) above and whether or not this
Lease has been terminated) relet such Facility to such

 

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tenant, for such term (which may be greater or less than the remaining balance
of the Term), rent, conditions (which may include concessions or free rent) and
uses as it may determine in its sole discretion and collect and receive any
rents payable by reason of such reletting; and (e) sell any Lease Collateral in
a non-judicial foreclosure sale.

12.2.2 Upon the occurrence of an Event of Default, and upon commencement of
proceedings to enforce the rights of Landlord hereunder, Landlord shall be
entitled, as a matter of right, to appoint a receiver to take possession of the
Premises, pending the outcome of such proceedings, to manage the operation of
the Premises, to collect and disburse all rents, issues, profits and income
generated thereby and to the extent applicable and possible, to preserve or
replace any Authorization or to otherwise substitute the licensee or provider
thereof. If a receiver is appointed pursuant hereto, the receiver shall be paid
a reasonable fee for its services and all such fees and other expenses incurred
by Landlord in connection with the appointment of the receiver shall be paid in
addition to, and not in limitation of, the Rent otherwise due to Landlord
hereunder. Tenant irrevocably consents to the appointment of a receiver
following an Event of Default and thus stipulates to and agrees not to contest
the appointment of a receiver under such circumstances and for such purposes.

12.2.3 If Tenant at any time shall fail to make any payment or perform any act
on its part required to be made or performed under this Lease, then Landlord
may, without waiving or releasing Tenant from any obligations or default
hereunder, make such payment or perform such act for the account and at the
expense of Tenant, and enter upon the applicable Facility for the purpose of
taking all such action as may be reasonably necessary. No such entry shall be
deemed an eviction of Tenant. All sums so paid by Landlord and all necessary and
incidental costs and expenses (including reasonable attorneys’ fees and
expenses) incurred in connection with the performance of any such act by it,
together with interest at the Agreed Rate from the date of the making of such
payment or the incurring of such costs and expenses, shall be payable by Tenant
to Landlord upon Landlord’s written demand therefor.

12.2.4 No right or remedy herein conferred upon or reserved to Landlord is
intended to be exclusive of any other right or remedy, and each and every right
and remedy shall be cumulative and in addition to any other right or remedy
given hereunder or now or hereafter existing at law or in equity. Any notice or
cure period provided herein shall run concurrently with any provided by
applicable law.

12.2.5 If Landlord initiates judicial proceedings or if this Lease is terminated
by Landlord pursuant to this Article XII, Tenant waives, to the extent permitted
by applicable law, (a) any right of redemption, re-entry, or repossession; and
(b) the benefit of any laws now or hereafter in force exempting property from
liability for rent or for debt.

12.2.6 Notwithstanding anything in this Lease to the contrary, and without
limiting any of the other rights or remedies conferred upon Landlord under this
Lease or at law or in equity, upon the occurrence of a Facility Default,
Landlord may, at its option and by notice to Tenant, terminate this Lease
immediately as to any one or more of the Facilities (selected in Landlord’s
discretion and by notice to Tenant) to which such Facility Default relates (a
termination of this Lease as to less than all of the Facilities as provided in
this Section 12.2.6 is herein referred to as a “Limited Termination Election”)
(the Facility or Facilities as to which Landlord elects to terminate this Lease
as provided in this Section 12.2.6 are herein referred to as “Terminated
Facilities”). Upon delivery of a termination notice as provided in this 12.2.6,
Tenant shall have no right to cure the Facility Default in question, all rights
of Tenant under this Lease shall cease as to the Terminated Facilities so
specified and the provisions of this Section 12.2.6 shall apply. Without
limitation of the foregoing, if Landlord makes a Limited Termination Election,
the deletion of the applicable Terminated Facilities from this Lease shall be
absolutely without limitation of each Tenant’s continuing obligation (on a joint
and several basis) for the damages and other amounts owing on account of the
Event of Default giving rise to the deletion from this Lease of such Terminated
Facilities or the termination of this Lease as to such Terminated Facilities.

 

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(a) If this Lease is terminated as to one or more Terminated Facilities pursuant
to this Section 12.2.6, then without necessity of any further action of the
parties, this Lease shall terminate as to the Terminated Facility or Terminated
Facilities, and the Terminated Facility or Terminated Facilities shall be
separated and removed herefrom, at such time (such date, the “Facility Removal
Date”) as Landlord delivers notice to Tenant exercising its termination rights
pursuant to this Section 12.2.6 (such notice, a “Termination Notice”). As of the
applicable Facility Removal Date, this Lease shall be automatically and ipso
facto amended to:

 

  (i) Delete and eliminate the Terminated Facility or Terminated Facilities
herefrom;

 

  (ii) Exclude the applicable Terminated Facility or Terminated Facilities from
the definition of “Premises”; and

 

  (iii) The current Rent shall be equitably reduced as of the Facility Removal
Date based on the allocable share of Landlord’s initial investment in the
Premises to the Terminated Facility or Terminated Facilities.

(b) Promptly (and in any event within ten (10) days after delivery of Landlord’s
request therefor, Tenant shall execute and deliver to Landlord such
instrument(s) as Landlord may from time to time request reflecting the
elimination of any Terminated Facility or Terminated Facilities herefrom on the
terms described above.

12.3 ASC 840 Savings Clause; Limited Remedy Events of Default.

Subject to Section 12.2.1(a), notwithstanding anything to the contrary herein
contained or in any other transaction document executed concurrently herewith,
or any other provision of this Lease or any other concurrent transaction
document, and pursuant to the Financial Accounting Standard Board’s Accounting
Standards Codification Section 840 governing the accounting classification of
operating leases, as amended or replaced from time to time (collectively the
“Operating Lease Accounting Rules”), if Landlord is exercising remedies due
solely to the Events of Default described in Sections 12.1.2(a), 12.1.3, 12.1.4,
12.1.5, 12.1.6, 12.1.8, 12.1.10, 12.1.13, 12.1.15, 12.1.17 or 12.1.18, or upon
the occurrence, for reasons other than the acts or omissions of Tenant, any
Guarantor or any Affiliate of any Tenant or any Guarantor, of an Event of
Default under Section 12.1.11 (each a “Limited Remedy Event of Default”), the
aggregate amount Tenant shall be required to pay to Landlord from and after the
date of the occurrence of such Limited Remedy Event of Default (the “Occurrence
Date”) shall be limited to the sum of (i) (A) 89.95% of the Fair Market Value of
the Premises as of the Commencement Date less (B) the sum of the present value
of (1) the Base Rent and (2) Additional Rent paid to Landlord and not passed
through to a third party, received by Landlord as of the Occurrence Date
(determined using a discount rate of six percent (6%) per annum), (ii) any
Impositions, Other Charges and other sums which are due and payable or have
accrued under this Lease through the Occurrence Date after any Limited Remedy
Event of Default that relates to insurance, utilities, repairs, maintenance,
environmental maintenance, remediation and compliance and other customary costs
and expenses of operating and maintaining the Premises in substantial compliance
with the terms of this Lease, and (iii) any amounts of Impositions, Other
Charges and other sums due to third parties which are due and payable or have
accrued under this Lease after the Occurrence Date while the Tenant remains in
possession of the Premises after any Limited Remedy Event of Default that
relates to insurance, utilities, repairs, maintenance, environmental

 

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maintenance, remediation and compliance and other customary costs and expenses
of operating and maintaining the Premises in substantial compliance with the
terms of this Lease (collectively, the “LRED Damages”). Landlord and Tenant
hereby agree that the damages available to Landlord as a result of a Limited
Remedy Event of Default shall be strictly limited to the LRED Damages and that
nothing contained herein or in any other transaction document executed
concurrently herewith shall entitle Landlord to additional reimbursement or
monetary damages with respect to any such Limited Remedy Event of Default.

ARTICLE XIII

OBLIGATIONS OF TENANT ON EXPIRATION OR TERMINATION OF LEASE

13.1 Surrender. On the Expiration Date or earlier termination or cancellation of
this Lease (or the earlier dispossession of Tenant from any Facility), Tenant
shall deliver to Landlord or Landlord’s designee (a) possession of each Facility
in a neat and clean condition, with each Facility being fully operational as of
such date and in compliance with all Authorizations, and (b) all business
records (other than corporate financial records or proprietary materials), data,
patient and resident records, and patient and resident trust accounts, which may
be necessary, desirable or advisable for the operation of each Facility for its
Primary Intended Use. Tenant shall have no obligation to perform any Alterations
necessitated by, or imposed in connection with, a change of ownership inspection
survey for the transfer of operation of such Facility to Landlord or Landlord’s
designee unless such Alterations were previously required hereunder or by the
applicable licensing authorities to be undertaken by Tenant prior to the
Expiration Date (or earlier termination date or cancellation of this Lease or
earlier dispossession of Tenant from any Facility) and Tenant failed to do so.

13.2 Transition.

13.2.1 In connection with the expiration or earlier termination of this Lease
with respect to any Facility, or the earlier dispossession of Tenant from any
Facility, Landlord shall have the right to require an Operational Transfer with
respect to such Facility by delivery to Tenant of a Transition Notice (as
defined below). As used in this Lease, “Operational Transfer” shall mean the
transfer and transition, practically and legally, of the day-to-day operations
of a Facility for the Primary Intended Use of such Facility to Landlord and/or
Landlord’s designee without interruption of the business activities therein,
regulatory or otherwise. Landlord may exercise its right to require an
Operational Transfer by delivering written notice to Tenant of Landlord’s
election to require an Operational Transfer (a “Transition Notice”) at any time.

13.2.2 In connection with an Operational Transfer, or at the time of Tenant’s
surrender of a Facility to Landlord or its designee, Tenant shall cooperate
fully with Landlord or its designee in transferring (or obtaining) all
Authorizations and Governmental Payors’ certifications and shall take all
necessary actions, including, without limitation, filing such applications,
petitions and transfer notices and making such assignments, conveyances and
transfers as are necessary, desirable or advisable to accomplish an Operational
Transfer. In connection therewith, Tenant shall transfer, to the extent
permitted by applicable law, to Landlord or Landlord’s designee all contracts,
including contracts with Governmental Authorities, which may be necessary,
desirable or advisable for the operation of each Facility for its Primary
Intended Use. Subject to all applicable Legal Requirements, Tenant hereby
assigns, effective upon the Expiration Date or earlier termination or
cancellation of this Lease (or the earlier dispossession of Tenant from any
Facility), all rights to operate the Facility to Landlord or its designee,
including all required Authorizations and all rights to apply for or otherwise
obtain them. In furtherance of the foregoing, Tenant agrees to enter into a
commercially reasonable operations transfer agreement with Landlord or
Landlord’s designee, which agreement shall provide, inter alia, for the
proration of operational revenues and liabilities based on when Landlord or its
designee actually takes possession of the applicable Facility or Facilities.

 

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13.2.3 Tenant agrees to enter into interim sublease agreements or management
agreements as may be necessary to effect a transfer of the operations of the
Facility or Facilities for their Primary Intended Use prior to the time that
Landlord or its designee, as applicable, holds all Authorizations from all
applicable Governmental Authorities necessary to so operate such Facility or
Facilities, and (b) Tenant shall remain as licensee and participating provider
in any payment programs with Governmental Payors or third party payors in which
a Facility participates until such time as Landlord or its designee has received
all Authorizations necessary to operate any Facility. Notwithstanding the
foregoing, as a condition to Tenant remaining as licensee and participating
provider as set forth above, Landlord or its designee shall, except in
connection with a termination of this Lease resulting from an Event of Default
(or the earlier dispossession of Tenant from any Facility as a result of an
Event of Default), indemnify, defend, protect and hold harmless Tenant from and
against any loss, damage, cost or expense incurred by Tenant on account of any
third party claim to the extent directly caused by the acts or omissions of
Landlord or its designee and during the period while relying on Tenant’s status
as licensee or participating provider in any payment programs with Governmental
Payors or third party payment programs in which a Facility participates.

13.2.4 Notwithstanding anything in this Lease which may be construed to the
contrary, if (i) Landlord delivers a Transition Notice as to a particular
Facility or Facilities, (ii) the Term expires prior to the delivery of a
Transition Notice but Landlord has not delivered a Closure Notice, or (iii) this
Lease is terminated as a result of an Event of Default and Landlord has not
delivered a Closure Notice, then in all such cases Tenant shall thereafter
continue to operate the Facility or Facilities in accordance with all of the
requirements of this Lease until the earliest to occur of the following: (a) the
date on which a successor operator assumes operation of such Facility, (b) the
date that is one hundred eighty (180) days after the Expiration Date, or (c) the
date on which such Facility is closed by Tenant in accordance with and pursuant
to the requirements of this Lease and in connection with a Closure Notice
delivered by Landlord.

13.2.5 If Tenant operates one or more Facilities after the Expiration Date or
earlier termination of this Lease (either pursuant to Landlord’s request or
pursuant to Section 13.2.4, then, from and after the expiration of this Lease
and until the earliest to occur of the dates described in Section 13.2.4 (the
“Reimbursement Period”), (a) Landlord shall provide Tenant with an operating
budget, (b) Landlord shall include in the aforesaid operating budget, and Tenant
shall continue to pay during the Reimbursement Period, all Rent that would have
been owing under this Lease if this Lease had not expired (equitably prorated if
Tenant operates less than all of the Facilities), and (c) Landlord shall
reimburse Tenant for any operating deficits that Tenant may be required to fund
out-of-pocket on account of operating losses and expenses incurred by Tenant by
reason of, or arising out of compliance with, such budget with respect to the
Reimbursement Period. Any such reimbursement shall be due from Landlord to
Tenant within thirty (30) days after request by Tenant, provided that Tenant
shall furnish such documentation of any operating deficits, losses and expenses
as Landlord may reasonably request.

13.2.6 Notwithstanding anything to the contrary contained in this Lease, Tenant
shall not, prior to delivery of a Closure Notice by Landlord to Tenant, commence
to wind up and terminate the operations of any Facility or relocate the patients
or occupants of any Facility to any other health care facility (a “Facility
Termination”). Notwithstanding the foregoing, if Landlord has not delivered a
Closure Notice or a Transition Notice to Tenant prior to the day that is one
hundred twenty (120) days following the Expiration Date, then Tenant may
commence the Facility Termination as to such Facility or Facilities and, upon
the closure of such Facility or Facilities in accordance with this Lease and all

 

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applicable Legal Requirements, Tenant shall vacate such Facility or Facilities
and surrender possession thereof to Landlord in accordance with all applicable
requirements of this Lease. If, prior to the day that is one hundred twenty
(120) days following the Expiration Date, Landlord delivers a Transition Notice
to Tenant; Tenant shall not commence or otherwise engage in a Facility
Termination with respect to the applicable Facility or Facilities. If Landlord
delivers a Closure Notice and elects to institute a Facility Termination, Tenant
shall, upon the prior written approval of Landlord, take all commercially
reasonable steps necessary, in compliance with all Legal Requirements and
Authorizations, to timely effectuate the same, all at Tenant’s sole cost and
expense.

13.2.7 The terms of this Section 13.2 shall survive the expiration or sooner
termination of this Lease.

13.3 Tenant Personal Property. Provided that no Event of Default then exists, in
connection with the surrender of the Premises, Tenant may upon at least five
(5) Business Days prior notice to Landlord remove from the Premises in a
workmanlike manner all Tenant Personal Property, leaving the Premises in good
and presentable condition and appearance, including repairing any damage caused
by such removal; provided that Landlord shall have the right and option to
purchase for itself or its designee the Tenant Personal Property for its then
fair market value during such five (5) Business Day notice period, in which case
Tenant shall so convey the Tenant Personal Property to Landlord or its designee
by executing a bill of sale in a form reasonably required by Landlord. If there
is any Event of Default then existing, Tenant will not remove any Tenant
Personal Property from the Premises and instead will, on demand from Landlord,
convey it to Landlord or its designee for no additional consideration by
executing a bill of sale in a form reasonably required by Landlord. Title to any
Tenant Personal Property which is not removed by Tenant as permitted above upon
the expiration of the Term shall, at Landlord’s election, vest in Landlord or
its designee; provided, however, that Landlord may remove and store or dispose
at Tenant’s expense any or all of such Tenant Personal Property which is not so
removed by Tenant without obligation or accounting to Tenant.

13.4 Facility Trade Name. If this Lease is terminated by reason of an Event of
Default or Landlord exercises its option to purchase or is otherwise entitled to
retain the Tenant Personal Property pursuant to Section 13.3 above, Landlord or
its designee shall be permitted to use the name under which each Facility has
done business during the Term in connection with the continued operation of such
Facility for its Primary Intended Use, but for no other use and not in
connection with any other property or facility.

13.5 Holding Over. If Tenant shall for any reason remain in possession of any
Facility after the Expiration Date, such possession shall be a month-to-month
tenancy during which time Tenant shall pay as rental on the first (1st) Business
Day of each month one and one-half (1 1⁄2) times the total of the monthly Base
Rent payable with respect to the last Lease Year, plus all Additional Rent
accruing during the month and all other sums, if any, payable by Tenant pursuant
to this Lease. Nothing contained herein shall constitute the consent, express or
implied, of Landlord to the holding over of Tenant after the Expiration Date,
nor shall anything contained herein be deemed to limit Landlord’s remedies.

ARTICLE XIV

INDEMNIFICATION

In addition to the other indemnities contained in this Lease, and
notwithstanding the existence of any insurance carried by or for the benefit of
Landlord or Tenant, and without regard to the policy limits of any such
insurance, Tenant shall protect, indemnify, save harmless and defend Landlord
and the Landlord Indemnified Parties from and against all Losses imposed upon or
incurred by or asserted against Landlord or any Landlord Indemnified Parties by
reason of: (a) any accident, injury to or death of Persons or loss of or damage
to property occurring on or about any Facility; (b) any use, misuse, non-use,

 

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condition, maintenance or repair of any Facility by Tenant; (c) any failure on
the part of Tenant to perform or comply with any of the terms of this Lease or
the breach of any representation or warranty made by Tenant herein; and (d) any
claim for malpractice, negligence or misconduct committed by any Person on or
working from any Facility. Any amounts which become payable by Tenant under this
Article XIV shall be paid within ten (10) days after demand by Landlord, and if
not timely paid, shall bear interest at the Agreed Rate from the date of such
demand until paid. Tenant, at its expense, shall contest, resist and defend any
such claim, action or proceeding asserted or instituted against Landlord or any
Landlord Indemnified Parties with counsel acceptable to Landlord in its sole
discretion and shall not, under any circumstances, compromise or otherwise
dispose of any suit, action or proceeding without obtaining Landlord’s written
consent. Landlord, at its election and sole cost and expense, shall have the
right, but not the obligation, to participate in the defense of any claim for
which Landlord or any Landlord Indemnified Parties are indemnified hereunder. If
Tenant does not act promptly and completely to satisfy its indemnification
obligations hereunder, Landlord may resist and defend any such claims or causes
of action against Landlord or any Landlord Indemnified Party at Tenant’s sole
cost. The terms of this Article XIV shall survive the expiration or sooner
termination of this Lease. For purposes of this Article XIV, any acts or
omissions of Tenant, or by employees, agents, assignees, contractors,
subcontractors or others acting for or on behalf of Tenant (whether or not they
are negligent, intentional, willful or unlawful), shall be strictly attributable
to Tenant.

ARTICLE XV

LANDLORD’S FINANCING

15.1 Grant Lien. Without the consent of Tenant, Landlord may from time to time,
directly or indirectly, create or otherwise cause to exist any Facility Mortgage
upon any Facility or interest therein. This Lease is and at all times shall be
subject and subordinate to any such Facility Mortgage which may now or hereafter
affect any Facility or interest therein and to all renewals, modifications,
consolidations, replacements, restatements and extensions thereof or any parts
or portions thereof; provided, however, so long as no Event of Default has
occurred, no Facility Mortgagee shall have the right to disturb Tenant’s
leasehold interest or possession of any Facility or interfere with any other
rights of Tenant accorded by the terms of this Lease. This provision shall be
self-operative and no further instrument of subordination shall be required to
give it full force and effect; provided, however, that in confirmation of such
subordination, Tenant shall execute promptly any certificate or document that
Landlord or any Facility Mortgagee may request for such purposes so long as the
same contains commercially reasonable non-disturbance and attornment provisions.

15.2 Attornment. If Landlord’s interest in any Facility or interest therein is
sold, conveyed or terminated upon the exercise of any remedy provided for in any
Facility Mortgage Documents (or in lieu of such exercise), or otherwise by
operation of law: (a) at the request and option of the new owner or superior
lessor, as the case may be, Tenant shall attorn to and recognize the new owner
or superior lessor as Tenant’s “landlord” under this Lease or enter into a new
lease substantially in the form of this Lease with the new owner or superior
lessor, and Tenant shall take such actions to confirm the foregoing within ten
(10) days after request; and (b) the new owner or superior lessor shall not be
(i) liable for any act or omission of Landlord under this Lease occurring prior
to such sale, conveyance or termination; (ii) subject to any offset, abatement
or reduction of rent because of any default of Landlord under this Lease
occurring prior to such sale, conveyance or termination; (iii) bound by any
previous modification or amendment to this Lease or any previous prepayment of
more than one month’s rent, unless such modification, amendment or prepayment
shall have been approved in writing by such Facility Mortgagee or, in the case
of such prepayment, such prepayment of rent has actually been delivered to such
new owner or superior lessor; or (iv) liable for any security deposit or other
collateral deposited or delivered to Landlord pursuant to this Lease unless such
security deposit or other collateral has actually been delivered to such new
owner or superior lessor.

 

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15.3 Cooperation; Modifications. Notwithstanding anything in this Lease to the
contrary, Tenant hereby agrees that in connection with obtaining any Facility
Mortgage for any Facility or interest therein, including, without limitation,
where the Facility Mortgagee is an Agency Lender, Tenant shall: (i) execute and
deliver to such Agency Lender or other Facility Mortgagee (on the form required
by such Agency Lender or other Facility Mortgagee) any tenant regulatory
agreements (including, without limitation, the form of regulatory agreement
typically required by Agency Lenders), subordination agreements (including,
without limitation, the form of subordination, assignment and security agreement
typically required by Agency Lenders), or other similar agreements customarily
required by Agency Lenders and other Facility Mortgagees in connection with a
mortgage relating to a skilled nursing facility or assisted living facility, and
(ii) modify this Lease as necessary to incorporate the provisions and
requirements generally imposed by an Agency Lender or other Facility Mortgagee
in connection with a facility lease relating to a skilled nursing facility or
assisted living facility encumbered with a Facility Mortgage by an Agency Lender
or other Facility Mortgagee, provided however this section shall not be deemed
to (A) impose on Tenant obligations which (i) increase Tenant’s monetary
obligations under this Lease, (ii) materially and adversely increase Tenant’s
non-monetary obligations under this Lease or (B) diminish Tenant’s rights under
this Lease. For purposes of the foregoing, any proposed implementation of new
occupancy or financial covenants or requirements with respect to payor mix shall
be deemed to materially diminish Tenant’s rights under this Lease. Tenant hereby
acknowledges and agrees, however, that an obligation under the applicable
Facility Mortgage Documents to post impounds for property taxes with respect to
any period not more than one (1) month in advance (whether now existing or later
created) shall not be deemed or construed to increase Tenant’s monetary
obligations under this Lease. If any new Facility Mortgage Documents to be
executed by Landlord or any Affiliate of Landlord would impose on Tenant any
obligations under this Section, Landlord shall provide copies of the same to
Tenant for informational purposes (but not for Tenant’s approval) prior to the
execution and delivery thereof by Landlord or any Affiliate of Landlord. In the
event any Agency Lender or other Facility Mortgagee requires, as a condition to
making a Facility Mortgage, an intercreditor agreement with any receivables
lender of Tenant, Tenant shall enter into any such intercreditor agreement and
shall take all commercially reasonable efforts to cause said receivables lender
to enter into such intercreditor agreement with said Agency Lender or other
Facility Mortgagee on terms acceptable to Tenant, Tenant’s receivables lender,
said Agency Lender or other Facility Mortgagee.

15.4 Compliance with Facility Mortgage Documents. Tenant acknowledges that any
Facility Mortgage Documents executed by Landlord or any Affiliate of Landlord
may impose certain obligations on the “borrower” or other counterparty
thereunder to comply with or cause the operator and/or lessee of any Facility to
comply with all representations, covenants and warranties contained therein
relating to such Facility and the operator and/or lessee of such Facility,
including, covenants relating to (a) the maintenance and repair of such
Facility; (b) maintenance and submission of financial records and accounts of
the operation of such Facility and related financial and other information
regarding the operator and/or lessee of such Facility and such Facility itself;
(c) the procurement of insurance policies with respect to such Facility;
(d) periodic inspection and access rights in favor of the Facility Mortgagee;
and (e) without limiting the foregoing, compliance with all applicable Legal
Requirements relating to such Facility and the operations thereof. For so long
as any Facility Mortgages encumber any Facility or interest therein, Tenant
covenants and agrees, at its sole cost and expense and for the express benefit
of Landlord, to operate such Facility in strict compliance with the terms and
conditions of the Facility Mortgage Documents (other than payment of any
indebtedness evidenced or secured thereby) and to timely perform all of the
obligations of Landlord relating thereto, or to the extent that any of such
duties and obligations may not properly be performed by Tenant, Tenant shall
cooperate with and assist Landlord in the performance thereof (other than
payment of any indebtedness evidenced or secured thereby); provided however this
section shall not be deemed to (A) impose on Tenant obligations which
(i) increase Tenant’s monetary obligations under this Lease, (ii) materially and
adversely increase Tenant’s non-monetary obligations under this Lease or

 

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(B) diminish Tenant’s rights under this Lease. If any new Facility Mortgage
Documents to be executed by Landlord or any Affiliate of Landlord would impose
on Tenant any obligations under this Section 15.4, Landlord shall provide copies
of the same to Tenant for informational purposes (but not for Tenant’s approval)
prior to the execution and delivery thereof by Landlord or any Affiliate of
Landlord.

15.5 Limitations. Without limiting or expanding Tenant’s obligations pursuant to
Sections 15.3 and 15.4, during the Term of this Lease, Tenant acknowledges and
agrees that, except as expressly provided elsewhere in this Lease, it shall
undertake at its own cost and expense the performance of any and all repairs,
replacements, capital improvements, maintenance items and all other requirements
relating to the condition of a Facility that are required by any Facility
Mortgage Documents or by Facility Mortgagee; provided, however, this
Section 15.5 shall not (i) increase Tenant’s monetary obligations under this
Lease, (ii) materially and adversely increase Tenant’s non-monetary obligations
under this Lease, or (iii) diminish Tenant’s rights under this Lease, except to
the extent that, with respect to any Facility, such obligations were provided
for in a Facility Mortgage, or otherwise required by the Facility Mortgagee,
secured by such Facility on the Commencement Date; and provided, further, that
any amounts which Tenant is required to fund into a Facility Mortgage Reserve
Account with respect to satisfying any repair or replacement reserve
requirements imposed by a Facility Mortgagee shall be credited on a
dollar-for-dollar basis against the mandatory expenditure obligations of Tenant
for such applicable Facility(ies) under Section 6.6. During the Term of this
Lease and provided that no Event of Default shall have occurred and be
continuing hereunder, Tenant shall, subject to the terms and conditions of such
Facility Mortgage Reserve Account and the requirements of the Facility
Mortgagee(s) thereunder, have access to and the right to apply or use (including
for reimbursement), to the same extent as Landlord, all monies held in each such
Facility Mortgage Reserve Account for the purposes and subject to the
limitations for which such Facility Mortgage Reserve Account is maintained, and
Landlord agrees to reasonably cooperate with Tenant in connection therewith.
Landlord hereby acknowledges that funds deposited by Tenant in any Facility
Mortgage Reserve Account are the property of Tenant and Landlord is obligated to
return the portion of such funds not previously released to Tenant within
fifteen (15) days following the earlier of (x) the expiration or earlier
termination of this Lease with respect to such applicable Facility, (y) the
maturity or earlier prepayment of the applicable Facility Mortgage, or (z) an
involuntary prepayment or deemed prepayment arising out of the acceleration of
the amounts due to a Facility Mortgagee as a result of the exercise of its
remedies under the applicable Facility Mortgage; provided, however, that the
foregoing shall not be deemed or construed to limit or prohibit Landlord’s right
to bring any damage claim against Tenant for any breach of its obligations under
this Lease that may have resulted in the loss of any impound funds held by a
Facility Mortgagee.

ARTICLE XVI

ASSIGNMENT AND SUBLETTING

16.1 Prohibition. Without the prior written consent of Landlord, which may be
withheld or conditioned in its sole and absolute discretion, Tenant shall not
suffer or permit any Transfer (including, without limitation, a Transfer of this
Lease or any interest herein) other than a Transfer that is expressly permitted
pursuant to the terms of this Lease. Any such purported Transfer without
Landlord’s prior written consent (each an “Unapproved Transfer”) shall be void
and shall, at Landlord’s sole option, constitute an Event of Default giving rise
to Landlord’s right, among other things, to terminate this Lease. If Landlord
elects to waive its right to terminate this Lease as a result of any such
Unapproved Transfer, this Lease shall continue in full force and effect;
provided, however, that as of the date of such Unapproved Transfer, the Base
Rent shall be increased by five percent (5%).

16.2 Landlord Consent. If Landlord consents to a Transfer, such Transfer shall
not be effective and valid unless and until the applicable transferee executes
and delivers to Landlord any and all documentation reasonably required by
Landlord. Any consent by Landlord to a particular Transfer shall not constitute
consent or approval of any subsequent Transfer, and Landlord’s written consent
shall be required

 

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in all such instances. No consent by Landlord to any Transfer shall be deemed to
release Tenant from its obligations hereunder and Tenant shall remain fully
liable for payment and performance of all obligations under this Lease. Without
limiting the generality of the foregoing, in connection with any sublease
arrangement that has been approved by Landlord, as a condition precedent to any
such approval, any such sublease agreement shall include provisions required by
Landlord pertaining to protecting its status as a real estate investment trust.

16.3 Transfers to Affiliates. Notwithstanding Section 16.1 to the contrary, but
subject to the rights of any Facility Mortgagee, Tenant may, without Landlord’s
prior written consent, assign this Lease or sublease any Facility to an
Affiliate of Tenant or Guarantor if all of the following are first satisfied:
(a) such Affiliate fully assumes Tenant’s obligations hereunder; (b) Tenant
remains fully liable hereunder and Guarantor remains fully liable under the
Guaranty; (c) the use of such Facility remains unchanged; (d) Landlord in its
reasonable discretion shall have approved the form and content of all documents
for such assignment or sublease and received an executed counterpart thereof;
(e) Tenant delivers evidence to Landlord that such assignment or subletting is
permissible under all applicable Authorizations or that all necessary consents
have been obtained to consummate such assignment or subletting; and (f) Tenant
and/or such Affiliate executes and delivers such other documents as may be
reasonably required by Landlord to effectuate the assignment and continue the
security interests and other rights of Landlord pursuant to this Lease or any
other documents executed in connection herewith.

16.4 Permitted Occupancy Agreements. Notwithstanding Section 16.1 to the
contrary, Tenant may enter into an occupancy agreement with residents of each
Facility without the prior written consent of Landlord provided that (a) the
agreement does not provide for life care services; (b) all residents of each
Facility are accurately shown in accounting records for such Facility. Without
the prior written consent of Landlord, Tenant shall not materially change the
form of resident occupancy agreement that was submitted to Landlord prior to the
Commencement Date; provided, however, no consent will be required for changes
required by applicable law, including applicable licensure laws, but all changes
to the form of resident occupancy agreement will be provided to Landlord as and
when such changes are made.

16.5 Costs. Tenant shall reimburse Landlord for Landlord’s reasonable costs and
expenses incurred in conjunction with the processing and documentation of any
assignment, master subletting or management arrangement, including reasonable
attorneys’ or other consultants’ fees whether or not such assignment, master
sublease or management agreement is ultimately consummated or executed.

ARTICLE XVII

CERTAIN RIGHTS OF LANDLORD

17.1 Right of Entry. Landlord and its representatives may enter on any Facility
at any reasonable time after reasonable notice to Tenant to inspect such
Facility for compliance to this Lease, to exhibit such Facility for sale, lease
or mortgaging, or for any other reason; provided, however, that no such notice
shall be required in the event of an emergency, upon an Event of Default or to
post notices of non-responsibility under any mechanic’s or materialman’s lien
law. No such entry shall unreasonably interfere with residents, patients,
patient care or the operations of such Facility.

17.2 Conveyance by Landlord. If Landlord or any successor owner of any Facility
shall convey such Facility other than as security for a debt, Landlord or such
successor owner, as the case may be, shall thereupon be released from all future
liabilities and obligations of the Landlord under this Lease arising or accruing
from and after the date of such conveyance or other transfer and, subject to
Section 15.2, all such future liabilities and obligations shall thereupon be
binding upon the new owner.

 

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17.3 Granting of Easements, etc. Landlord may, from time to time, with respect
to each Facility: (a) grant easements, covenants and restrictions, and other
rights in the nature of easements, covenants and restrictions, (b) release
existing easements, covenants and restrictions, or other rights in the nature of
easements, covenants or restrictions, that are for the benefit of such Facility,
(c) dedicate or transfer unimproved portions of such Facility for road, highway
or other public purposes, (d) execute petitions to have such Facility annexed to
any municipal corporation or utility district, (e) execute amendments to any
easements, covenants and restrictions affecting such Facility and (f) execute
and deliver to any Person any instrument appropriate to confirm or effect such
grants, releases, dedications and transfers (to the extent of its interests in
such Facility) without the necessity of obtaining Tenant’s consent provided that
such easement or other instrument or action contemplated by this Section 17.3
does not unreasonably interfere with Tenant’s operations at such Facility.

ARTICLE XVIII

ENVIRONMENTAL MATTERS

18.1 Hazardous Materials. Tenant shall not allow any Hazardous Materials to be
located in, on, under or about any Facility or incorporated in any Facility;
provided, however, that Hazardous Materials may be brought, kept, used or
disposed of in, on or about a Facility in quantities and for purposes similar to
those brought, kept, used or disposed of in, on or about similar facilities used
for purposes similar to such Facility’s Primary Intended Use and which are
brought, kept, used and disposed of in strict compliance with all Hazardous
Materials Laws.

18.2 Notices. Tenant shall immediately advise Landlord in writing of (a) any
Environmental Activities in violation of any Hazardous Materials Laws; (b) any
Hazardous Materials Claims against Tenant or any Facility; (c) any remedial
action taken by Tenant in response to any Hazardous Materials Claims or any
Hazardous Materials on, under or about any Facility in violation of any
Hazardous Materials Laws; (d) Tenant’s discovery of any occurrence or condition
on or in the vicinity of any Facility that materially increase the risk that
such Facility will be exposed to Hazardous Materials; and (e) all communications
to or from Tenant, any governmental authority or any other Person relating to
Hazardous Materials Laws or Hazardous Materials Claims with respect to any
Facility, including copies thereof.

18.3 Remediation. If Tenant becomes aware of a violation of any Hazardous
Materials Laws relating to any Hazardous Materials in, on, under or about any
Facility or any adjacent property, or if Tenant, Landlord or any Facility
becomes subject to any order of any federal, state or local agency to repair,
close, detoxify, decontaminate or otherwise remediate any Facility or any
property adjacent thereto, Tenant shall immediately notify Landlord of such
event and, at its sole cost and expense, cure such violation or effect such
repair, closure, detoxification, decontamination or other remediation in
accordance with all applicable Legal Requirements and subject to Landlord’s
prior approval as to scope, process, content and standard for completion. If
Tenant fails to implement and diligently pursue any such cure, repair, closure,
detoxification, decontamination or other remediation, Landlord shall have the
right, but not the obligation, to carry out such action and to recover from
Tenant all of Landlord’s costs and expenses incurred in connection therewith.

18.4 Indemnity. Tenant shall indemnify, defend, protect, save, hold harmless and
reimburse Landlord for, from and against any and all Losses and Environmental
Costs (whether or not arising out of third-party claims and regardless of
whether liability without fault is imposed, or sought to be imposed, on
Landlord) incurred in connection with, arising out of, resulting from or
incident to, directly or indirectly, before or during (but not after) the Term,
(a) Environmental Activities, including the effects of such Environmental
Activities on any Person or property within or outside the boundaries of the
Land of any Facility, (b) the presence of any Hazardous Materials in, on, under
or about any Facility and (c) the violation of any Hazardous Material Laws.

 

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18.5 Environmental Inspections. Landlord shall have the right, from time to
time, during normal business hours and upon not less than five (5) days written
notice to Tenant, except in the case of an emergency in which event no notice
shall be required, to conduct an inspection of any Facility to determine
Tenant’s compliance with this Article XVIII. Such inspection may include such
testing, sampling and analyses as Landlord deems reasonably necessary and may be
performed by experts retained by Landlord. All costs and expenses incurred by
Landlord under this 18.5 shall be paid on demand by Tenant; provided, however,
absent reasonable grounds to suspect Tenant’s breach of its obligations under
this Article XVIII, Tenant shall not be required to pay for more than one
(1) such inspection in any two (2) year period with respect to each Facility.
The obligations set forth in this Article XVIII shall survive the expiration or
earlier termination of this Lease.

ARTICLE XIX

RESERVED

ARTICLE XX

QUIET ENJOYMENT

So long as Tenant shall pay the Rent as the same becomes due and shall fully
comply with all of the terms of this Lease and fully perform its obligations
hereunder, Tenant shall peaceably and quietly have, hold and enjoy each Facility
for the Term, free of any claim or other action by Landlord or anyone claiming
by, through or under Landlord, but subject to all liens and encumbrances of
record as of the Commencement Date or thereafter provided for in this Lease or
consented to by Tenant.

ARTICLE XXI

REIT RESTRICTIONS

21.1 General REIT Provisions. Tenant understands that, in order for Landlord’s
Affiliate, REIT Parent, or any successor Affiliate that is a real estate
investment trust to qualify as a real estate investment trust, certain
requirements must be satisfied, including the provisions of Section 856 of the
Code. Accordingly, Tenant agrees, and agrees to cause its Affiliates, permitted
subtenants, if any, and any other parties subject to its control by ownership or
contract, to reasonably cooperate with Landlord to ensure that such requirements
are satisfied, including providing Landlord or any of its Affiliates with
information about the ownership of Tenant and its Affiliates. Tenant agrees, and
agrees to cause its Affiliates, upon request by Landlord or any of its
Affiliates, to take all action reasonably necessary to ensure compliance with
such requirements.

21.2 Characterization of Rents. The parties hereto intend that Rent and other
amounts paid by Tenant hereunder will qualify as “rents from real property”
within the meaning of Section 856(d) of the Code, or any similar or successor
provision thereto and this Agreement shall be interpreted consistent with this
intent.

21.3 Prohibited Transactions. Notwithstanding anything to the contrary herein,
Tenant shall not (a) sublet, assign or enter into a management arrangement for
any Facility on any basis such that the rental or other amounts to be paid by
the subtenant, assignee or manager thereunder would be based, in whole or in
part, on either (x) the income or profits derived by the business activities of
the subtenant, assignee or manager or (y) any other formula such that any
portion of any amount received by Landlord would fail to qualify as “rents from
real property” within the meaning of Section 856(d) of the Code, or any similar
or successor provision thereto; (b) furnish or render any services to the
subtenant, assignee or manager or manage or operate any Facility so subleased,
assigned or managed; (c) sublet, assign or enter

 

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into a management arrangement for any Facility to any Person (other than a
taxable REIT subsidiary of Landlord) in which Tenant or Landlord owns an
interest, directly or indirectly (by applying constructive ownership rules set
forth in Section 856(d)(5) of the Code); or (d) sublet, assign or enter into a
management arrangement for any Facility in any other manner which could cause
any portion of the amounts received by Landlord pursuant to this Lease or any
sublease to fail to qualify as “rents from real property” within the meaning of
Section 856(d) of the Code, or any similar or successor provision thereto, or
which could cause any other income of Landlord to fail to qualify as income
described in Section 856(c)(2) of the Code. The requirements of this
Section 21.3 shall likewise apply to any further subleasing by any subtenant.

21.4 Personal Property REIT Requirements. Notwithstanding anything to the
contrary herein, upon request of Landlord, Tenant shall cooperate with Landlord
in good faith and provide such documentation and/or information as may be in
Tenant’s possession or under Tenant’s control and otherwise readily available to
Tenant regarding the valuation of the Premises to assist Landlord in its
determination that Rent allocable for purposes of Section 856 of the Code to the
Landlord Personal Property at the beginning and end of a calendar year does not
exceed 15% of the total Rent due hereunder (the “Personal Property REIT
Requirement”). Tenant shall take such reasonable action as may be requested by
Landlord from time to time to ensure compliance with the Personal Property REIT
Requirement as long as such compliance does not (a) increase Tenant’s monetary
obligations under this Lease, (b) materially and adversely increase Tenant’s
non-monetary obligations under this Lease or (c) materially diminish Tenant’s
rights under this Lease. Accordingly, if requested by Landlord and at Landlord’s
expense, Tenant shall cooperate with Landlord as may be necessary from time to
time to more specifically identify and/or value the Landlord Personal Property
in connection with the compliance with the Personal Property REIT Requirement.

ARTICLE XXII

NOTICES

All notices and demands, certificates, requests, consents, approvals and other
similar instruments under this Lease shall be in writing and sent by personal
delivery, U. S. certified or registered mail (return receipt requested, postage
prepaid) or FedEx or similar generally recognized overnight carrier regularly
providing proof of delivery, addressed as follows:

 

If to Tenant:    If to Landlord:

c/o Ensign Services, Inc.

Attention: Chief Financial Officer

27101 Puerta Real, Suite 450

Mission Viejo, CA 92691

  

c/o CareTrust REIT, Inc.

Attn: Chief Financial Officer

27101 Puerta Real, Suite 400

Mission Viejo, CA 92691

A party may designate a different address by notice as provided above. Any
notice or other instrument so delivered (whether accepted or refused) shall be
deemed to have been given and received on the date of delivery established by
U.S. Post Office return receipt or the carrier’s proof of delivery or, if not so
delivered, upon its receipt. Delivery to any officer, general partner or
principal of a party shall be deemed delivery to such party. Notice to any one
co-Tenant shall be deemed notice to all co-Tenants.

 

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ARTICLE XXIII

DISPUTE RESOLUTION

23.1 Dispute Resolution. The provisions of Article X of that certain Separation
and Distribution Agreement, dated as of the date hereof (the “Separation
Agreement”), entered into by and between REIT Parent and Guarantor, shall apply,
mutatis mutandis, to all disputes, controversies or claims (whether arising in
contract, tort or otherwise) that may arise out of or relate to, or arise under
or in connection with this Lease or the transactions contemplated hereby.

ARTICLE XXIV

MISCELLANEOUS

24.1 Memorandum of Lease. Landlord and Tenant shall, promptly upon the request
of either, enter into a short form memorandum of this Lease, in form suitable
for recording under the laws of the applicable Situs State. Tenant shall pay all
costs and expenses of recording any such memorandum and shall fully cooperate
with Landlord in removing from record any such memorandum upon the expiration or
earlier termination of the Term.

24.2 No Merger. There shall be no merger of this Lease or of the leasehold
estate created hereby by reason of the fact that the same Person may acquire,
own or hold, directly or indirectly, (a) this Lease or the leasehold estate
created hereby or any interest in this Lease or such leasehold estate and
(b) the fee estate in the Premises.

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

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

24.5 Attorneys’ Fees. If Landlord or Tenant brings an action or other proceeding
against the other to enforce any of the terms, covenants or conditions hereof or
any instrument executed pursuant to this Lease, or by reason of any breach or
default hereunder or thereunder, the party prevailing in any such action or
proceeding and any appeal thereupon shall be paid all of its costs and
reasonable outside attorneys’ fees incurred therein.

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

24.7 Severability. If any term or provision of this Lease or any application
thereof shall be held invalid or unenforceable, the remainder of this Lease and
any other application of such term or provision shall not be affected thereby.

24.8 Non-Recourse. Tenant specifically agrees to look solely to the Premises for
recovery of any judgment from Landlord; provided, however, the foregoing is not
intended to, and shall not, limit any right that Tenant might otherwise have to
obtain injunctive relief against Landlord, or any action not involving the
personal liability of Landlord. Furthermore, in no event shall Landlord be
liable to Tenant for any indirect or consequential damages suffered by Tenant
from whatever cause.

 

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24.9 Successors and Assigns. This Lease shall be binding upon Landlord and its
successors and assigns and, subject to the provisions of Article XVI, upon
Tenant and its successors and assigns.

24.10 Governing Law; Jury Waiver. This Lease shall be governed by and construed
and enforced in accordance with the internal laws of New York, without regard to
the conflict of laws rules thereof; provided that that the law of the applicable
Situs State shall govern procedures for enforcing, in the respective Situs
State, provisional and other remedies directly related to such Facility and
related personal property as may be required pursuant to the law of such Situs
State, including without limitation the appointment of a receiver; and, further
provided that the law of the Situs State also applies to the extent, but only to
the extent, necessary to create, perfect and foreclose the security interests
and liens created under this Lease. EACH PARTY HEREBY WAIVES ANY RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY
AGAINST THE OTHER IN CONNECTION WITH ANY MATTER WHATSOEVER ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS LEASE, INCLUDING RELATIONSHIP OF THE PARTIES,
TENANT’S USE AND OCCUPANCY OF THE PREMISES, OR ANY CLAIM OF INJURY OR DAMAGE
RELATING TO THE FOREGOING OR THE ENFORCEMENT OF ANY REMEDY.

24.11 Entire Agreement. This Lease constitutes the entire agreement of the
parties with respect to the subject matter hereof, and may not be changed or
modified except by an agreement in writing signed by the parties. Landlord and
Tenant hereby agree that all prior or contemporaneous oral understandings,
agreements or negotiations relative to the leasing of the Premises are merged
into and revoked by this Lease. All exhibits and schedules to this Lease are
hereby incorporated herein by this reference. This Lease is an Ancillary
Agreement under the Separation Agreement and shall be interpreted in accordance
therewith.

24.12 Headings. All titles and headings to sections, articles or other
subdivisions of this Lease are for convenience of reference only and shall not
in any way affect the meaning or construction of any provision.

24.13 Counterparts. This Lease may be executed in any number of counterparts,
each of which shall be a valid and binding original, but all of which together
shall constitute one and the same instrument. Executed copies hereof may be
delivered by telecopier, email or other electronic means and upon receipt will
be deemed originals and binding upon the parties hereto, regardless of whether
originals are delivered thereafter.

24.14 Joint and Several. If more than one Person is the Tenant under this Lease,
the liability of such Persons under this Lease shall be joint and several.

24.15 Interpretation. Both Landlord and Tenant have been represented by counsel
and this Lease and every provision hereof has been freely and fairly negotiated.
Consequently, all provisions of this Lease shall be interpreted according to
their fair meaning and shall not be strictly construed against any party.
Whenever the words “including”, “include” or “includes” are used in this Lease,
they shall be interpreted in a non-exclusive manner as though the words “without
limitation” immediately followed. Whenever the words “herein,” “hereof” and
“hereunder” and other words of similar import are used in this Lease, they shall
be interpreted to refer to this Lease as a whole and not to any particular
article, section or other subdivision. Whenever the words “day” or “days” are
used in this Lease, they shall mean “calendar day” or “calendar days” unless
expressly provided to the contrary. All references in this Lease to designated
“Articles,” “Sections” and other subdivisions are to the designated Articles,
Sections and other subdivisions of this Lease.

 

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24.16 Time of Essence. Time is of the essence of this Lease and each provision
hereof in which time of performance is established and whenever action must be
taken (including the giving of notice or the delivery of documents) hereunder
during a certain period of time or by a particular date that ends or occurs on a
day that is not a Business Day, then such period or date shall be extended until
the immediately following Business Day.

24.17 Further Assurances. The parties agree to promptly sign all documents
reasonably requested by the other party to give effect to the provisions of this
Lease.

24.18 Certain Changes. In no way waiving or modifying the provisions of Article
XVI above, Tenant shall give Landlord at least thirty (30) days’ prior written
notice of any change in Tenant’s principal place of business, name, identity,
jurisdiction of organization or corporate structure.

24.19 California Specific Provisions.

24.19.1 In addition to and not in limitation of any other waiver contained
herein, Tenant hereby voluntarily waives the provisions of California Civil Code
§§1941 and 1942 and all other provisions of law now in force or that become in
force hereafter that provide Tenant the right to make repairs at Landlord’s
expense and to deduct the expense of such repairs from Rent owing hereunder.

24.19.2 In addition to and not in limitation of any other waiver contained
herein, Tenant hereby voluntarily waives any and all rights that Tenant may have
under Legal Requirements to terminate this Lease prior to the Expiration Date,
including, without limitation:

(a) the provisions of California Civil Code §1932(1) and all other provisions of
law now in force or that become in force hereafter that provide Tenant the right
to terminate this Lease if Landlord breaches its obligation, if any, as to
placing and securing Tenant in the quiet possession of the Premises, putting the
Premises in good condition or repairing the Premises;

(b) the provisions of California Civil Code §§1932(2) and 1933(4) and all other
provisions of law now in force or that become in force hereafter that would
permit or cause a termination of this Lease or an abatement of Rent upon damage
to or destruction of the Premises, it being agreed and acknowledged that
Article X constitutes an express agreement between Landlord and Tenant that
applies in the event of any such damage to or destruction of the Premises; and

(c) the provisions of California Code of Civil Procedure §1265.130 and all other
provisions of law now in force or that become in force hereafter that would
allow Tenant to petition the courts to terminate this Lease in the event of a
Partial Taking.

24.19.3 Landlord and Tenant hereby agree and acknowledge that Article XI
provides for Landlord’s and Tenant’s respective rights and obligations in the
event of a Condemnation of any Facility and, in addition to and not in
limitation of any other waiver contained herein, each hereby voluntarily waives
the application of the provisions of California Code of Civil Procedure
§§1265.110-1265.160 to this Lease.

24.19.4 In addition to and not in limitation of any other waiver contained
herein, Tenant hereby voluntarily waives the provisions of any and all rights
conferred by California Civil Code §3275 and California Code of Civil Procedure
§§473, 1174 and 1179 and all other provisions of law now in force or that become
in force hereafter that provide Tenant the right to redeem, reinstate or restore
this Lease following its termination by reason of Tenant’s breach.

 

40

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24.19.5 Landlord and Tenant hereby agree that when this Lease requires service
of a notice, that notice shall replace rather than supplement any equivalent or
similar statutory notice, including any notices required by California Code of
Civil Procedure §1161 or any similar or successor statute. When a statute
requires service of a notice in a particular manner, service of that notice (or
a similar notice required by this Lease) in the manner required by Article XXII
shall replace and satisfy the statutory service-of-notice procedures, including
those required by California Code of Civil Procedure §1162 or any similar or
successor statute.

24.19.6 In addition to, and not in substitution of, any of the remedies
otherwise available to Landlord under this Lease following the occurrence of an
Event of Default, Landlord shall have the remedy described in California Civil
Code §1951.4, which provides that Landlord may continue this Lease in full force
and effect after Tenant’s breach and abandonment and enforce all of its rights
and remedies under this Lease, including the right to recover Rent as it becomes
due. Notwithstanding Landlord’s exercise of the remedy described in California
Civil Code §1951.4, Landlord may thereafter elect, in its sole discretion, to
exercise any other remedy provided for in this Lease, including, without
limitation, the right to terminate this Lease as provided in Section 12.2.1
above.

24.19.7 If Landlord elects to terminate this Lease pursuant to Section 12.2.1
above following the occurrence of an Event of Default, then, notwithstanding
anything to the contrary herein, Landlord shall be entitled to recover from
Tenant all of the following:

(a) The worth at the time of award (defined below) of the unpaid Rent earned at
the time of such termination;

(b) The worth at the time of award of the 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 which Tenant proves could have been reasonably
avoided;

(c) The worth at the time of award of the amount by which the unpaid Rent for
the balance of the Term after the time of award exceeds the amount of such
rental loss that Tenant proves could reasonably be avoided;

(d) Any other amount necessary to compensate Landlord for all detriment
proximately caused by Tenant’s failure to perform its obligations under this
Lease, or which, in the ordinary course of things, would likely result
therefrom, including brokers’ commission, cost of tenant improvements, and
attorneys’ fees; and

(e) Any other amounts, in addition to or in lieu of those listed above, that may
be permitted under the applicable Legal Requirements.

The “worth at the time of the award” of the amount(s) referred to in
(x) Sections 24.19.7(a) and 24.19.7(b) shall be computed by allowing interest at
the Agreed Rate and (y) Section 24.19.7(c) shall be computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award, plus one percent (1%).

24.19.8 As of the date of this Lease, no Facility has undergone inspection by a
“Certified Access Specialist” in connection with California Civil Code §1938.

 

41

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24.19.9 Tenant agrees to reasonably cooperate with Landlord in connection with
any energy usage reporting requirements to which Landlord is subject under
applicable Legal Requirements with respect to the Facilities.

24.19.10 In connection with any Alterations or other modifications, capital
repairs, or improvements made by or on behalf of Tenant to any Facility, Tenant
shall (and all such Alterations, modifications, capital repairs, or improvements
shall) comply with all permitting, preapproval, standards, rules, regulations,
and requirements imposed by the Office of Statewide Health Planning and
Development (“OSHPD”) together with all other Legal Requirements imposed by
OSHPD or any other Governmental Authority. Tenant shall indemnify, defend,
protect and hold harmless Landlord from and against any Losses of any kind that
may be imposed upon Landlord in connection with Tenant’s failure to comply with
any rules, regulations, permits or other approvals of OSHPD or any other
Governmental Authority in connection with any Alterations, modifications,
capital repairs, or improvements made by or on behalf of Tenant to any Facility.

[Signature page follows]

 

42

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IN WITNESS WHEREOF, this Lease has been executed by Landlord and Tenant as of
the date first written above.

TENANT:

[                         ],

a [                                             ]

 

By:     Name:     Title:    

[Signatures continue on next page]

 

S-1

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

LANDLORD:

[                         ],

a [                                                 ]

 

By:     Name:     Title:    

[Signatures continue on next page]

 

S-2

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

JOINDER

The Ensign Group, Inc., a Delaware corporation, hereby joins in this Lease for
the limited purpose of assuming and agreeing to be bound by the obligations
contained in Section 5.5.

THE ENSIGN GROUP, INC.,

a Delaware corporation

 

By:     Name:     Title:    

 

S-3

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EXHIBIT A

DEFINED TERMS

For all purposes of this Lease, except as otherwise expressly provided in the
Lease or unless the context otherwise requires, the following terms have the
meanings assigned to them in this exhibit and include the plural as well as the
singular:

“Additional Rent” has the meaning set forth in Section 2.2.

“Adjusted CPI Increase” means the actual CPI Increase as of the date of
determination, not to exceed two and one-half percent (2.5%). In no event shall
the CPI Increase be a negative number.

“Affiliate” means with respect to any Person, any other Person which Controls,
is Controlled by or is under common Control with the first Person.

“Agency Lender” means any of: (i) the U.S. Department of Housing and Urban
Development, (ii) the Federal National Mortgage Association (Fannie Mae), or
(iii) the Federal Home Loan Mortgage Corporation (Freddie Mac), or any
designees, agents, originators, or servicers of any of the foregoing.

“Agreed Rate” means, on any date, a rate equal to five percent (5%) per annum
above the Prime Rate, but in no event greater than the maximum rate then
permitted under applicable law. Interest at the aforesaid rates shall be
determined for actual days elapsed based upon a 360 day year.

“Alterations” means, with respect to each Facility, any alteration, improvement,
exchange, replacement, modification or expansion of the Leased Improvements or
Fixtures at such Facility.

“Authorization” means, with respect to each Facility, any and all licenses,
permits, certifications, accreditations, Provider Agreements, CONs, certificates
of exemption, approvals, waivers, variances and other governmental or
“quasi-governmental” authorizations necessary or advisable for the use of such
Facility for its Primary Intended Use and receipt of reimbursement or other
payments under any Third Party Payor Program in which such Facility
participates.

“Bankruptcy Action” means, with respect to any Person, (i) such Person filing a
voluntary petition under the Bankruptcy Code or any other federal or state
bankruptcy or insolvency law; (ii) the filing of an involuntary petition against
such Person under the Bankruptcy Code or any other federal or state bankruptcy
or insolvency law which is not dismissed within sixty (60) days of the filing
thereof, or soliciting or causing to be solicited petitioning creditors for any
involuntary petition against such Person; (iii) such Person filing an answer
consenting to or otherwise acquiescing in or joining in any involuntary petition
filed against it, by any other Person under the Bankruptcy Code or any other
federal or state bankruptcy or insolvency law, or soliciting or causing to be
solicited petitioning creditors for any involuntary petition from any Person;
(iv) such Person seeking, consenting to or acquiescing in or joining in an
application for the appointment of a custodian, receiver, trustee, or examiner
for such Person or any portion of the Facility; (v) such Person making an
assignment for the benefit of creditors; or (vi) such Person taking any action
in furtherance of any of the foregoing.

“Bankruptcy Code” means 11 U.S.C. § 101 et seq., as the same may be amended from
time to time.

“Base Rent” has the meaning set forth in Section 2.1.

 

Exhibit A-1

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

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

“Capital Alterations” means any Alteration for which the budgeted cost exceeds
Two Hundred Fifty-Thousand Dollars ($250,000).

“Cash Flow” shall mean the aggregate net income of Tenant attributable to the
operation of the Facilities as reflected on the income statement of Tenant, plus
(i) the provision for depreciation and amortization in such income statement,
plus (ii) the provision for management fees in such income statement, plus
(iii) the provision for income taxes in such income statement, plus (iv) the
provision for Base Rent payments and interest and lease payments, if any,
relating to the Facilities in such income statement, plus (v) the provision for
any other non-operating items in such income statement, and minus (vi) an
imputed management fee equal to five percent (5%) of gross revenues of the
Facilities (net of contractual allowances).

“Casualty Sale” has the meaning set forth in Section 10.5.

“Change in Control” means, as applied to any Person, a change in the Person that
ultimately exerts effective Control over the first Person.

“Closure Notice” means a written notice delivered by Landlord to Tenant pursuant
to which Landlord notifies Tenant that Tenant may commence a Facility
Termination as to a particular Facility or Facilities.

“CMS” means the United States Department of Health, Centers for Medicare and
Medicaid Services or any successor agency thereto.

“Code” means the Internal Revenue Code of 1986 and, to the extent applicable,
the Treasury Regulations promulgated thereunder, each as amended from time to
time.

“Commencement Date” has the meaning set forth in Section 1.4.

“Compensatory Payment” has the meaning set forth in Section 10.5.

“Compensatory Payment Date” has the meaning set forth in Section 10.5.

“Compensatory Payment Statement” has the meaning set forth in Section 10.5.

“Complete Taking” means the Condemnation of all or substantially all of a
Facility or a Condemnation that results in a Facility no longer being capable of
being operated for its Primary Intended Use.

“CON” means, with respect to each Facility, a certificate of need or similar
permit or approval (not including conventional building permits) from a
Governmental Authority related to (i) the construction and/or operation of such
Facility for the use of a specified number of beds in a nursing facility,
assisted living facility, senior independent living facility and/or
rehabilitation hospital, or (ii) the alteration of such Facility or (iii) the
modification of the services provided at such Facility used as a nursing
facility, assisted living facility, senior independent living facility and/or
rehabilitation hospital.

 

Exhibit A-2

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

“Condemnation” means the exercise of any governmental power, whether by legal
proceedings or otherwise, by a Condemnor or a voluntary sale or transfer by
Landlord to any Condemnor, either under threat of condemnation or while legal
proceedings for condemnation are pending.

“Condemnor” means any public or quasi-public authority, or private corporation
or individual, having the power of condemnation.

“Contingent Obligation” means any direct or indirect liability of Tenant:
(i) with respect to any Debt of another Person; (ii) with respect to any undrawn
portion of any letter of credit issued for the account of Tenant as to which
Tenant is otherwise liable for the reimbursement of any drawing; (iii) to make
take-or-pay or similar payments if required regardless of nonperformance by any
other party or parties to an agreement; (iv) claims, liabilities and damages
arising in the Ordinary Course of Business; or (v) for any obligations of
another Person pursuant to any guaranty or pursuant to any agreement to
purchase, repurchase or otherwise acquire any obligation or any property
constituting security therefor, to provide funds for the payment or discharge of
such obligation or to preserve the solvency, financial condition or level of
income of another Person. The amount of any Contingent Obligation shall be equal
to the amount of the obligation so guarantied or otherwise supported or, if not
a fixed and determinable amount, the maximum amount so guarantied or otherwise
supported.

“Control”, together with the correlative terms “Controlled” and “Controls,”
means, as applied to any Person, the possession, directly or indirectly, of the
power to direct the management and policies of that Person, whether through
ownership, voting control, by contract or otherwise.

“CPI” means the United States Department of Labor, Bureau of Labor Statistics
Consumer Price Index for All Urban Wage Earners and Clerical Workers, United
States Average, Subgroup “All Items” (1982—1984 = 100). If the foregoing index
is discontinued or revised during the Term, the governmental index or
computation with which it is replaced shall be used to obtain substantially the
same result as if such index had not been discontinued or revised.

“CPI Increase” means the percentage increase (but not decrease) in (i) the CPI
published for the beginning of each Lease Year, over (ii) the CPI published for
the beginning of the immediately preceding Lease Year.

“Debt” For any Person, without duplication: (i) all indebtedness of such Person
for borrowed money, for amounts drawn under a letter of credit or for the
deferred purchase price of property for which such Person or its assets is
liable; (ii) all unfunded amounts under a loan agreement, letter of credit or
other credit facility for which such Person would be liable if such amounts were
advanced thereunder; (iii) all amounts required to be paid by such Person as a
guaranteed payment to partners or a preferred or special dividend, including any
mandatory redemption of shares or interests; (iv) all indebtedness guaranteed by
such Person, directly or indirectly; (v) all obligations under leases that
constitute capital leases for which such Person is liable; (vi) all obligations
of such Person under interest rate swaps, caps, floors, collars and other
interest hedge agreements, in each case whether such Person is liable
contingently or otherwise, as obligor, guarantor or otherwise, or in respect of
which obligations such Person otherwise assures a creditor against loss;
(vii) off-balance sheet liabilities of such Person; and (viii) obligations
arising under bonus, deferred compensation, incentive compensation or similar
arrangements, other than those arising in the Ordinary Course of Business.

“Environmental Activities” mean, with respect to each Facility, the use,
generation, transportation, handling, discharge, production, treatment, storage,
release or disposal of any Hazardous Materials at any time to or from such
Facility or located on or present on or under such Facility.

 

Exhibit A-3

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

“Environmental Costs” include interest, costs of response, removal, remedial
action, containment, cleanup, investigation, design, engineering and
construction, damages (including actual and consequential damages) for personal
injuries and for injury to, destruction of or loss of property or natural
resources, relocation or replacement costs, penalties, fines, charges or
expenses, attorney’s fees, expert fees, consultation fees, and court costs, and
all amounts paid in investigating, defending or settling any of the foregoing.

“Event of Default” has the meaning set forth in Section 12.1.

“Excess Capital Expenditures Amount” has the meaning set forth in Section 6.6.

“Expiration Date” means the Initial Expiration Date, as may be extended pursuant
to Section 1.4.

“Extension Notice” has the meaning set forth in Section 1.4.

“Extension Term” has the meaning set forth in Section 1.4.

“Facility” means each healthcare facility located on the Premises, as identified
on Schedule 2 attached hereto, including, where the context requires, the Land,
Leased Improvements, Intangibles and Landlord Personal Property associated with
such healthcare facility.

“Facility Default” means an Event of Default that relates directly to one or
more of the Facilities (such as, for example only and without limitation, an
Event of Default arising from a failure to maintain or repair, or to operate for
the Primary Intended Use, or to maintain the required Authorizations for, one or
more of the Facilities), as opposed to an Event of Default that, by its nature,
does not relate directly to any of the Facilities.

“Facility Improvement Fund Cap” means, with respect to any Facility, the amount
equal to the product of: (i) the amount of Landlord’s initial investment in such
Facility, and (ii) twenty percent (20%).

“Facility Mortgage” means any mortgage, deed of trust or other security
agreement or lien encumbering any Facility and securing an indebtedness of
Landlord or any Affiliate of Landlord or any ground, building or similar lease
or other title retention agreement to which any Facility are subject from time
to time.

“Facility Mortgage Documents” means with respect to each Facility Mortgage and
Facility Mortgagee, the applicable Facility Mortgage, loan or credit agreement,
lease, note, collateral assignment instruments, guarantees, indemnity agreements
and other documents or instruments evidencing, securing or otherwise relating to
the loan made, credit extended, lease or other financing vehicle pursuant
thereto. Facility Mortgage Documents shall also include, without limitation, any
documents typically required by any Agency Lender in connection with a Facility
Mortgage, including, but not limited to: (i) tenant regulatory agreements,
(ii) intercreditor agreements with any receivables lender of Tenant, and
(iii) any subordination, assignment, and security agreements.

“Facility Mortgagee” means the holder or beneficiary of a Facility Mortgage and
any other rights of the lender, credit party or lessor under the applicable
Facility Mortgage Documents, including, without limitation, any Agency Lender.

“Facility Removal Date” has the meaning set forth in Section 12.2.6.

 

Exhibit A-4

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

“Facility Termination” has the meaning set forth in Section 13.2.6.

“Fair Market Value” means the fair market value of a Facility as determined
pursuant to Exhibit E.

“Fixtures” means all equipment, machinery, fixtures and other items of real
and/or personal property, including all components thereof, now and hereafter
located in, on, or used in connection with and permanently affixed to or
incorporated into the Leased Improvements, including all furnaces, boilers,
heaters, electrical equipment, heating, plumbing, lighting, ventilating,
refrigerating, incineration, air and water pollution control, waste disposal,
air-cooling and air-conditioning systems, apparatus, sprinkler systems, fire and
theft protection equipment and built-in oxygen and vacuum systems, all of which,
to the greatest extent permitted by law, are hereby deemed to constitute real
estate, together with all replacements, modifications, alterations and additions
thereto.

“GAAP” means generally accepted accounting principles, consistently applied.

“Governmental Authority” means any court, board, agency, commission, bureau,
office or authority or any governmental unit (federal, state, county, district,
municipal, city or otherwise) and any regulatory, administrative or other
subdivision, department or branch of the foregoing, whether now or hereafter in
existence, including, without limitation, CMS, the United States Department of
Health and Human Services, any state licensing agency or any accreditation
agency or other quasi-governmental authority.

“Governmental Payor” means any state or federal health care program providing
medical assistance, health care insurance or other coverage of health care items
or services for eligible individuals, including but not limited to the Medicare
program more fully described in Title XVIII of the Social Security Act (42
U.S.C. §§ 1395 et seq.) and the Medicaid program more fully described in
Title XIX of the Social Security Act (42 U.S.C. §§ 1396 et seq.) and the
regulations promulgated thereunder.

“Guarantor” has the meaning set forth in Section 2.5, together with any and all
permitted successors and assigns of the Guarantor originally named herein and
any additional Person that guaranties the obligations of Tenant hereunder, from
time to time.

“Guaranty” has the meaning set forth in the Recitals to this Agreement.

“Hazardous Materials” mean (i) any petroleum products and/or by-products
(including any fraction thereof), flammable substances, explosives, radioactive
materials, hazardous or toxic wastes, substances or materials, known carcinogens
or any other materials, contaminants or pollutants which pose a hazard to any
Facility or to Persons on or about any Facility or cause any Facility to be in
violation of any Hazardous Materials Laws; (ii) asbestos in any form which is
friable; (iii) urea formaldehyde in foam insulation or any other form;
(iv) transformers or other equipment which contain dielectric fluid containing
levels of polychlorinated biphenyls in excess of fifty (50) parts per million or
any other more restrictive standard then prevailing; (v) medical wastes and
biohazards; (vi) radon gas; and (vii) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any governmental
authority or may or could pose a hazard to the health and safety of the
occupants of any Facility or the owners and/or occupants of property adjacent to
or surrounding any Facility, including, without limitation, any materials or
substances that are listed in the United States Department of Transportation
Hazardous Materials Table (49 CFR 172.101) as amended from time to time.

 

Exhibit A-5

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“Hazardous Materials Laws” mean any laws, ordinances, regulations, rules,
orders, guidelines or policies relating to the environment, health and safety,
Environmental Activities, Hazardous Materials, air and water quality, waste
disposal and other environmental matters.

“Hazardous Materials Claims” mean any and all enforcement, clean-up, removal or
other governmental or regulatory actions or orders threatened, instituted or
completed pursuant to any Hazardous Material Laws, together with all claims made
or threatened by any third party against any Facility, Landlord or Tenant
relating to damage, contribution, cost recovery compensation, loss or injury
resulting from any Hazardous Materials.

“Impositions” means any property (real and personal) and other taxes and
assessments levied or assessed with respect to this Lease, any Facility,
Tenant’s interest therein or Landlord, with respect to any Facility, including,
without limitation, any state or county occupation tax, transaction privilege,
franchise taxes, margin taxes, business privilege, rental tax or other excise
taxes. Notwithstanding the foregoing, Impositions shall not include any local,
state or federal income tax based upon the net income of Landlord and any
transfer tax or stamps arising from Landlord’s transfer of any interest in any
Facility.

“Improvement Funds” has the meaning set forth in Section 6.7.

“Improvement Funds Rate” means a percentage rate equal to the sum of: (i) REIT
Parent’s Weighted Average Cost of Capital on the date of determination, plus
(ii) a market supported minimum spread reasonably and mutually acceptable to
both Landlord and Tenant.

“Initial Expiration Date” has the meaning set forth in Section 1.4.

“Initial Term” has the meaning set forth in Section 1.4.

“Insurance Requirements” mean all terms of any insurance policy required by this
Lease and all requirements of the issuer of any such policy, together with all
fire underwriters’ regulations promulgated from time to time.

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

“Land” means, individually and collectively, the real property described in
Exhibit B attached to this Lease.

“Landlord” has the meaning set forth in the opening preamble, together with any
and all successors and assigns of the Landlord originally named herein.

 

Exhibit A-6

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

“Landlord Personal Property” means the machinery, equipment, furniture and other
personal property described in Exhibit C attached to this Lease, together with
all replacements, modifications, alterations and substitutes thereof (whether or
not constituting an upgrade).

“Landlord Indemnified Parties” means Landlord’s Affiliates and Landlord’s and
its Affiliates’ agents, employees, owners, partners, members, managers,
contractors, representatives, consultants, attorneys, auditors, officers and
directors.

“Landlord’s Representatives” means Landlord’s agents, employees, contractors,
consultants, attorneys, auditors, architects and other representatives.

“Lease” has the meaning set forth in the opening preamble.

“Lease Year” means each successive period of twelve (12) calendar months during
the Term, commencing as of the same day and month (but not year, except in the
case of the first (1st) Lease Year) as the Commencement Date.

“Leased Improvements” means all buildings, structures and other improvements of
every kind now or hereafter located on the Land including, alleyways and
connecting tunnels, sidewalks, utility pipes, conduits, and lines (on-site and
off-site to the extent Landlord has obtained any interest in the same), parking
areas and roadways appurtenant to such buildings and structures.

“Legal Requirements” means all federal, state, county, municipal and other
governmental statutes, laws (including common law and Hazardous Materials Laws),
rules, policies, guidance, codes, orders, regulations, ordinances, permits,
licenses, covenants, conditions, restrictions, judgments, decrees and
injunctions applicable to Tenant or affecting any Facility or the applicable
Tenant Personal Property or the maintenance, construction, use, condition,
operation or alteration thereof, whether now or hereafter enacted and in force,
including, any and all of the foregoing that relate to the use of each Facility
for its Primary Intended Use.

“Licensing Impairment” means, with respect to each Facility, (i) the revocation,
suspension or non-renewal of any Authorization, (ii) any material withholding,
non-payment, reduction or other adverse change respecting any Provider
Agreement, (iii) any admissions hold under any Provider Agreement, or (iv) any
other act or outcome similar to the foregoing that would have a material adverse
effect on Tenant’s ability to continue to operate such Facility for its Primary
Intended Use or to receive any rents or profits therefrom.

“Limited Remedy Event of Default” has the meaning set forth in Section 12.2.6.

“Limited Termination Election” has the meaning set forth in Section 12.2.6.

“Losses” mean all claims, demands, expenses, actions, judgments, damages,
penalties, fines, liabilities, losses of every kind and nature (including
without limitation losses of use or economic benefit or diminution in value),
suits, administrative proceedings, costs and fees, including, without
limitation, reasonable attorneys’ and reasonable consultants’ fees and expenses.

“LRED Damages” has the meaning set forth in Section 12.2.6.

“Material Alterations” mean any Alterations that (i) would materially enlarge or
reduce the size of the applicable Facility, (ii) would tie in or connect with
any improvements on property adjacent to the applicable Land, or (iii) would
affect the structural components of the applicable Facility or the main
electrical, mechanical, plumbing, elevator or ventilating and air conditioning
systems for such Facility in any material respect.

 

Exhibit A-7

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

“Maintenance Expenditures” means, with respect to each Facility, repairs,
replacements and improvements to such Facility (other than the Landlord Personal
Property) that have been completed in a good, workmanlike and lien free fashion
and in compliance with all Legal Requirements and the terms of Sections 6.4 and
6.5 applicable to any Alterations.

“Maintenance Expenditures Report” has the meaning set forth in Section 6.6.1.

“Minimum Aggregate Maintenance Amount” has the meaning set forth in
Section 6.6.1.

“Minimum Rent Coverage Ratio” shall mean a Portfolio Coverage Ratio of 1.20 to
1.00.

“Nonsolicitation Period” means the period commencing on the date this lease is
terminated and ending the date that is six (6) months following the expiration
of the Term.

“Occurrence Date” has the meaning set forth in Section 12.2.6.

“OFAC” has the meaning set forth in Section 9.2.1.

“Operational Transfer” has the meaning set forth in Section 13.2.1.

“Ordinary Course of Business” means in respect of any transaction involving
Tenant, the ordinary course of business of Tenant, as conducted by Tenant in
accordance with past practices. In respect of any transaction involving a
Facility or the operations thereof, the ordinary course of operations for such
Facility, as conducted by Tenant in accordance with past practices.

“Overage Amount” has the meaning set forth in Section 6.6.1.

“Partial Taking” means any Condemnation of a Facility or any portion thereof
that is not a Complete Taking.

“Payment Date” means any due date for the payment of the installments of Base
Rent or any other sums payable under this Lease.

“Permitted Contingent Obligations” means each of the following: (i) Contingent
Obligations arising in respect of Tenant’s obligations under this Lease;
(ii) Contingent Obligations resulting from endorsements for collection or
deposit in the Ordinary Course of Business; (iii) Contingent Obligations
incurred in the Ordinary Course of Business, including, without limitation,
Contingent Obligations with respect to debt financing issued or incurred by the
Guarantor; (iv) Contingent Obligations arising with respect to customary
indemnification obligations in favor of purchasers in connection with
dispositions of personal property assets permitted under this Lease; and
(v) other Contingent Obligations not permitted by clauses (i) through
(iv) above, not to exceed, with respect to each Tenant, $100,000 in the
aggregate at any time outstanding.

“Permitted Debt” means of the following: (i) the obligations of Tenant under
this Lease, and (ii), any financing arising and paid on a timely basis in the
Ordinary Course of Business other than leasehold financing, including, without
limitation, Permitted Contingent Obligations.

 

Exhibit A-8

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

“Permitted Encumbrances” means, with respect to each Facility, collectively,
(i) all easements, covenants, conditions, restrictions, agreements and other
matters with respect to such Facility that (a) are of record as of the
Commencement Date, (b) Landlord entered into after the Commencement Date
(subject to the terms hereof); or (c) are specifically consented to in writing
by Landlord, (ii) any liens for Impositions that are not yet due and payable;
(iii) occupancy rights of residents and patients of such Facility; and
(iv) liens of mechanics, laborers, materialman, suppliers or vendors for sums
not yet due, provided that such reserve or other appropriate provisions as shall
be required by law or GAAP or pursuant to prudent commercial practices shall
have been made therefor.

“Person” means any individual, partnership, association, corporation, limited
liability company or other entity.

“Plans and Specifications” has the meaning set forth in Section 6.5.1.

“Portfolio Coverage Ratio” means, as determined on a Testing Date based on the
applicable period of determination or measurement, the ratio of (i) the Cash
Flow for all of the Facilities for the applicable period to (ii) Base Rent
payments relating to such Facilities payable under this Lease for the applicable
period.

“Post-Casualty Facility” has the meaning set forth in Section 10.5.

“Premises” means, collectively, the Land, Leased Improvements, Related Rights,
Fixtures, Intangibles and Landlord Personal Property.

“Premises Condition Report” has the meaning set forth in Section 6.2.

“Primary Intended Use” means, as to each Facility, the type of healthcare
facility corresponding to such Facility as shown on Schedule 2 attached hereto,
with no less than the number of licensed beds as shown on Schedule 2 and for
ancillary services relating thereto.

“Prime Rate” means, on any date, a rate equal to the annual rate on such date
reported in The Wall Street Journal to be the “prime rate.”

“Prohibited Persons” has the meanings set forth in Section 9.2.1.

“Provider Agreements” means any agreements issued to or held by Tenant pursuant
to which any Facility is licensed, certified, approved or eligible to receive
reimbursement under any Third Party Payor Program.

“Real Property Impositions” mean any real property Impositions secured by a lien
encumbering any Facility or any portion thereof.

“Reimbursement Period” has the meaning set forth in Section 13.2.5.

“Related Rights” means all easements, rights and appurtenances relating to the
Land and the Leased Improvements.

“REIT Parent” means CareTrust REIT, Inc., a Maryland corporation.

 

Exhibit A-9

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

“REIT Parent Weighted Average Cost of Capital” means the weighted average cost
of the debt and equity capital of REIT Parent for the ninety (90) day period
immediately preceding the date of determination. Such weighted average cost of
capital shall be determined by taking into account the proportional relevance of
each of the following components based upon the targeted capital structure of
REIT Parent as of the date of determination: (i) the cost of common equity,
which is equal to the twelve (12) month forward funds from operation per share
consensus estimate divided by the average common stock price for the period of
determination, divided by ninety-five percent (95%); (ii) the cost of preferred
equity, which is equal to the weighted average dividend yield of all outstanding
series of preferred stock; (iii) the cost of debt, which is equal to the ten
(10) year Treasury Rate plus a spread equal to the indicative spread on REIT
Parent’s largest outstanding note plus thirty (30) basis points; and (iv) the
cost of internally generated cash, which is equal to the all-in drawn rate on
REIT Parent’s revolving credit facility.

“Rent” means, collectively, Base Rent and Additional Rent.

“Request for Advance” has the meaning set forth in Section 6.7.

“Required Per Bed Annual Capital Expenditures Amount” means an amount per
licensed bed per Lease Year that Tenant is required to expend on Capital
Expenditures with respect to each Facility, which amount shall be Four Hundred
Dollars ($400).

“Required Reconstruction Approvals” has the meaning set forth in Section 10.5.

“Situs State” means the state or commonwealth where a Facility is located.

“Temporary Taking” means any Condemnation of a Facility or any portion thereof,
whether the same would constitute a Complete Taking or a Partial Taking, where
the Condemnor or its designee uses or occupies such Facility, or any portion
thereof, for no more than twelve consecutive (12) months.

“Tenant” has the meaning set forth in the opening preamble, together with any
and all permitted successors and assigns of the Tenant originally named herein.

“Tenant Personal Property” shall have the meaning set forth in Section 5.1.

“Tenant Sublessees” mean Tenant, and any direct or indirect subtenants or
operator of any Facility, together with their successors and assigns and any
additions thereto or replacements thereof.

“Term” means the Initial Term, plus any duly authorized Extension Terms.

“Terminated Facilities” has the meaning set forth in Section 12.2.6.

“Termination Notice” has the meaning set forth in Section 12.2.6.

“Testing Date” means the date as of which the Portfolio Coverage Ratio shall be
determined for the applicable measurement period, which date shall be the last
day of each calendar quarter during the Term. Upon each Testing Date, the
Portfolio Coverage Ratio shall be determined based upon the twelve trailing
calendar months ending on such Testing Date.

“Third Party Payor Programs” shall mean any third party payor programs pursuant
to which healthcare facilities qualify for payment or reimbursement for medical
or therapeutic care or other goods or services rendered, supplied or
administered to any admittee, occupant, resident or patient by or from any
Governmental Authority, Governmental Payor, bureau, corporation, agency,
commercial insurer, non-public entity, “HMO,” “PPO” or other comparable party.

 

Exhibit A-10

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

“Transfer” means any of the following, whether effectuated directly or
indirectly, through one or more step transactions or tiered transactions,
voluntarily or by operation of law, (i) assigning, conveying, selling, pledging,
mortgaging, hypothecating or otherwise encumbering, transferring or disposing of
all or any part of this Lease or Tenant’s leasehold estate hereunder,
(ii) subletting of all or any part of any Facility; (iii) engaging the services
of any Person for the management or operation of all or any part of any
Facility; (iv) conveying, selling, assigning, transferring, pledging,
hypothecating, encumbering or otherwise disposing of any stock, partnership,
membership or other interests (whether equity or otherwise) in Tenant, Guarantor
or any Person that Controls Tenant or any Guarantor, if such conveyance, sale,
assignment, transfer, pledge, hypothecation, encumbrance or disposition results,
directly or indirectly, in a Change in Control of Tenant or Guarantor (or of
such controlling Person); (v) merging or consolidating Tenant, Guarantor, or any
Person that Controls Tenant or Guarantor with or into any other Person, if such
merger or consolidation, directly or indirectly, results in a Change in Control
of Tenant or Guarantor (or in such controlling Person); (vi) dissolving Tenant
or Guarantor or any Person that Controls Tenant or Guarantor; (vii) selling,
conveying, assigning, or otherwise transferring all or substantially all of the
assets of Tenant, Guarantor or any Person that Controls Tenant or Guarantor;
(viii) selling, conveying, assigning or otherwise transferring any of the assets
of Tenant or Guarantor, if the consolidated net worth of Tenant or Guarantor
immediately following such transaction is not at least equal to the consolidated
net worth of Tenant or Guarantor, as applicable, as of the Commencement Date;
(ix) assigning, conveying, selling, pledging, mortgaging, hypothecating or
otherwise encumbering, transferring or disposing of any Authorization; or
(ix) entering into or permitting to be entered into any agreement or arrangement
to do any of the foregoing or granting any option or other right to any Person
to do any of the foregoing, other than to Landlord under this Lease. For
purposes hereof, Guarantor shall be deemed a Person that Controls Tenant,
whether or not the same is true.

“Transition Notice” shall have the meaning set forth in Section 13.2.1.

 

Exhibit A-11

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

EXHIBIT B

DESCRIPTION OF THE LAND

 

Exhibit B-1

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

EXHIBIT C

THE LANDLORD PERSONAL PROPERTY

All machinery, equipment, furniture and other personal property located at or
about any Facility and that is necessary to own, operate or maintain any
Facility in accordance with the terms of this Lease, together with all
replacements, modifications, alterations and substitutes thereof (whether or not
constituting an upgrade) but excluding the following:

(a) all office supplies, medical supplies, food supplies, housekeeping supplies,
laundry supplies, and inventories and supplies physically on hand at the
Facility;

(b) all customer lists, patient files, and records related to patients (subject
to patient confidentiality privileges) and all books and records with respect to
the operation of the Facility;

(c) all employee time recording devices, proprietary software and discs used in
connection with the operation of the Facility by Tenant or any Person who
manages the operations of any Facility, all employee pagers, employee manuals,
training materials, policies, procedures, and materials related thereto with
respect to the operation of the Facilities; and

(d) all telephone numbers, brochures, pamphlets, flyers, mailers, and other
promotional materials related to the marketing and advertising of the Tenant’s
business at the Facility.

 

Exhibit C

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

EXHIBIT D

FINANCIAL, MANAGEMENT AND REGULATORY REPORTS

FINANCIAL REPORTING

 

 

  •   Quarterly Financial Reporting:

 

  •   No later than 60 days after the end of each fiscal quarter of Tenant,
Tenant shall deliver to Landlord, presented on a consolidated, quarterly and
year-to-date unaudited financial statements prepared for the applicable quarter
with respect to Guarantor. Such reports shall include:

 

  •   A consolidated balance sheet as of the end of such fiscal quarter;

 

  •   Related consolidated statements of income;

 

  •   A consolidated statement setting forth in reasonable detail the
calculation and Tenant’s compliance with each of the covenants set forth in
Section 5.12 of this Lease for the applicable fiscal quarter; and

 

  •   A consolidating Facility-by-Facility basis statement of income and related
operating status (including occupancy and skilled mix).

 

  •   Together with its delivery to Landlord of the quarterly financial reports
and statements required hereunder, Tenant shall deliver, or cause to be
delivered, to Landlord, an Officer’s Certificate (for Tenant and a separate
Officer’s Certificate (from an officer of any Guarantor) for any financial
reports of statements of Guarantor) certifying that the foregoing statements and
reports are true and correct and were prepared in accordance with GAAP, applied
on a consistent basis, subject to changes resulting from audit and normal
year-end audit adjustments.

 

  •   Annual Financial Reporting: As soon as available, and in any event within
90 days after the close of each fiscal year of Tenant, Tenant shall deliver to
Landlord, presented on a consolidated basis, financial statements prepared for
such fiscal year with respect to Guarantor, including a balance sheet and
operating statement as of the end of such fiscal year, together with related
statements of income and members’, partners’, or owners’ capital for such fiscal
year.

 

  •   The annual financial statements delivered by Guarantor hereunder, shall
have been audited by an independent certified public accounting firm reasonably
satisfactory to Landlord, whose opinion shall be to the effect that such
financial statements have been prepared in accordance with GAAP, applied on a
consistent basis, and shall not be qualified as to the scope of the audit or as
to the status of any Tenant or Guarantor as a going concern.

 

  •  

Audit and Other Inspection Rights: Without limitation of Tenant’s other
obligations as set forth in this Lease or this Exhibit D, Landlord shall have
the right, from time to time and at its expense (unless an Event of Default
exists, in which case Tenant shall, within ten (10) days after demand therefor,
reimburse Landlord for any and all costs and expenses incurred by Landlord in
connection with exercising its rights under this paragraph), to audit and
inspect the books, records and accounts of Tenant or any Guarantor and/or
relative to any Facility(ies) designated by Landlord from time to time,
provided, however, that, (a) if no Event of Default exists, Landlord

 

Exhibit D-1

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

 

shall give Tenant not less than thirty (30) days advance written notice of the
commencement of any such inspection and (b) Landlord shall not require or
perform any act that would cause Tenant or any Guarantor to violate any laws,
regulations or ordinances relating to employment records or that protect the
privacy rights of Tenant’s or Guarantor’s employees, healthcare patients or
residents. Tenant shall reasonably cooperate (and shall cause its independent
accountants and other financial advisors to reasonably cooperate) with all such
inspections. Such inspections shall be conducted in a manner that does not
materially interfere with Tenant’s business operations or the business
operations relative to any affected Facility(ies). Unless otherwise agreed in
writing by Landlord and Tenant, such inspections shall occur during normal
business hours.

 

  •   Method of Delivery: All financial statements, reports, data and other
information required to be delivered by Tenant (or Guarantor) pursuant hereto
shall be delivered via email to such email address as Landlord may designate
from time to time and shall be in the format and otherwise in the form required
pursuant to Section 5.7; provided that the timely filing of any such reports
with the SEC shall be deemed delivery to Landlord hereunder.

REGULATORY REPORTING

 

  •   Regulatory Reports with respect to each Facility: Within thirty (30) days
after Tenant’s receipt, Tenant shall deliver to Landlord by written notice the
following regulatory reports with respect to each Facility:

 

  •   If applicable, and upon request of Landlord, Medicaid cost reports for the
Facility within ten days after filing of the report with the State agency, and
with respect to surveys with a G tag or higher, any State and federal health
care survey and inspection reports, inspector exit interview notes and report,
plans of correction, re-survey reports, evidence of annual license renewal,
HIPDB adverse action report, notice of any investigation, inspection or survey
by licensing authorities, notice of licensure deficiencies or admissions ban,
issuance of a provisional or temporary license and all correspondence regarding
any of the foregoing for each Facility – within thirty (30) days after receipt
by Tenant.

 

  •   Reports of Regulatory Violations: Within two (2) Business Days after
Tenant’s receipt of any of the following, Tenant shall deliver to Landlord by
written notice copies of the same along with all related documentation:

 

  •   Any suspension, termination or restriction (including immediate jeopardy)
placed upon Tenant (or Guarantor) or any Facility, the operation of any Facility
or the ability to admit residents or patients; or

 

  •   The inclusion of any Facility on the “Special Focus List” maintained by
CMS.

ANNUAL BUDGETS

 

 

  •   Annual Budgets: At least sixty (60) days after commencement of each
calendar year of Tenant during the Term, Tenant shall deliver to Landlord an
annual operating budget (on an EBITDAR basis) covering the operations of each
Facility for the forthcoming calendar year, which budget shall include
month-to-month projections.

 

Exhibit D-2

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

EXHIBIT E

FAIR MARKET VALUE

If it becomes necessary to determine the Fair Market Value of the Premises or
any individual Facility for any purpose under this Lease, Landlord and Tenant
shall first attempt to agree on such Fair Market Value. If Landlord and Tenant
are unable to so agree within a reasonable period of time not to exceed thirty
(30) days, then Landlord and Tenant shall have twenty (20) days to attempt to
agree upon a single Appraiser to make such determination. If the parties so
agree upon a single Appraiser, such Appraiser shall, within forty-five (45) days
of being engaged, determine the Fair Market Value as of the relevant date
(giving effect to the impact, if any, of inflation from the date of its decision
to the relevant date), and such determination shall be final and binding upon
the parties.

If Landlord and Tenant are unable to agree upon a single Appraiser within such
twenty (20) days, then each party shall have ten (10) days in which to provide
the other with the name of a person selected to act as Appraiser on its behalf.
Each such Appraiser shall, within forty-five (45) days of being engaged,
determine the Fair Market Value as of the relevant date (giving effect to the
impact, if any, of inflation from the date of its decision to the relevant
date). If the difference between the amounts so determined does not exceed ten
percent (10%) of the lesser of such amounts, then the Fair Market Value shall be
the average of the amounts so determined, and such average shall be final and
binding upon the parties. If the difference between the amounts so determined
exceeds ten percent (10%) of the lesser of such amounts, then such two
Appraisers shall have twenty (20) days to appoint a third Appraiser. If the
first Appraisers fail to appoint a third Appraiser within such twenty (20) days,
either Landlord or Tenant may apply to any court having jurisdiction to have
such appointment made by such court. Such third Appraiser, shall, within
forty-five (45) days of being selected or appointed, determine the Fair Market
Value as of the relevant date (giving effect to the impact, if any, of inflation
from the date of its decision to the relevant date). The determination of the
Appraiser which differs most in terms of dollar amount from the determinations
of the other two Appraisers shall be excluded, and the Fair Market Value shall
be the average of the amounts of the two remaining determinations, and such
average shall be final and binding upon the parties.

If either party fails to select an Appraiser within such ten (10) days or a
selected Appraiser fails to make its determination within such forty-five
(45) days, the Appraiser selected by the other party or the Appraiser that makes
its determination with such forty-five (45) days, as applicable, shall alone
determine the Fair Market Value as of the relevant date (giving effect to the
impact, if any, of inflation from the date of its decision to the relevant date)
and such determination shall be final and binding upon the parties.

Landlord and Tenant shall each pay the fees and expenses of the Appraiser
appointed by it and each shall pay one-half ( 1⁄2) of the fees and expenses of
the third Appraiser.

For purposes of determining the Fair Market Value, the Premises or the
applicable Facility, as applicable, shall be valued at its highest and best use
which shall be presumed to be as a fully-permitted facility operated in
accordance with the provisions of this Lease. In addition, the following
specific matters shall be factored in or out, as appropriate, in determining the
Fair Market Value:

1. The negative value of (a) any deferred maintenance or other items of repair
or replacement of the Premises or the applicable Facility, (b) any then current
or prior licensure or certification violations and/or admissions holds and
(c) any other breach or failure of Tenant to perform or observe its obligations
hereunder shall not be taken into account; rather, the Premises or the
applicable Facility, and every part thereof shall be deemed to be in the
condition required by this Lease (i.e., in good order and repair and fully
licensed) and Tenant shall at all times be deemed to have operated the same in
compliance with and to have performed all obligations of the Tenant under this
Lease.

 

Exhibit E-1

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

2. The occupancy level of the Premises shall be deemed to be the average
occupancy during the period commencing on that date which is eighteen
(18) months prior to the date of the initial request for the determination of
the Fair Market Value, and ending on the date which is six (6) months prior to
the date of the initial request for the determination of the Fair Market Value,
as the case may be.

As used herein, “Appraiser” means an appraiser licensed or otherwise qualified
to do business in the applicable Situs State and who has substantial experience
in performing appraisals of facilities similar to the Premises and holds the
Appraisal Institute’s MAI designation, or, if such organization no longer exists
or certifies appraisers, such successor organization or such other organization
as is approved by Landlord.

 

Exhibit E-2

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

SCHEDULE 1

LANDLORD ENTITIES

 

Schedule 1

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

SCHEDULE 2

TENANT ENTITIES; FACILITY INFORMATION

 

Tenant   Facility Name   Facility Address    Primary Intended Use    No. of
Beds/Units                                                                      
                                                                               
                                                                               
                                                                               
                                                                               

Defined Terms

 

“SNF”    Skilled Nursing Facility “ALF”    Assisted Living Facility “ILF”   
Independent Living Facility “ALZ”    Alzheimer’s Care/Memory Care Facility

 

Schedule 2

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

SCHEDULE 3

TENANT OWNERSHIP STRUCTURE

 

Schedule 3

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

SCHEDULE 4

FORM OF REQUEST FOR ADVANCE

Request for Advance

c/o [LANDLORD ENTITY NAME]

______________________

______________________

Attention: Lease Administration

Reference: [TENANT NAME]; Improvement Funds

To Whom It May Concern:

Reference is hereby made to that certain Master Lease dated effective as of
[                    ], by and among [                                ], as
“Tenant”, and [                                ], as “Landlord”(as amended,
modified or revised, the “Lease”). Capitalized terms used but not otherwise
defined herein shall have the meanings given them in the Lease.

1. Pursuant to Section 6.7 of the Lease, Tenant hereby submits this request for
advance (“Request for Advance”) and requests that Landlord make an advance (an
“Advance”) to Tenant of the Improvement Funds in an amount equal to
$                    .

 

2. Tenant requests that such Advance be made available on             , 201    .

3. The aggregate amount of all outstanding Advances as of the date hereof and as
of the date of the making of the requested Advance (after taking into account
the amount of such Advance) does not exceed the Facility Improvement Fund Cap
for the applicable Facility.

4. Attached hereto are true, correct, and complete copies of the items required
pursuant to Section 6.7 of the Lease to be submitted by Tenant to Landlord in
connection with the requested Advance.

5. Tenant hereby certifies to Landlord as of the date hereof and as of the date
of making of the requested Advance (after taking into effect such Advance) that:

(A) No Event of Default exists or will exist under the Lease and no default
beyond any applicable cure period exists or will exist under any of the
documents executed by Tenant in connection with the Lease.

(B) Tenant has complied in all material respects with all duties and obligations
required to date to be carried out and performed by it pursuant to the terms of
the Section 6.7 of the Lease. All conditions precedent set forth in Section 6.7
to the making of the Advance have been satisfied.

(C) All Advances previously disbursed have been used for the purposes set forth
in Section 6.7 of the Lease and in the Request for Advance applicable to any
such Advance.

(D) All outstanding claims for labor, materials, and/or services furnished prior
to the period covered by this Request for Advance have been paid or will be paid
from the proceeds of this Advance, except to the extent the same are being duly
contested in accordance with the terms of the Lease.

 

Schedule 4-1

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(E) The Advance requested hereby will be used solely for the purpose of paying
costs of the Capital Alterations as shown on the attached report and no portion
of the Advance requested hereunder has been the basis for any prior Advance.

(F) There are no liens outstanding against the Premises (or any portion thereof)
or its equipment other than liens, if any, which have been disclosed in writing
to Landlord that are being duly contested in accordance with the terms of the
Lease.

(G) All representations and warranties of Tenant contained in the Lease are true
and correct in all material respects as of the date hereof.

The undersigned certifies that the statements made in this Request for Advance
and any documents submitted herewith are true and correct.

TENANT:

                                         ,

a(n)                                 

 

By:     Name:     Title:    

 

Schedule 4-2